China taxes oil companies to put in spill response fund

Apr 09, 2022 News

Kaieteur News – The United States of America’s (USA) environmental legislation requires the taxing of crude, the revenues of which are then placed into an Oil Spill Liability Trust Fund (OSLTF). But America is not the only nation that does this. China also has a similar arrangement in place with the China Oil Pollution Compensation Fund (COPC Fund).
The COPC Fund is maintained by contributions from oil cargo owners in China, pursuant to the 2010 Regulation of People’s Republic of China (RPC) on the Prevention and Control of Marine Pollution from Ships.

(From left) CNOOC Petroleum Guyana Limited, President, Liu Xiaoxiang and ExxonMobil Guyana President, Alistair Routledge.

According to information obtained, a levy per tonne is applied against cargoes of persistent oil substances and collected from receivers of persistent oil in Chinese waters. Persistent oil includes: crude oil, fuel oil, heavy diesel oil, lubricating oil and other persistent hydrocarbon mineral oil.
Notably, there is a process before money can be accessed from that fund. In fact, all claims against the COPC Fund must first pass through China’s local courts against the responsible ship or the insurer or guarantor.
The COPC Fund responds to damages awarded by the court that cannot be recovered from the responsible ship, such as when an owner is bankrupt, when the responsible ship cannot be identified, or when the damages claimed exceed any limitation or exemption available to the owners.
However, any claims against the COPC Fund must be submitted within three years from the date of the damage, but always within six years from the polluting incident.
Also, a limit of RMB 30 million (US$4,713,201) applies for any one incident with a proportionate allotment of all claims should the damages exceed this limit.
According to China media reports, between July 1, 2012 and May 30, 2015 the Fund built-up reserves of approximately RMB 318.16 million (US$49,985,074) for claim payments. It was stated that that claims from 14 oil pollution incidents, amounted to RMB 165.65 million (US$26,024,728).
Like China, in order to quickly mitigate the devastating impact of an oil spill, the US Environmental Protection Agency (EPA) has a trust fund financed by a tax on oil that is available to clean up spills when the responsible party is incapable or unwilling to do so.
According to the U.S Oil Pollution Act (OPA) of 1990 the owner or operator [responsible party] of a facility from which oil is discharged is liable for the costs associated with the: containment, cleanup, and damages resulting from the spill.
The US Oil Spill Liability Trust Fund (OSLTF) is a trust fund managed by the Federal government, primarily by the U.S. Coast Guard, and financed by a per-barrel tax on crude oil produced domestically in the U.S and on petroleum products imported to the U.S for consumption.
The fund was created in 1986, but use of the fund was not authorized until the Oil Pollution Act’s passage in 1990. The funds may be used to cover the cost of federal, tribal, state, and claimant oil spill removal actions and damage assessments as well as unpaid liability and damages claims.
Notably, no more than US$1B may be withdrawn from the fund per spill incident, including up to US$500M for the initiation of natural resource damage assessments and claims in connection with any single incident.
While the US and China have their oil spill trust fund to cater for an oil disaster – Guyana on the other hand continues to allow American oil giant, ExxonMobil Guyana and its partners, China National Offshore Oil Corporation (CNOOC), and Hess Corporation to operate offshore with only limited liability insurance, in the event of an inevitable oil spill.
In fact, the Head of Esso Exploration and Production Guyana Limited (EEPGL), Alistair Routledge, had defend the size of the insurance policy provided by the ExxonMobil subsidiary which has been the Operator of the oil rich Stabroek Block since 1999. Despite the company milking multi-billion dollar profits from Guyana’s oil wealth – Routledge defended the limited liability insurance of US$2B EEPGL is throwing at Guyana.
Three of the oil company’s operations, Liza One, Liza Two and Payara have been granted approval without proper insurance guarantees in place from the parent company. Guyana’s Environmental Protection Agency (EPA) recently granted approval to the company’s fourth project at the Yellowtail field.
For that project, EEPGL is held liable for all costs associated with clean up, restoration and compensation for any pollution damage, which may occur as a consequence of the project. It also requires a Parent Company/Affiliate Guarantee Agreement, which indemnifies and keeps indemnified the EPA and the Government of Guyana in the event EEPGL and its Co-Venturers fail to meet their environmental obligations under the Permit.
Notably, according to the deal Guyana’s government signed onto, the oil company pays no tax but the company’s taxes is being paid by Guyana. Kaieteur News Publisher, Glenn Lall, in an historic move, had filed a case in Guyana’s High Court, which challenges some of the most repressive tax provisions of the Stabroek Block Production Sharing Agreement (PSA) with Exxon and its partners, Hess Corporation and CNOOC Petroleum Guyana Limited.