Nornickel - Company Challenges $2 bln Fuel Spill Damages Estimate

> Nornickel issued a press release today stating that it believes the assumptions that Russia's environmental watchdog, Rosprirodnadzor, used to estimate the damage done to the water and soil in the Arctic region as a result of the recent fuel spill at almost R148 bln (more than $2 bln at the current FX rate) are incorrect and that the amount the company will pay should be adjusted.> The disagreement centers on Rosprirodnadzor's decision to use the maximum possible coefficient (of 5) for the length of the negative impact of the fuel spill due to the alleged inaction of the company immediately following the accident. According to Nornickel, such a high coefficient is usually used as a punitive measure against companies that either failed to take any measures to clean up an accident or began doing so with a significant delay. Nornickel has stated that it started acting immediately after the spill and that applying the maximum coefficient is therefore not justified. > In addition, the company believes that, because diesel fuel is not classified as a soluble pollutant and can be collected from the water, it is inappropriate to use the maximum coefficient for water pollution caused by oil products. > Finally, Nornickel believes that the calculation of the volume of fuel that leaked into the water was incorrect, because the final number was calculated before the fuel collection process was completed.> However, the company reiterated that it is ready to pay for the clean-up and to completely restore the ecosystem in close cooperation with Rosprirodnadzor and other government agencies. > To recap, there was a disagreement between the governor of Krasnoyarsk Region and the company about whether there had been a delay in providing information about the accident, which affected when the clean-up began. The company insisted that it had informed the authorities immediately, whereas the governor claimed that it had been a matter of days. The Investigative Committee of Russia is to look into this. > Rosprirodnadzor has already commented on the Nornickel press release, acknowledging Nornickel's right to challenge the calculations in court while cautioning that the accident is well documented and that the damages were calculated based on the recorded data. The regulator emphasized that the cost of the clean-up and the damage to the environment are two different things. Yesterday, the environmental minister supported Rosprirodnadzor's decision, saying that the agency's estimate of the damage is appropriate.> It is difficult to say if the disagreement between the company and ecology watchdog will escalate or if the situation will be perceived by the authorities as normal back-and-forth. As a reminder, the official conclusions of Russia's technical standards regulator, Rostechnadzor, about the reasons for the accident (accelerated permafrost thawing or underspending) and the Investigative Committee of Russia's findings (about whether the company's response was timely and appropriate) have yet to be published. We are not aware of the timelines for them. Once unveiled, they will provide some indication of whether or not the company is in a strong negotiation position. Any comments from top government officials will be watched closely and could shed some light on how the issue is being perceived.> By Friday, Nornickel is supposed to come up with a preliminary "industrial safety plan," as requested by Rostechnadzor (a deadline of one week was set).