Diesel Spill Could Cost Billionaire Potanin $4 Billion

Russia’s richest man, Vladimir Potanin of metal and mining giant Norilsk Nickel, has held a “frank” conversation with Russian President Vladimir Putin over the massive fuel spill in the Ambarnaya river late last week, according to a company statement.

The billionaire has found himself in Putin’s firing line as Russia delegates the cost and logistics of the cleanup to the industrial giant responsible for the spill. The damage was caused when a diesel fuel reservoir collapsed at a power plant outside the northern city of Norilsk, and flooded a nearby river.

Since news of the accident broke last week, President Putin has barely concealed his frustration after a subsidiary of Potanin’s Norilsk Nickel dragged its feet in revealing details about the 21,000 ton diesel spill. The Kremlin was reportedly not told about the spill and found out through images of the now red river shared online.

In what the Moscow Times described as an, “unusually stern dressing-down” aired on Russian television, Putin asked Sergei Lipin, the chief of the Norilsk Nickel fuel subsidiary NTEK, “Why did government agencies only find out about this two days after the fact? Are we going to learn about emergency situations from social media?”

President Putin added, “Are you quite healthy over there?” in remarks possible to interpret in any number of ways. Forbes Russia reported that the chief engineer of a thermal power plant owned by Norilsk Nickel and the director have been detained, suspected of violating environmental regulations, and could face five years in prison.

Having declared an emergency, Putin is closely monitoring efforts to clean up the mess and limit the environmental damage of the fuel spill.

In a statement released on Monday evening, Potanin said his company had “mobilized” its top talent and promised to fully finance the clean-up operation and bring the ecosystem back to its normal state. “I am telling you this not as a businessman, but simply as a person who is taking this to heart,” he said.

What Happened?

The crisis started when a fuel tank suddenly sank due to the permafrost melting. BBC Weather reported temperatures within the Arctic Circle to have “hit” an “astonishing 30C” this week, warming the solid ground that once remained completely frozen at 32°F (0°C) or colder. Large amounts of industrial equipment are built on areas of permafrost terrain in Russia.

The spill is considered by Russia’s Green Party to be one of the worst oil spills in Arctic history, while in the U.K. Frederic Coulon, professor of environmental chemistry and microbiology at Cranfield University, compares the disaster to the Exxon Valdez oil spill in Alaska 1989.

Coulon tells Forbes that it is very difficult to put a price on cleaning up an oil or fuel spill until a number of the technical factors are controlled, namely, the type of oil which he describes in this case as “extremely mobile.” And the “physical, biological and economic characterisation of the spill location, the weather conditions, the amount spilled and rate of spillage, time of year and effectiveness of clean up strategy.”

However, Coulon tells Forbes that other spills can be used as a yardstick for comparison. The Exxon Valdez oil spill, when an oil tanker owned by Exxon Shipping Company, bound for Long Beach, California, struck Prince William Sound’s Bligh Reef, near Alaska, spilling 37,000 metric tons of crude oil in 1989, costing Exxon a massive $4.3 billion.

According to Mark A.Cohen in a 2010 paper A Taxonomy of Oil Spill Costs, the cleanup costs of $2.1 billion and the “Civil/criminal settlement” to the United States and Alaska of “at least $900 million” accounted for the largest share of the $4.3 billion total.

Forbes Russia reports that Potanin told President Putin that the estimated damage costs could total “billions and billions … 10 billion or more … we will spend as much as we need,” he said. However, 10 billion rubles is just over $145 million, and sounds somewhat optimistic even if it does exclude the possible fines.

In a single day when the extent of the disaster became known, Potanin’s estimated net worth dropped $1.6 billion from $26.5 billion on June 3, to $24.9 billion on June 4 as the market reacted, according to Forbes real-time billionaires’ list. 

Potanin has said Norilsk Nickel will fully finance the clean-up operation and bring the ecosystem back to its normal state. The oligarch, now worth $25.1 billion, is well known, alongside Mikhail Fridman, for being one of the business leaders able to better navigate the change from President Boris Yeltsin to Putin and the industrial upheaval to follow in the 2000s. As such, his business has thrived. His principal asset is 35% of Norilsk Nickel, one of the world’s largest producers of refined nickel and palladium. 

Potanin moved quickly at the onset of the coronavirus pandemic in April after announcing a series of positive plans to help Russia meet the challenges it faced. His foundation gave around $13.1 million (RUB 1 billion) to support nonprofits, while Norilsk Nickel pledged $142 million (RUB 10.5 billion) to fund the purchase of medical equipment, medicine and PPE for healthcare institutions. 

However, the events in Siberia could yet put the billionaire on a collision course with the Kremlin, despite Potanin’s wariness over colliding business and politics in Russia. Speaking of his time as Deputy Prime Minister in 1996, Potanin told the Financial Times in 2018, “I understood that you can never convert your business power into political power. If you try, you will die.”