Behind the Lines

Drilling the Royalty Rules

The Bush administration is reconsidering rules designed to make sure oil companies drilling on public U.S. lands pay the government a fair royalty.

"The rule reopening is nothing more than a sop to the oil industry and an invitation to complain about the millions of dollars oil companies have been forced to pony up under a fair system," says Danielle Brian, executive director of the Project On Government Oversight (POGO), which was instrumental in highlighting oil company failures to pay a fair royalty in the past.

The rule has forced the oil industry to pay roughly $70 million more annually to the federal government since it was implemented in 2000.

Implementation followed a furious Congressional fight and legal action that forced the oil companies to make up more than $400 million in underpaid royalties.

The current controversy turns in part on whether the oil companies can pay royalties to the government in kind ó with oil rather than dollars. Through a pilot program, the Interior Department's Minerals Management Service has allowed an increasing amount of payment of royalties in kind, and is proposing to make the arrangement permanent. Critics say the arrangement facilitates oil company manipulation and deception, and is designed to ensure underpayment by the industry.

Terrorist Target

Chemical facilities in the United States are attractive targets to terrorists, and no one knows the extent to which they are vulnerable to attack, according to a March report by the General Accounting Office, the Congressional research agency.

"Chemical facilities may be attractive targets for terrorists intent on causing economic harm and loss of life," the GAO concluded. "Many facilities exist in populated areas where a chemical release could threaten thousands. EPA reports that 123 chemical facilities located throughout the nation have toxic ëworst-case' scenarios where more than a million people in the surrounding area could be at risk of exposure to a cloud of toxic gas if a release occurred. To date, no one has comprehensively assessed the security of chemical facilities."

"This report is yet another wake-up call for federal policymakers ó 18 months after 9/11, our threat level is increasing, but chemical industry lobbying has blocked every effort to establish a chemical security plan," says Jeremiah Baumann, an environmental health advocate for the U.S. Public Interest Research Group, a public interest advocacy organization. "It's time for Congress to enact a plan that requires the industry to increase security and remove targets where possible, by switching to safer chemicals and processes."

"EPA believes that the Clean Air Act could be interpreted to provide authority to require chemical facilities to assess their vulnerabilities and to make security enhancements that protect against attacks," the GAO study stated. "However, EPA has not attempted to use these Clean Air Act provisions because of concerns that this interpretation would pose significant litigation risk."

Senators Jim Jeffords, I-Vermont, and Jon Corzine, D-New Jersey, have introduced legislation that would require chemical plants to submit vulnerability assessments as well as plans to increase security and implement safer practices. Last year, the bill unanimously passed committee before being defeated by an industry lobbying campaign.

The Bankruptcy Ploy

Hit with a $10 billion judgment in an Illinois lawsuit in March, Philip Morris threatened that it might face bankruptcy if forced to pay a $12 billion bond to appeal the case.

The verdict was issued in Miles v. Philip Morris, a class action, brought on behalf of smokers in Illinois, alleging that Philip Morris deceptively manipulated and marketed "light" cigarettes.

"Light" cigarettes allow air to flow through ventilation holes in filters, leading to lower tar and nicotine readings by the machines that measure the components of tobacco smoke. Actual smokers, however, cover up the holes with fingers and lips. The plaintiffs alleged ó as has the Food and Drug Administration ó that marketing products as "light" misleads consumers into believing they are safer products.

Philip Morris asked the court to reduce the amount of the appeal bond it is obligated to pay, claiming it would not be able to meet its payment obligations to the U.S. states under the tobacco industry's 1998 Multistate Settlement Agreement if forced to post the bond.

Tobacco control advocates countered that Philip Morris's numbers did not add up.

Not only did the company report high profits and a massive credit line in its last financial statement, notes Matthew Myers, president of the Campaign for Tobacco-Free Kids, "there is no indication that Philip Morris is curtailing its multi-billion dollar annual expenditures on marketing and promotion of its products, including the products that were the subject of this case, nor is it curtailing its dividend payments to shareholders."

"There is also no indication," he adds, "that Philip Morris is curtailing its massive spending on political contributions that have been used to resist reasonable government action designed to reduce tobacco use and the harm caused by smoking, or that its parent, Altria, is curtailing its multimillion dollar advertising campaign to convince the American public that it is a responsible corporate citizen."