Insight - BP oil spill settlement before election seen unlikely

HOUSTON (Reuters) - For a president locked in a tough re-election fight, it may look like political gold: a settlement between the U.S. Justice Department and BP Plc over the Gulf of Mexico oil spill that could send billions of dollars to Florida, one of a handful of politically divided states that could decide the November 6 contest.

Yet a last-minute settlement with London-based oil giant BP is unlikely before the election, experts say. Neither the Justice Department or President Barack Obama, whose race with challenger Mitt Romney is deadlocked in most polls, want to appear to politicize a deal. And Obama appears to face more potential risks than benefits from any settlement at this point.

BP has been locked in a year-long legal battle with the U.S. government and Gulf Coast states to settle billions of dollars in civil and potential criminal liability from the April 20, 2010, explosion aboard the Deepwater Horizon rig that killed 11 workers and soiled the shorelines of four Gulf Coast states in the worst offshore spill in U.S. history.

BP and the Justice Department have had protracted closed-door negotiations on a settlement to avoid a potentially years-long court battle. But experts say that any settlement with BP would be complex enough to allow Obama's critics to attack him. And as they say in Washington: If you're explaining, you're losing.

"No matter what the President does, he can't win on this one because it's not going to be good enough for someone," said James Lucier, managing director at Capital Alpha Partners LLC in Washington.

"A TERRIBLE IDEA"

To date, the spill's profile in the 2012 presidential campaign has been slim. And inking a settlement with BP at this point could open Obama up to attacks as someone who buckles to Big Oil. A pre-election settlement of the Justice Department's biggest ongoing case could also be seen as playing politics with the law, said David Uhlmann, a University of Michigan law professor and former head of the Justice Department's environmental crimes section.

"It would be a terrible idea for the Justice Department to announce a settlement over the last two weeks before the election," Uhlmann said, predicting instead a deal before the civil trial next year.

U.S. District Judge Carl Barbier in New Orleans, presiding over a sprawling three-part non-jury hearing to decide BP's liability for the spill, said on Friday the trial will begin on February 25, 2013. The trial, which had been delayed by nearly a year already due to a pending $7.8 billion BP settlement with private plaintiffs, had been set to start on January 14. The delay leaves more time for a pre-trial deal.

In big settlements, the Justice Department has striven to avoid the taint of politics, and the BP case is no different, Uhlmann said.

But politics has run through the BP spill from the day it happened. Gulf Coast states stand to reap billions of dollars in funds from a potential BP settlement, thanks to a law passed by Congress that would route 80 percent of funds to the states from violations of the Clean Water Act.

That amount could approach $17 billion if BP is found grossly negligent in the disaster, experts say. The well spewed 4.9 million barrels of oil into the Gulf of Mexico over a period of 87 days. The torrent fouled shorelines from Texas to Alabama and eclipsed in severity the 1989 Exxon Valdez spill in Alaska.

FLORIDA'S ELECTORAL VOTES

Florida and its potential 29 electoral votes are one of the key prizes seen as tipping the November 6 presidential election. So the temptation may be great for Obama's advisers to gain favour with voters there by agreeing to a jumbo settlement before the election, said Kevin Book, managing director at ClearView Energy Partners LLC in Washington.

"We know the Administration wants one, and the best political timing for a final deal is probably right about now," Book said.

But any political good will from the deal could be over-rated. Of the Gulf Coast states affected by the spill, Florida is the only one that appears to be within Obama's reach, with polls in others leaning heavily toward Romney.

A pre-election settlement could also expose Obama to criticism for selling out Gulf Coast politicians and environmental groups. Rumours have been flying.

Gulf Coast lawmakers recently and loudly protested press reports that BP and the Justice Department have discussed shifting settlement payments based on the Clean Water Act - with their promised billions of dollars to Gulf state coffers - instead to payments based on natural resource statutes, which would not only go to the U.S. Treasury but also be tax-deductible for BP.

"BP, who is responsible for this, would also get a tax deduction that could write off millions," Representative Jo Bonner, an Alabama Republican, told Reuters. "The audacity of giving BP a tax write-off!"

Environmentalists are also worried about press reports that peg BP's settlement offer is as low as $18 billion -- far short of penalties demanded by U.S. environmental and criminal statutes.

"We believe a full throated debate over the settlement amount needs to happen before any deal is done," said John Kostyack, a vice president at the National Wildlife Federation, who estimates BP's potential liability at more than $50 billion.

Given the prolonged and secretive negotiations, state officials have also warned the Obama administration not to rush headlong into a deal with BP.

"Personally I believe the Administration does have a desire to make an announcement, which has the potential to cloud their judgment," said Garret Graves, senior environmental advisor to Louisiana Gov. Bobby Jindal.

After paying nearly $4 a gallon for gasoline over the summer, potential voters would also likely have no patience seeing Obama let a big oil company off the hook with a spill settlement that stops short of maximum potential penalties.

"A settlement that is not tough enough makes him look like he's letting BP off the hook," Lucier said. "It's much better to do this outside of the context of a presidential election."

(Additional reporting by Kathy Finn in New Orleans and Verna Gates in Birmingham, Alabama; Editing by Peter Bohan and Tim Dobbyn)

Source: http://news.yahoo.com/insight-bp-oil-spill-settlement-election-seen-unlikely-100404919--finance.html

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