June 4, 2010 / 8:50 PM / 9 years ago

U.S. EPA hands tied on tough BP sanctions

* EPA to weigh sanctions’ effects on military, economy

* EPA waiting for US investigation before weighing options

* BP US government contracts worth billions

* EPA-BP talks on Alaska, Texas on hold due spill

By Timothy Gardner

WASHINGTON, June 4 (Reuters) - BP (BP.L) Plc’s role as the top supplier of jet fuel to the U.S. military may delay U.S. environmental regulators from barring the company’s lucrative government contracts even if BP is eventually found to have broken laws in the Gulf of Mexico oil spill disaster.

As a result of the spill, the Environmental Protection Agency will consider its options in limiting future BP government contracts, worth billions of dollars, in a process known as debarment.

Before doing so, the EPA needs information from the federal investigation announced this week into the disaster that killed 11 workers and led to the worst oil spill in the country’s history, said a source at the agency who did not want to be named.

Some sanctions barring contracts are automatically triggered at specific production units of a company, such as a factory or refinery, after the company is convicted of violating federal clean air and clean water laws.

But an agency can impose far wider sanctions barring nearly all of a company’s future government contracts — even without convictions — if it finds a company has had a pattern of dangerous behavior.

As the United States fights wars in Iraq and Afghanistan, the EPA may be hard pressed to bar billion dollar contracts such as those supplying jet fuel to the military.

Robert Meunier, an EPA’s former debarment officer, said the agency would have to consider the effect on the U.S. government of any wide sanctions, since the oil industry has a limited number of huge companies like BP that could provide such services.

BP was the top supplier of refined fuel, including jet fuel, to the Department of Defense last year. It was also one of the top suppliers of gasoline, diesel and other fuels to the federal government.

“There are times, that even with a criminal conviction in hand, it’s not in best overall interest of the United States to issue that debarment,” he said.

During the first Gulf War for instance, at least one company that had been convicted of environmental crimes did not face wide debarment because it supplied military equipment to the fight.

MEDICINE WORSE THAN THE DISEASE?

The EPA will also have to weigh the effect of debarment on the economy. Barring future BP leasing contracts in the Gulf of Mexico could hurt jobs in an economy that faces 10 percent unemployment.

“If the medicine is worse than the disease you need to consider another treatment,” than stopping a company from doing business with the government, Meunier said.

One alternative to barring contracts would be to require a company to be monitored by an independent party in an effort to report on any bad behavior such as potential reckless cost cutting that could endanger the environment.

The EPA had been trying for years build a case to apply the broader sanctions on BP, including monitoring in Alaska, because of environmental crimes it had been convicted of before the Gulf of Mexico spill.

Those cases were the 2005 Texas City refinery explosion that killed 15 workers, and the 2006 oil leak from a pipeline in Alaska that was the worst spill on the state’s North Slope.

The Gulf of Mexico oil spill, however, has put those talks between EPA and BP on hold, leading to further doubts that the EPA will take tough action on BP.

Former EPA investigators and debarment officials feared that the EPA’s waiting for the federal investigation into the Gulf spill could delay action on the previous accidents.

“Not only is that ink dry, it’s beginning to fade,” said Scott West, a former top investigator for the EPA about the Alaska case, which he feared would be eclipsed by the Gulf of Mexico spill.

The EPA official with knowledge of the debarment process said the agency could not say exactly when it would consider debarment options on BP over the Gulf of Mexico spill but added said it “would not wait years.”

Meunier said the EPA should take action on the Alaska case and install monitors to help regain public trust in the company.

“It would seem better to go ahead and get those matters concluded and put a federal monitor on the project to give the U.S. people confidence we can proceed with business while we try to deal with the current crisis,” he said.

Reporting by Timothy Gardner, additional reporting by Tom Doggett; Editing by Alden Bentley

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