BP’s Dumb Investors

 

View From UK

BP's Dumb Investors

Call me a hard-hearted bastard, but I'm finding it difficult to summon up the sympathy demanded by the institutional investors now threatening to sue BP.

George Monbiot

Call me a hard-hearted bastard, but I'm finding it difficult to summon up the sympathy demanded by the institutional investors now threatening to sue BP. They claim that the company inflated its share price by misrepresenting its safety record(1). I don't know whether this is true, but I do know that the investors did all they could not to find out. They have just been presented with the bill for the years they spent shouting down anyone who questioned the company.

They might not have been warned by BP, but they were warned repeatedly by environmental groups and ethical investment funds. Every year, at BP's annual general meetings, they were invited to ask the firm to provide more information about the environmental and social risks it was taking. Every year they voted instead for BP to keep them in the dark. While relying on this company for a disproportionate share of their income (BP pays 12% of all UK firms' dividends), they refused to hold it to account.

It's not as if the warning signs were hard to spot. One of them is splashed across the front page of BP's 2009 annual review: the title is "Operating at the Energy Frontiers"(2). Like all multinational oil companies, BP has been shut out of the easy fields by the decline of its old reserves and the rising power of state-owned companies. So, to keep the money flowing, BP takes risks that other companies won't contemplate. "Risk", the review states, "remains a key issue for every business, but at BP it is fundamental to what we do. We operate at the frontiers of the energy industry, in an environment where attitude to risk is key … We continue to show our ability to take on and manage risk, doing the difficult things that others either can't do or choose not to do."(3)

Among the risky situations that BP claimed to have mastered was deepwater drilling: "we are exceptionally well placed to sustain our success in the deepwater Gulf of Mexico over the long term." But the risk here was scarcely higher than on the other frontiers. It is now producing oil from the Rumaila field in Iraq, as a result of a contract agreed in controversial circumstances. It has recently started shipping liquefied natural gas out of the Tangguh project in West Papua. The licence was provided by the Indonesian government, which brutally annexed the country to which the gas belongs, and committed genocide there(4). If West Papua achieves independence, BP will have a lot of explaining to do.

It is pouring money into deepwater oil off the coast of Brazil, and ultra-deepwater drilling off the coast of Angola(5). Having previously refused to invest in Canadian tar sands on the grounds of ecological risk, in 2007 it reversed this position, plunging into the world's biggest environmental battleground. Its pipeline across Alaska keeps leaking oil into sensitive habitats(6). Its pipeline between Azerbaijan and Turkey was built with the help of land seizures(7) and a contract which effectively grants BP executive power over the Turkish government(8). For how long will that be allowed to stand?

According to a response it sent to a group of ethical shareholders earlier this year, BP appears to have based its expectations of future earnings on unconstrained energy demand. The figures for world energy growth it cited come from the International Energy Agency's reference scenario, which the agency defines as "a baseline picture of how global energy markets would evolve if governments make no changes to their existing policies and measures"(9,10). The IEA predicts that this unconstrained demand would lead to six degrees of global warming. If governments do decide to take climate change seriously (and the Deepwater Horizon spill gives Barack Obama leverage on this issue that he didn't possess before), BP's expectations become as realistic as Gordon Brown's prediction of uninterrupted economic growth.

The question was not whether one of these risks would materialise, but which and when. The question is unchanged. The next disaster will happen sooner or later, but whether it will take place in Angola or Alaska or somewhere in between is anyone's guess. What BP presents as brave and visionary looks to its victims like a brazen disregard of life and livelihoods. Its expectations of future profit were based on the assumption - which until now has proved relatively safe - that other people would pick up the bill.

In 2002, after one of its analysts conducted his own research into the safety risks that BP was taking in Alaska, Henderson Global Investors dropped BP from its socially responsible investment funds (this begs the question of what it was doing there in the first place, but never mind)(11). Henderson published its decision and the result was a stampede out of BP stocks by … nobody. The other investment companies chose to ignore Henderson's warning and rely instead on the oil firm's assurances.

Far from viewing BP and the other oil companies as risky options, the institutional investors have treated them as foundation stocks: boring, dependable investments. As James Marriott of the pressure group Platform points out, part of the reason is that they expected governments to step up and defend any oil company that got itself into trouble: even, if necessary, to go to war on its behalf. They were seldom disappointed - until now.

So whenever greens or ethical investors warned them about BP's cavalier behaviour, instead of thanking them, the big fund managers reacted with hostility. On 15 April, five days before the Deepwater Horizon explosion, a group of investors led by Co-operative Asset Management tabled a resolution at BP's AGM requesting more disclosure of the risks it was running in its tar sands operations(12). It was one of the most successful ethical resolutions ever, but all that means is that funds holding 15% of the shares either supported it or abstained. The other 85% supported the company's right to keep bamboozling them.

As a report last year by FairPensions warned, pension funds typically delegate the responsibility for assessing environmental and social risk to fund managers(13). The fund managers are either unwilling or unable to discharge it, explaining that the pension funds don't press them. FairPensions surveyed the UK's 30 leading occupational schemes, with dire results. Only five funds published their voting records; just six had signed up to the UN's Principles of Responsible Investment. Even funds representing workers at companies which trumpet their ethical credentials - Aviva, Marks and Spencer and the Co-operative Group - performed dismally. The Universities and BT pension funds did well. The Coal pensions scheme and the IBM, Unilever, BAe and Lloyds TSB funds each scored nought out of 20 for responsible investment(14).

So it's not BP, or not BP alone, which has damaged the pensions of the millions of people whose retirement funds are invested in the company; it's the fund holders now attacking it for deploying the dangerous strategies they endorsed. They have chosen the wrong target: they should be suing themselves.

www.monbiot.com

References:

1. http://www.guardian.co.uk/business/2010/jun/18/bp-class-action-oil-spill-damages
 
2. http://www.bp.com/assets/bp_internet/globalbp/globalbp_uk_english/set_branch/STAGING/common_assets/downloads/pdf/BP_Annual_Review_2009.pdf
3. ibid.
4. http://www.monbiot.com/archives/2005/05/03/in-bed-with-the-killers/
5. Page 14,
http://www.bp.com/assets/bp_internet/globalbp/globalbp_uk_english/set_branch/STAGING/common_assets/downloads/pdf/BP_Annual_Review_2009.pdf
6. http://news.yahoo.com/s/mcclatchy/20100508/sc_mcclatchy/3499283
7. http://www.bakuceyhan.org.uk/publications/turkey_ffm_2004.pdf
8. http://www.bakuceyhan.org.uk/publications/preliminary_legal_analysis_oct_02.pdf
9. http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/set_branch/set_investors/STAGING/local_assets/downloads/pdf/IC_AGM_oil_sands_resolution.pdf
10. Page 4, http://www.worldenergyoutlook.org/docs/weo2009/WEO2009_es_english.pdf
11. http://www.henderson.com/content/sri/publications/statementsletters/bphendersonsociallyrespinvtfunds.pdf
12. http://www.fairpensions.org.uk/tarsands/update
13. http://www.fairpensions.org.uk/sites/default/files/uploaded_files/documents/ResponsiblePensions_2009.pdf
14. ibid.

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The price of honesty

  Pritish Nandy, 
21 June 2010, 11:12 AM IST

Bad news is everywhere. Spiralling cost of food. Terrorist strikes. Police atrocities. Maoist attacks. New bridges collapsing. Scams where thousands lose their life savings. Poaching in sanctuaries. Human rights violations. Farmer suicides. Awful tax laws. Vanishing species. Attacks on schools, colleges, hospitals. Vaccines leading to deaths. Students taking their own lives. Shrinking jobs. Fewer investors. Growing insurgency. Staggering urban poverty. Dangerous pollution levels. Match fixing. Corruption in the army. Mangroves destroyed by builders. Trains blown up.
 
Crime, sleaze, insurgency, poverty, violence, they all start from one source: Corruption. But the Big C is the only thing no one wants to discuss any more. It's so all pervasive, so deeply entrenched that we have all come to believe we have no choice but to live with it. So we are busy trying to tackle other issues. Rahul Gandhi is trying to bring the rural poor back into our political reckoning. Pranab Mukherjee wants to offer us a new tax code. Manmohan Singh is talking about bringing back the billions stashed away by Indians in tax havens overseas. Chidambaram wants to involve the army in the war against Maoists. Jairam Ramesh is keen to rewrite our environment policy. Kapil Sibal is tinkering around with the educational system. Murli Deora is obsessed with increasing fuel prices.
 
What no one figures is that at the heart of all our problems lies Corruption. If India can even tame this monster, forget slaying it, many of these problems will simply disappear. How did the Kashmir problem begin? With the frustrations of local people when they saw greedy politicians loot the State while the Centre turned a blind eye to their complaints. When they showed anger, they were called secessionists and the army was called in to silence them. How did the Maoists gain ground? Because the tribals kept losing their lands and means of livelihood as rapacious politicians drove them out. These lands were then handed over to the mining mafia with whom our leaders shared the loot. How did insurgency rear its head in the North East? Simply because every political party in power grabbed the money sent to develop those states and gave the people nothing. Absolutely nothing.
 
Corruption is a hydra headed monster that has grown so big, so all pervasive that we don't even acknowledge it any more. Want to buy a train ticket? Pay a tout. Want a ration card? Pay a cop. Want a passport? Easy. Go to the passport office. There are guys hanging out there to fix it for you. Want an illegal water connection? Catch a BMC guy off hours. Want an electricity line? Your local slumlord will fix it for a fee. Anything you want, legal or illegal, has a price to it. Including, some say, the Padma Bhushan or a seat in Parliament-- and ofcourse any deal struck with a Government agency. No, I am not saying it. The whole world is saying it today, making a mockery of this great nation.
 
What's worse is that Corruption has reached a level today where it no longer stops at what you want. It involves even what is rightfully yours. Your electricity bill is wrong. Want to get it corrected? Pay a bribe. Your tax refund is due. Pay some speed money if you want your cheque. You have won a Government tender? Great. Now if you don't want the minister to interfere in reversing the deal, go settle with his PA. The system has now started using corruption as a lever to harass us from getting what is rightfully ours. Pensions are held up for years. Fake cases are filed on frivolous grounds. Files mysteriously disappear from Government offices. Some universities don't even give mark sheets for years. You have to pay under the table to get duplicates. Do you have any idea how much our policemen have to pay as bribes to get their postings and promotions? No wonder they try to extort you when they catch you.
 
I am afraid I can go on and on. As a journalist and an MP I have spent years trying to help people get what is denied to them by the corrupt. It's not easy. Sometimes its even dangerous because the corrupt are brilliantly networked. You threaten one guy and twenty others elsewhere jump up and begin harassing you. Cases crop up from nowhere. Demands multiply manyfold. I am frustrated today because, earlier, like millions of other Indians, I had a choice. I had a choice to pay a bribe or not. If I didn't want to, I could fight my way through. It took much longer but it was still do-able.
 
That's no longer true. Our choices have shrunk. We are all prisoners of corruption today. If you refuse to pay a bribe, the whole system falls on your head as if to make an example out of you. If we can't stop this right now, India's problems will only get worse. So will yours and mine. There will be no peace until there's justice. And there will be no justice till the honest are allowed to live honestly.

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Do the Chinese know something more than the dogma driven financial markets and economists?

 

Debt-ridden Greece gets vote of confidence from China

• Chinese sign multibillion euro contracts with Greece
• News come hours after Greek debt downgrade

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Greece's prime minister George Papandreou welcomes Chinese vice-premier Zhang Dejiang who brought good news to the debt-ridden country. Photograph: Louisa Gouliamaki/AFP/Getty Images

Greece's debt-ridden economy has received unexpected endorsement from China as the two countries announced multibillion euro accords to boost cooperation in fields as diverse as shipping, tourism and telecommunications.
The deals, which will see Greek olive oil being exported to China, were a welcome relief for a government smarting over Moody's move hours earlier to downgrade the nation's credit rating to junk.
As investors moved in the other direction, the world's pre-eminent emerging economy embraced Greece. Signing the agreements, China's vice premier Zhang Dejiang not only lauded Athens' efforts to resolve its worst debt crisis in years but gave the eurozone's weakest link a public vote of confidence, declaring it would soon come out of the woods.
"I am convinced that Greece can overcome its current economic difficulties," said the politician who arrived in Athens with 30 of the economic power's leading businessmen. "The Chinese government will encourage Chinese businesses to come to Greece to seek investment opportunities."
Greek officials said the fourteen deals amounted to the biggest single investment by China in Europe. China views Greece as a "perfect gateway" to the continent and Balkan peninsular where Chinese exports have proliferated in recent years.
Under the agreement, Cosco, one of the world's largest container terminal operators, will extend its reach with the construction of up to 15 dry bulk carriers in Greece. The company took over cargo management at Pireaus, the eastern Mediterranean's premier dockyard, on a 35-year concession worth $1bn (£680m) last year.
The Chinese construction company BCEGI also signed an accord, thought to be worth €100m (£830m), to develop a hotel and shopping mall complex in Pireaus.
Other deals include the exchange of know-how between China's Huawei Technologies and the Greek telecoms organization OTE and four agreements signed by food firms to export olive oil to China.
The Chinese are considering buying a stake in the loss-making railway network OSE, which the socialist government has pledged to privatise, as well as building an airport on the island of Crete, a logistics centre north of Athens and a marine theme park, according to Greek finance ministry officials.
"We have discussed other possible investments with them, notably in tourism and infrastructure," the deputy prime minister Theodoros Pangalos said after the signing ceremony.
The deals are all the more surprising because China's experience in Greece has not always been easy. Cosco's bid to take over the day-to-day administration of wharf services at the state-controlled port of Piraeus were initially met with fierce opposition from trade unions led by the ruling socialists. But since assuming power last October, prime minister George Papandreou has executed a U-turn as his government has desperately sought to attract foreign investment to shore up an economy close to bankruptcy.
The debt stricken country's economy has contracted visibly following a draconian austerity programme it has had to enforce as part of an unprecedented €110bn bailout from the International Monetary Fund and eurozone nations.
Cosco's chairman, Wei Jiafu, recently vilified in Greece, is now referred to affectionately by the local media as "Captain Wei." "We have a saying in China, 'construct the eagle's nest, and the eagle will come,'" he said during a visit to Greece last month. "We have constructed such a nest in your country to attract such Chinese eagles. This is our contribution to you."

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Why the Anglo American troops are bent on bringing democracy to Afghanistan?

 

Afghanistan's resources could make it the richest mining region on earth

By Kim Sengupta, Diplomatic Correspondent

Afghanistan, often dismissed in the West as an impoverished and failed state, is sitting on $1 trillion of untapped minerals, according to new calculations from surveys conducted jointly by the Pentagon and the US Geological Survey.


The sheer size of the deposits - including copper, gold, iron and cobalt as well as vast amounts of lithium, a key component in batteries of Western lifestyle staples such as laptops and BlackBerrys - holds out the possibility that Afghanistan, ravaged by decades of conflict, might become one of the most important and lucrative centres of mining in the world.


President Hamid Karzai's spokesman, Waheed Omar, said last night: "I think it's very, very big news for the people of Afghanistan and we hope it will bring the Afghan people together for a cause that will benefit everyone."


In Washington, Pentagon spokesman Colonel David Lapan, told reporters that the economic value of the deposits may be even higher. "There's ... an indication that even the £1 trn figure underestimates what the true potential might be," he said.


According to a Pentagon memo, seen by The New York Times, Afghanistan could become the "Saudi Arabia of lithium", with one location in Ghazni province showing the potential to compete with Bolivia, which, until now, held half the known world reserves.


Developing a mining industry would, of course, be a long-haul process. It would, though, be a massive boost to a country with a gross domestic product of only about $12bn and where the fledgling legitimate commercial sector has been fatally undermined by billions of dollars generated by the world's biggest opium crop.


"There is stunning potential here," General David Petraeus, the US commander in overall charge of the Afghan war, told the US newspaper. "There are lots of ifs, of course, but I think potentially it is hugely significant."


Stan Coats, former Principal Geologist at the British Geographical Survey, who carried out exploration work in Afghanistan for four years, also injected a note of caution. "Considerably more work needs to be carried out before it can be properly called an economic deposit that can be extracted at a profit," he told The Independent. "Much more ground exploration, including drilling, needs to be carried out to prove that these are viable deposits which can be worked."


But, he added, despite the worsening security situation, some regions were safe enough "so there is a lot of scope for further work".


The discovery of the minerals is likely to trigger a commercial form of the "Great Game" for access to energy resources. The Chinese have already won the right to develop the Aynak copper mine in Logar province in the north, and American and European companies have complained about allegedly underhand methods used by Beijing to get contracts.
The existence of the minerals will also raise questions about the real purpose of foreign involvement in the Afghan conflict. Just as many people in Iraq held that the US and British-led invasion of their country was in order to control the oil wealth, Afghans can often be heard griping that the West is after its "hidden" natural treasures. The fact US military officials were on the exploration teams, and the Pentagon was writing mineral memos might feed that cynicism and also motivate the Taliban into fighting more ferociously to keep control of potentially lucrative areas.


Western diplomats were also warning last night that the flow of money from the minerals is likely to fuel endemic corruption in a country where public figures, including Ahmed Wali Karzai, the President's brother, have been accused of making fortunes from the narcotics trade. The Ministry of Mines and Industry, which will control the production of lithium and other natural resources, has been repeatedly associated with malpractice.


Last year US officials accused the minister in charge at the time when the Aynak copper mine rights were given to the Chinese, Mohammed Ibrahim Adel, of taking a $30m bribe. He denied the charge but was sacked by President Karzai.


But last night Jawad Omar, a senior official at the ministry, insisted: "The natural resources of Afghanistan will play a magnificent role in Afghanistan's economic growth. The past five decades have shown that every time new research takes place, it shows our natural reserves are far more than what was previously found. This is a cause for rejoicing, nothing to worry about."


According to The New York Times, the US Geological Survey flew sorties to map Afghanistan's mineral resources in 2007, using an old British bomber equipped with instruments that offered a 3-D profile of deposits below the surface. It was when a Pentagon task force - charged with formulating business development programmes and helping the Afghan government develop relationships with international firms - came upon the geological data in 2009, that the process of calculating the economic values began.


"This really is part and parcel of General [Stanley] McChrystal's counter-insurgency strategy," Colonel Lapan said yesterday. "This is that whole economic arm that we talk about but gets very little attention."

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Mumbai's rail toll tops Bhopal

  S A Aiyar,  13 June 2010, 05:32 AM IST


An outpouring of anger and passion has greeted the conviction of seven former Union Carbide officials for negligence in the Bhopal gas disaster. This caused the immediate death of 3,787 people, and the ultimate death of 15,000 to 20,000 people whose lungs were corroded by the gas.

If this anger and passion results in greater safety and accountability, India will be a more humane and just country. The chances of this happening are zero. India remains basically callous and unaccountable. Tragedies greater than Bhopal are constantly ignored and dismissed as "chalta hai."

Consider Mumbai's suburban rail services. Activist Chetan Kothari used the Right to Information Act to get data on people killed in Mumbai by the Central and Western Railway, which run through the city. Answer: 20,706 people have been killed in the last five years. This is six times as high as Bhopal's 3,787 immediate fatalities and higher than even the long-term fatalities estimated at 15,000-20,000.

On average, over 10 people die every day! If Maoists or Islamist terrorists kill 10 people, that is regarded as sensational news. But if the Mumbai rail system kills the same number every day, it is not even considered news. 

The information obtained by Kothari pertains to just five years, and to just one tiny part of the railways.  Fatalities across the railways for the last two decades could run into lakhs or the equivalent of five or six Bhopals.

A similar RTI exercise is needed for people killed by state electricity boards through uninsulated, loose and dangling electric wires. One estimate of accidental electrocution deaths in the 1980s was more than 3,000 per year. It is probably higher today. Again, this amounts to several Bhopals over the years. Here again we see no public outrage, only "chalta hai".

The Times, the British newspaper, used the RTI to get a break-up of Mumbai fatalities. In 2008, 3,443 out of 4,357 fatalities occurred when trains mowed down people crossing the tracks. As many as 853 fell off or were thrown off moving trains. Another 41 were hit by trackside poles while hanging out of doors, and 21 were electrocuted by overhead wires while travelling on the roof.

Cynics will say this is different from Bhopal: those crossing the tracks and riding on roofs were breaking safety regulations and exposing themselves to danger. But in Bhopal too, the Union Carbide plant was located outside the town, and illegal shanty-towns came up around it, violating safety and urban laws. Does that lessen criticism of the gas leak?

Union Carbide was lambasted for not using the best technology available to avert risks and deaths. But do we castigate the railways for not investing in the best safety technologies, and creating barriers to stop people from crossing the tracks? Union Carbide was slated for negligence in a shutdown plant. But the railways continue to be negligent year after year in a running organization that runs down people.

Many of us howled for justice after Bhopal. Many demanded the arrest of Union Carbide chief Anderson. Those convicted last week included Keshub Mahindra, the non-executive chairman with a largely ceremonial position. How many of us have demanded even the dismissal, let alone conviction, of the railway staff, Railway Board members or railway minister for the continuing holocaust in Mumbai?  The non-executive head of the railways is, formally, the President of India. Has anybody demanded that Pratibha Patil be prosecuted for continuing railway deaths? 

Alas no. The public displays not the slightest concern about our dismal tradition of having unaccountable and unsackable government cadres, who remain in their jobs and get promotions despite the most outrageous negligence.

Let me cite a recent PTI report. "Negligence by railway staff caused nearly half of all train accidents in the country during the last five years, official data has revealed. Of the 1,034 train accidents that have happened during the period 2003-2008, 488 of them, which accounts for 47.2 per cent, have been attributed to negligence by the railway staff, joint director of the safety directorate of the ministry of railways J S Bindra said in reply to an RTI application."

There you have it, from the horse's mouth. Yet none of those yelling for the blood of Union Carbide staff are yelling for the blood of railway officials. And so railway negligence and deaths continue unabated.

NGOs and the media suffer from a terrible double standard. They will pounce on negligence by a multinational, and rightly so. But they act as though the public sector has a licence to kill. That is disgraceful.

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My own views - The BP Oil Spill - Classic case of Negative Externalities

By Girish Menon

BP's (British Petroleum) oil leak off the coast of Louisiana raises a great number of issues that are relevant from an economic point of view:

Firstly it is difficult to estimate what is the actual amount of oil leaking into the sea. Today BP says it is 40,000 barrels / day. So as a sceptic who does not believe company PR statements, it might be higher - how high one wonders.

Secondly, how does one measure the level of the negative externalities involved (Cost Benefit Analysis). The fishermen in a wide region have lost their livelihood, oil exploration on the coast has stopped - so oil workers from non BP firms have lost their jobs,the tourism industry in Florida has been affected. The damage to the ecological environment. The list goes on. Also how many years will it impact the environment is difficult to contemplate.

The ironic part of it was that until recently, BP not mindful of the externalities it has created was getting ready to pay £10 billion in dividend to shareholders. So, it goes to the basic point that BP's profits are high because its production costs never include the negative externalities it creates. And usually the public pays, for the profits of BP shareholders, with cuts in their services since the tax money may be used for cleaning up operations. A classic case of privatisation of profit and socialisation of cost. Similar to the bailout of banks some time ago.

Yet one of the causes of this accident could be inadequate regulation and the desire to cut costs. Health and safety regulation has often been criticised as increasing production costs of firms. Yet those who have blind faith in markets continue to insist on lesser regulation for these oligopolies.

The good thing is that the accident happened off the US coast and forced Obama to take notice. I say good because in 1984 there was the world's largest industrial tragedy in Bhopal, India caused by a now wound up US firm called Union Carbide. Those dead, in hundreds,were paid paltry compensation, the firm's owners have escaped and the place is as poisonous as ever. The Indian government has been bought over by the MNC, which was cheaper than paying for the externalities, and most managers of Union Carbide would die in their homes instead of going to jail for even one day.

So one could conclude that abnormal profits of most firms may include the negative externalities that they may have passed on to the tax payers of that country. Hence there is a greater need to redistribute this wealth.

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The oil firms' profits ignore the real costs

 

The energy industry has long dumped its damage and, like the banks, made scant provision against disaster. Time to pay up

George Monbiot

guardian.co.uk, Monday 7 June 2010 21.00 BST

Has BP ever made a profit? The question looks daft. The oil company posted profits of $26bn last year. There's no doubt that BP has been pumping money into the pockets of its shareholders. The question is whether this money is what the company says it is. BP calls it profit. I call it the provision the firm should be making against future liabilities.


Despite an angry letter from two US senators and a warning from Barack Obama about spending big money on their shareholders while nickel-and-diming coastal people, despite the fact that it has no idea what its total liabilities in the Gulf of Mexico will be, BP seems to be planning to pay a dividend this year. It's likely to amount to more than $10bn. As the two senators noted, by moving money "off the company's books and into investors' pockets", BP "will make it much more difficult to repay the US government and American communities".
Pollution has been defined as a resource in the wrong place. That's also a pretty good description of the company's profits. The great plumes of money that have been bursting out of the company's accounts every year are not BP's to give away. They consist, in part or in whole, of the externalised costs the company has failed to pay, and which the rest of society must carry.


Does this sound familiar? In the 10 years preceding the crash, the banks posted and disposed of stupendous profits. When their risky ventures failed, they discovered that they hadn't made sufficient provision against future costs, and had to go begging from the state. They had classified their annual surplus as profit and given it to their investors and staff long before it was safe to do so.


Last week the British government bumped into another consequence of failing to take future costs into account. Chris Huhne, the new secretary of state for energy and climate change, revealed that nuclear decommissioning liabilities will cost the government £4bn more than it was expecting to pay over the next three years. This will cancel out two-thirds of the vicious cuts the government has announced and swallow most of his department's budget. As Huhne pointed out: "It is a classic example of short-termism. I cannot think of a better example of a failure to take a decision in the short run costing the taxpayer a hell of a lot more in the long run."


The decommissioning costs imposed on society by nuclear power will be dwarfed by those that are imposed by the fossil fuel industry. They include, but are not confined to, the money that will have to be spent on adapting to climate change. The United Nations estimates this cost at $50bn–$170bn a year, but a report last year by British scientists suggested that this is around three times too low, as it counts only a small proportion of likely impacts.


The UN has hired the consultancy Trucost to estimate the costs dumped on the environment by the world's 3,000 biggest public companies. It doesn't report until October, but earlier this year the Guardian published the interim results. Trucost had estimated the damage these companies inflicted on the environment in 2008 at $2.2 trillion, equivalent to one third of their profits for that year. This too is likely to be an underestimate, as the draft report did not try to value the long-term costs of any issue except climate change. Nor did it count the wider social costs of environmental change.


A paper by the New Economics Foundation in 2006 used government estimates of the cost of carbon emissions to calculate the liabilities of Shell and BP. It found that while the two companies had just posted profits of £25bn, they had incurred costs in the same year of £46.5bn. The oil leaking into the Gulf of Mexico from the Deepwater Horizon well is scarcely more damaging, and its eventual impacts scarcely more expensive, than the oil that is captured by neighbouring rigs then processed and burnt as intended.


The total costs imposed by the oil companies, which include the loss of human lives and the extinction of species, cannot be accounted. But even if they could, you shouldn't expect the companies to carry them. They might be incapable of capping their leaks; they are adept at capping their liabilities. The Deepwater Horizon rig, which is owned by Transocean, is registered in the Marshall Islands. Most oil companies pull the same trick: they register their rigs and ships in small countries with weak governments and no international reach. These nations are, in other words, incapable of regulating them.


Flags of convenience signify more than the place of registration: they're an unmistakable sign that responsibilities are being offloaded. If powerful governments were serious about tackling pollution, the first thing they would do would be to force oil companies to register their property in the places where their major interests lie.


US lawyers are drooling over the prospect of what one of them called "the largest tort we've had in this country". Some financial analysts are predicting the death of BP, as the fines and compensation it will have to pay outweigh its earnings. I don't believe a word of it.
ExxonMobil was initially fined $5bn for the Exxon Valdez disaster, in 1989. But its record-breaking profits allowed it to pay record-breaking legal fees: after 19 years of argument it got the fine reduced to $507m. That's equivalent to the profit it made every 10 days last year. Yesterday, after 25 years of deliberations, an Indian court triumphantly convicted Union Carbide India Ltd of causing death by negligence through the Bhopal catastrophe. There was just one catch: Union Carbide India Ltd ceased to exist many years ago. It wound itself up to avoid this outcome, and its liabilities vanished in a puff of poisoned gas.


BP's insurers will take a hit, as will the pension funds which invested so heavily in it; but, though some people are proposing costs of $40bn or even $60bn, I will bet the price of a barrel of crude that the company is still in business 10 years from now. Everything else – the ecosystems it blights, the fishing and tourist industries, a habitable climate – might collapse around it, but BP, like the banks, will be deemed too big to fail. Other people will pick up the costs.


There is an alternative, but it is unlikely to materialise. Just as Norway has treated its oil money not as profit but as provision against a tougher future, so the governments in whose territories oil companies work should force them to pay into a decommissioning fund. The levy should reflect the costs that economists are able to calculate, plus a contingency for those we can't yet foresee.


This would outrage the oil firms, as it would render many of them unprofitable. But there's a simple answer to that: the money currently defined as profit is nothing of the kind.

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