A law on the new requirements for preventing and liquidating spills of oil and oil products has been adopted

Pepeliaev Group advises that, on 13 July 2020, Federal Law No. 207-FZ “On amending article 46 of the Federal Law ‘On environmental protection’ and certain items of Russian legislation” (“Law No. 207-FZ”) was published. This Federal Law introduces from 1 January 2021 new obligations for persons engaged in activities connected with the extraction, production, storage and sale of raw hydrocarbons and products made from them.

The new developments of Law No. 207-FZ

- An obligation is introduced to develop a plan to prevent and respond to spills of oil and oil products (“PPRSO”) when performing activities connected with the extraction, production, storage and sale of raw hydrocarbons and products made from them in Russia (clause 4 of the new version of article 46 of Law No. 7-FZ[1]).

The previous version of article 46[2] of Law No. 7-FZ did not provide for such an obligation unlike the laws regulating activity in internal marine waters, the Russian territorial sea and on the Russian continental shelf[3]. At the same time, the mandatory presence of a PPRSO is provided for by the Russian Government’s resolutions for companies: engaged in prospecting deposits and extracting oil as well as in the processing, transportation, and storage of oil and oil products[4]; operating hazardous production facilities (“HPF”)[5]. Federal provisions and rules in the area of industrial safety[6] (adopted in 2013) provide that it is mandatory for there to be a PPRSO for a HPF at which oil and oil products are circulating (processed, stored, transported), if there is a risk of the spread of spills of oil and oil products outside of the production site. Such inconsistent[7] legal regulation resulted in contentious situations in practice[8]. Law No. 207-FZ has eliminated this contradiction by adding the corresponding obligation to article 46 of Law No. 7-FZ.

- The conditions for the operating company to approve the PPRSO (article 46(6)) have been established, namely, the presence of an opinion concerning the readiness of the operating company for actions aimed at the localising of and a response to spills of oil products approved by the Federal Supervisory Natural Resources Management Service (known by the Russian abbreviation ‘Rosprirodnadzor’)[9] and adopted by the results of a complex exercise in order to confirm readiness for actions aimed at performing measures of the PPRSO.

The deadline for Rosprirodnadzor to approve such opinion (article 46(7)) should not exceed 20 business days from the date when the PPRSO was received and 10 business days from the receipt of the PPRSO updated based on the comments of the authorised body. If Rosprirodnadzor sends no comments within the established deadline, the PPRSO is deemed approved.

- It is established that operating companies carrying out activities on the continental shelf, in internal marine waters and in the territorial sea need, to approve the PPRSO, to conduct a complex exercise to confirm that they are ready for actions in terms of localising and responding to spills of oil and oil products, and to obtain the corresponding opinion according to the procedure established by the Russian Government[10].

- It is provided that the operating company is obliged (articles 46(10) and 46(11)) to create financial security for performing the measures of the PPRSO[D.1] , including full compensation of harm caused to the environment, to the life, health and property of the public, to the property of legal entities before the start of the operation of facilities using natural resources and when carrying out activities related to production and dealing with raw hydrocarbons and products made from them; and to notify federal executive bodies of the presence and contents of financial security for the PPRSO measures.

- A list has been provided of the documents necessary to confirm financial security for the PPRSO measures (article 46(12)):

• a bank guarantee;
• an insurance contract;
• a document concerning a reserve fund being created by one or several operating companies;
• a guarantee letter of a federal executive body, or a public authority of a constituent entity of the Russian Federation or a local government authority (with respect to facilities that are state or municipally owned).

The amount of the guarantee /insurance cover / reserve fund should cover the financing of the PPRSO, including full compensation of harm as a result of an accident.

The amount of financial security is calculated using a method that should be approved by the authorised federal state authority[11].

Law No. 207-FZ provides for a significant (by several times) increase of the financial obligations of operating companies, since the current regulation provides for financial security only with respect to responding to spills of oil and oil products.

- The list and procedure of actions of the operating company if an emergency situation happens is specified in article 46(13):

•  to give information[12] concerning the spill:

1. authorised federal executive bodies;

2. state and local government authorities of the territory where the emergency situation took place;

• to organise and conduct work aimed at localising and responding to the spill using its own accident rescue services (or those engaged under contracts) and forces that are duly certified;
• to apply to the authorised federal executive bodies in order to attract additional manpower and resources of the RSES[13], only in the event that without them the spill cannot be liquidated;
• once the spill is liquidated[14], to conduct recultivation and other restoration work according to the procedure established by Russian legislation;
• to compensate in full the harm caused by the accident as well as expenses on engaging additional manpower and resources.

The imposition of obligations to independently liquidate spills of oil products, irrespective of the level of and reasons for the emergency situation, may aggravate adverse consequences of the emergency situation, including in connection with losing time on assessing the situation and making decisions concerning the ability/inability to liquidate the spill using the company’s own manpower and resources. Please also note that Law No. 207-FZ together with the obligation to compensate the harm caused by the accident, prescribes that the operating company must organise and conduct work on localising and liquidating the spill, as well as recultivation and other restoration work. In practice this may result in an additional demand from Rosprirodnadzor (at the request of which compensation of harm has already been paid) that the operating company must eliminate the harm caused using its own resources by performing the above work with reference to the new provision of article 46 of the Law on environmental protection. In this case the operating company will both pay the amount of harm to the environment and also independently reimburse the harm caused in kind. The above contradiction in legal regulation has already been studied by the Russian Constitutional Court which concluded that courts are entitled to take into account the necessary and reasonable expenses incurred by the person who has inflicted the harm when it was eliminating the consequences of the pollution of the environment caused by its activity as a result of a spill of oil and oil products.[15] Nevertheless, the case law with regard to taking into account the expenses of persons who inflicted harm evidences that it is difficult for the latter to manage to decrease the amount of harm calculated by Rosprirodnadzor by the amount of expenses incurred. The assessment of the reasonableness of and need for expenses on the elimination of harm is in each case at the discretion of the court. This often results in a court refusing to award reimbursement of expenses which, in the court's opinion, are not directly connected with the elimination of the consequences of the accident.[16]

- Law No. 207-FZ provides for the following transitional provisions:

1. current PPRSOs remain in force until they expire^[17] or until the PPRSO is approved in accordance with the new requirements;
2. from 1 January 2021 and until the date of approval of the PPRSO according to the new rules, it is allowed to approve a PPRSO in accordance with the requirements that were in force before Law No. 207-FZ came into force;
3. PPRSOs according to the new rules should be approved until 1 January 2024;

Similar provisions are provided for with regard to PPRSOs in the internal marine waters, the territorial sea and on the Russian continental shelf.

- Federal laws regulating activity in internal marine waters, the territorial sea and on the Russian continental shelf have been supplemented with the following provisions: in addition to the requirements concerning a mandatory environmental expert review of the PPRSO, requirements have been introduced to obtain an opinion that the operating company is ready for actions aimed at localising and responding to spills of oil products approved by Rosprirodnadzor and adopted further to the results of a complex exercise in order to confirm readiness for actions aimed at performing measures of the PPRSO.

Implementation of the provisions of Law No. 207-FZ

The new provisions require the adoption of new legal regulations by the Russian Government, which would regulate:

• the rules for organising measures provided for by the PPRSO;
• criteria for facilities that are obliged to comply with the requirements introduced;
• requirements for the contents of the PPRSO;
• the procedure for conducting complex exercises;
• the procedure for issuing an opinion concerning the readiness of the company;
• the procedure for notifying federal executive bodies of the approval of the PPRSO;
• the procedure for reimbursing the harm caused by a spill of oil products and expenses on engaging additional manpower and resources of the unified state system for preventing and responding to emergency situations;
• the procedure of notifying state and local government bodies concerning the spill;
• requirements for the composition and equipment of accident rescue services and forces.

- The above regulations should take into account the requirements of Russian legislation (article 46(9)):

1.  in the area of protection of the public and of territories from emergency situations;
2.  in the area of industrial safety;
3.  the Law on accident rescue services and the status of rescue workers^[18].

What to think about and what to do

Law No. 207-FZ has significantly increased the scope of the duties and the level of financial obligations of companies operating facilities related to the extraction and production of and trade in raw hydrocarbons and products made from them.

At the same time owing to a large number of regulations which need to be adopted for the implementation of the new requirements, it is doubtful that the Law will start working within the established deadline (from 1 January 2021).

Meanwhile, we recommend that companies should start preparing for the performance of the new requirements beforehand (meaning immediately).

In this regard, all affected parties should:

• carefully read the provisions of Law No. 207-FZ;
• conduct an inventory of manpower and resources in order to assess their ability to ensure the performance of the new requirements and to draft a plan for reaching the necessary level of manpower and resources;
• taking into account the methods of creating financial security (provided for by the new law) for the implementation of the PPRSO, to consider the possibility of uniting with regional enterprises of the sector to create a reserve fund for the purposes of decreasing the financial burden of each participant of such a union, and the possibility of creating several options for financial security, for example to enter into an insurance contract, in addition to creating a joint reserve fund.

Help from your adviser

Pepeliaev Group’s lawyers are ready to provide advice on issues associated with the amendments to the obligations of companies engaged in the extraction of raw hydrocarbons or the production and circulation of products made from them, and to assist in dealing with supervisory authorities should any contentious situations arise when implementing the provisions Law No. 207-FZ.