Brazilian Federal Prosecutors File Suit Against Vale, BHP and Samarco for $US43.55 Billion Demanding Immediate Provision of $US2.8 Billion

May 4, 2016  2pm EST  USA

Lindsay Newland Bowker

RIO DE JANEIRO—Brazilian federal prosecutors filed a civil lawsuit on Tuesday demanding that Samarco, BHP, and Vale , the mining companies responsible under Brazilian law  for a catastrophic dam failure on November 5, 2015 pay up to 155 billion reais ($43.55 billion) for cleanup and remediation.

The 359-page lawsuit brought by independent federal prosecutors was the result of a six-month investigation .  Importantly, it also is against state and federal governments. Prosecutors accused the state of Minas Gerais, where the dam collapsed in November 2015, of negligence in its monitoring of the build up of waste and water sludge at the Samarco mine.   Every mine failure is ultimately a failed public private partnership in which miner and permit authority are co -responsible.

If upheld by a judge, the lawsuit would require Brazil’s Vale SA, Anglo-Australian miner BHP Billiton Ltd., and their joint-venture Samarco Mineração to make an initial deposit of 7.7 billion reais to an independent fund responsible for cleaning up the fallout from the Fundão tailings dam collapse on Nov. 5. The accident, the  worst environmental  tailings disaster in recorded history, released an avalanche of 60 million cubic meters of tailings and waters that killed 19 people, destroyed villages and polluted more than 400 miles of rivers before spewing into the Atlantic Ocean weeks later.  The huge plume of suspended wastes has not dispersed as anticipated  and  has returned to the bay  where phyto plankton species, the foundations of ocean health,  have changed dramatically.

Shares in BHP Billiton fell more than 6% in early trading in London.

Prosecutors filing this suit were not signatories  to,  and did not approve, the settlement agreement announced between the mining companies and Brazil’s government in early March. That  deal, the final of which has not been made publicly available,  provides specific minimum payments totaling  9.46 billion reais through 2030 via a foundation run mostly by their own appointees.  The settlement, however, at least in a draft dated days before the final, recognized that actual liabilities could exceed the $us 5.2 billion tentatively estimated as total damages early on after the man made catastrophe.

Shares of both Vale & BHP , after plunging in the wake of the disaster, had  rebounded on news of the settlement . Vale’s stock more than doubled between early February and late April, aided by a rally in iron-ore prices.

However, BHP’s shares slumped 9.5% on Wednesday, underperforming rival iron-ore miner Rio Tinto Ltd. and Australia’s benchmark share index. BHP’s stock is also weighed by weakening global oil prices, which are down more than 5% from their 2016 highs reached last week.

Prosecutors  announcing their action, criticized the deal for not involving victims in negotiations, for failing to establish legal mechanisms to ensure that the mining companies would meet their obligations, and for ignoring the government’s responsibility for the disaster.

“Input from the public prosecutors’ office was not considered by the negotiating parties,” the lawsuit said, adding that the government and companies appeared to be in a hurry to get a deal signed. “This resulted in a settlement that was incomplete, precarious and partial.”

Both the settlement and the prosecutors actions  are governed by Brazilian law which provides strict liability  and joint and several  liability among owners and their co owned operating subsidiary Samarco.  Neither has any bearing on criminal actions pending against Samarco Officials and their consultant VOGBR  who certified the dam  as safe t officials in July 2015.  Neither the agreement nor the prosecutorial action supercedes or overrides any claims individuals or  businesses may assert .

The Brazilian Federal prosecutors amount is not based on any revised estimate of actual total costs for recovery and compensation specific to the Fundao/Santorem damages but on reference to the BP Gulf disaster as a “comparable”

“Based on preliminary studies, the human, economic and socio-environmental impacts caused by the break of the Fundão dam are at least equivalent to those verified in the Gulf of Mexico,” federal prosecutors said in a news release. “It doesn’t seem technically or morally credible that…the human, cultural or environmental value of Brazil should be inferior to that of other countries.”

The $US45B is just a place holder and perhaps  more realistic than the initial estimate of $US5.2B ( which is not the ceiling in the settlement agreement either although referenced.  The draft settlement agreement recognizes that the full loss is non estimable and a good deal of it beyond any concepts of “replacement value” or “replaceable”).
The timing of the settlement announcement was to buoy, Vale and BHP  and give some hope to Samarco debt and bond holders.  At least its anticipation and announcement had  that effect in financial markets  who seem to need to believe that all three companies can survive this economically.
It is certainly a plus for the Public interest that the prosecutors, in taking this action, have spoken to the lack of transparency thus far and to the likelihood of unfair settlement processes if  the process is in Samarco’s control with no informed ( independent) control and direction.
Dislocation and resettlement are almost routine in mining.  It is thought of in the same vein as  displacements that occur for large important public works projects, including urban renewal projects.  Mining thinks of itself and has historically been regulated as if it were an “important public works” machinery.
The subtleties of loss and evaluation of loss in the case of the this largest tailings failure in recorded history of the world, are not within the capacity or culture of Samarco or any miner to assess.  They have a legal and moral duty to pay for whatever  it costs but they have no capacity to actually envision or actualize a fair recovery from the disaster they have caused in their any deviations from best knowledge, best science, best  practice at the Fundao.
The prosecutor has not specifically acknowledged that or shown a full undertstanding of that in this important action in the public interest but through the recognition of the need for transparency and community involvement it may lead to that.
It seems very clear the politics of the settlement agreement were not ever going to lead to that.

About lindsaynewlandbowker

Bowker Associates, Science & Research In The Public Interest, is an independent non profit providing self initiated pro bono analysis on key issues with a potential for massive adverse environmental impact . Bowker Associates has been an internationally recognized and cited voice in analysis of the Samarco failure, its consequence, and the possibilties for recovery. In 2017 we partnered with Daveid M. Chambers, a world leader in responsible mining, in our third joint work on the economics of tailings failures. Bowker, L.N.; Chambers, D.M. In the Dark Shadow of the Supercycle Tailings Failure Risk & Public Liability Reach All Time Highs. Environments 2017, 4, 75. A peer reviewed journal published investigation of the cowboy economics of the supercycle and the resulting escalation on the number and magnitude of catastrophic failures. In 2016 we parnered with Dave Chambers in our 2nd joint work together looking at root causes of failures at a conference . Bowker, L.N.; Chambers, D.M. Root Causes of Tailings Management Failures: The Severity of Consequence of Failures Attributed to Overtopping 1915–2015. In Proceedings of the Protections 2016, Fort Collins, CO, USA, 14 June 2016. [Google Scholar] In 2015 Bowker Associates collaborated with geophysicist David M. Chambers to recompile global authoritative accounts of significant TSF failures in recorded history and to analyze these data in the context of global mining economics 1910-2010 ( Risk, Economics and Public Liability of TSF Failures, Bowker/Chambers July 2015) The third annual update of this globally referenced and used compilation was just released at Researchgate. ( In 2014 Bowker Associates commissioned globally respected geophysicist and hydrogeologist Dr. David Chambers to undertake two technical works: (1) development of technical go no go criteria for vetting mine applications tp:// and (2) a case study of Maine's Bald Mountain, an un mined low grade high risk VMS deposit demonstrating the efficacy and accuracy of two risk assessment tools in vetting mine proposals In Maine, Bowker Associates has deeply engaged and been a public voice in the Searsport DCP LPG Tank, The Cianbro proposal for a Private East West Toll Road, JD Irvings rolling pipeline of Bakken crude to its plant in St. John and review of Phase II plans at The Callahan Superfund site in Brooksville, Maine, and Maine's revisitation of mining in statute and regulation... Our only “client”: is always “the pubic interest”. Our model is to focus on only one or two issues at a time so that we have a substantive command of the relevant field as our foundation for ongoing engagement. Our core work is in envirommental risk management, science and technology as well as bringing any available “best practices” models to the fore. The legal and regulatory history/best models are also a major thrust of our work in building and evaluating public policy. Director/Principal Lindsay Newland Bowker, CPCU, ARM is a recognized expert in Environmental Risk Management., Heavy Construction Risk Management and Marine and Transit Risks and has more than 3 decades of engagement in buiding public policy. Appointed by Governor Mario Cuomo to New York State Banking Board (served 1986-1996); President New York Chapter Chartered Property and Casualty Insurers; Environmental Committee, Risk and Insurance Management Society; Director, Convenor/Co-Chair Bermuda Market Briefing "From Captive to Cats" Hamilton Bermuda. Published Articles of Significance The Risk Economics and Public Liability of Tailings Facility Failures, co-authored with David M. Chambers, July 2015 Beyond. Polarization: Superfund Reform in Perspective, Risk & Insurance Managing Risk For Loss Prevention & Cost Control (Jan. 24, 1997). Lead Hazards and Abatement Technologies in Construction: A Risk Management Approach CPCU Journal 1997 Employee Leasing: Liability in Limbo Risk Management June 1 1997 Environmental Audit Privilege and the Public interest Risk & Insurance Managing Risk For Loss Prevention & Cost Control, April 1997 Asbestos:Holes In Abatement Policies Need To Be Plugged, Lloyd’s Environmental Risk International, May 1993 Editor Published Letters Evironmental Risk Management Beware of Facile Policies Like Fetal Protection Business Insurance 1995(?) High Court Review May Increase Sale of Bank Annuities Business Insurances August 8, 1995 Professional Profiles Protecting the Big Apple’s Core Managing Risk For Loss Prevention & Control December 1996 Major Career Highlights First rigorous analysis showing Relationship Between declining ore grades and TSF Failures of increasing consequence ( July 2015) FIrst Documentation that Gentrification Has Same Impacts as Unassisted Displacement from Urban Renewal Sites Direted Court Ordered EIS of FHA Mortgage Scandal Created Nation's First Homeownership Program for Low Income People (SHIP) Created Earliest Geographic Information Systems Using Defense Technology Developed By IBM Designed and Conducted Parallel Census Count to Show Systematic undercount in minority neighborhoods Documented Bias in ISO Territory Rating Plans for Private Passenger Auto Insurance Using ISO's own Rating Techniques Demonstrated Inherent Bias in Mortgage Policies of Banks With Inner City Branches Demonstrated that NY Telephones Plan for Area Code Split To accommodate anticipated cell phone demand was not efficient and would exhaust in 5 years ( which it did) Undertook First Systematic Evaluation of Child Protective Services Caseload Using Multi Variate Analyic Techniques Developed Child Protective Caseload Management and Tracking System (CANTS) and directed implementation in 4 client states including Illinois, Florida and New York Created and Ran Office of Risk Management for NYC DEP the Nations largest Water & Sewer Authority . Designed, Created and Administered Nation's First Owner Controlled Insurance Program (OCIP)for High Risk Tunneling Education Masters NYU Graduate School of Public Administration BSC New School For Social Research Maine Public Schools Deering High School
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