Foreign Rigs, Tax Evasion Dominate Gulf Coast Drilling
House Committee Wants to Americanize Offshore Fleet
by Betsy Glassman
June 18, 2010 ©Words & Pictures Communications
BP’s oil spew and foreign vessel operations on the outer continental shelf (OCS) were the focus of a June 17 hearing held by the Coast Guard Subcommittee of the House Committee on Transportation, which found that foreign rigs dominate drilling in the Gulf of Mexico, creating tax evasion and safety inspection problems.
The Deepwater Horizon exploratory rig that exploded April 20, killing eleven and smothering the Gulf of Mexico in oil, was a foreign mobile offshore drilling unit (MODU) built in Korea, registered in the Marshall Islands and owned by Transocean, Ltd., a company incorporated in Switzerland, “it’s assumed to avoid US tax,” said Subcommittee Chair Elijah Cummings (D-MD). Transocean’s tax in Switzerland is 16 percent, compared to 35% in the US.
Chairman Cummings stunned with his opening statement: “The Coast Guard can’t say” how many foreign-flagged MODUs are operating on the OCS because “they are not required to announce their arrival.” Devising a rule for such announcement began in 2006 but “it’s not done,” which is “tragically unacceptable,” he added.
Rep. Frank LoBiondo (R-NJ) said the number of vessels operating under the US flag has plummeted and many are now operating “under flags of convenience…We don’t know what vessels are in US waters or what they’re doing.”
All foreign-flagged vessels must comply with the laws of their respective nations and the US concerning safety inspections, but Transportation Chairman James Oberstar (D-MN) noted, “Some have low standards… Who verifies the Marshall Islands is doing proper inspections?” He referenced a dispute between BP and Transocean regarding maintenance of the Deepwater Horizon, and asked if the Coast Guard has the capability to take over inspections from the Minerals Management Service (MMS).
The MMS is charged with drilling inspections and according to Mary Kendall, Inspector General for the Department of the Interior, there are currently only 50 inspectors for 4000 rigs operating in the Gulf. Speaking before the House Natural Resources Committee at a separate hearing the same day, she reported “a dearth of regulations” for MMS inspections with “little direction regarding what and how to inspect.”
The Coast Guard is responsible for ensuring all other regulations are met by both US and foreign vessels. Rep. Don Young, (R-AK) lamented, “We’ve neglected the Coast Guard all these years. We ask them to do missions like taking on oil spill responsibility without providing the money.” Chairman Cummings said he is working with the Obama Administration to restore cuts to the Coast Guard immediately.
Foreign-flagged vessels including MODUs can operate on the OCS only with a Coast Guard Certificate of Compliance, which requires an annual security and safety examination. Referring to “bribery in third world countries,” Rep. Gene Taylor (D-MS) questioned whether a piece of paper stating a foreign-flagged vessel meets all regulations is adequate. He admonished witness Admiral Kevin Cook of the Coast Guard, “You don’t know who inspected
…it could be no one.”
Cook responded that the Coast Guard inspects documents of all foreign vessels “to the extent we can verify” but admitted, “We weren’t there” for hands-on inspections in foreign countries.
The subcommittee appeared in bipartisan agreement about the need to tighten restrictions on foreign vessels and “Americanize” the OCS fleet. Mr. Young bemoaned the fact that, “Most deepwater rigs are not American.” Chairman Oberstar declared, “We need to Americanize the vessels operating in the US Economic Zone.” Witness David Matsuda, the Department of Transportation’s Acting Maritime Administrator, said that increasing the number of US-flagged vessels “would spur US shipbuilding.” Mr. Young referred to the Jones Act, which restricts foreign vessels from transporting cargo between points in the US, including on the OCS. He reported that many non-US vessels go ashore for supplies, a violation of the act: “The Jones Act is not being enforced and we’re chipping away at the American fleet.” Mr. Young recommended to Adm. Cook that he come up with a specific rule so that “a foreign vessel is out if a US vessel is available.”
OCS regulations require employers of vessels to hire US citizens or resident aliens, but exemptions are allowed if employers can demonstrate an insufficient number of US “qualified and available” personnel. Mr. Cummings stated that more than 6700 foreign workers now man crews under exemptions, representing nearly 10% of vessel workers. He said he could not believe there were not enough American workers to fill those positions.
Congressmen also questioned skimming operations, the number of American vs. foreign vessels available for cleanup and how regulations such as the Jones Act can ensure that US-flagged vessels get most of the work. Mr. LoBiongo said he’s received reports that US vessels were offering to help but were being turned down. Adm. Cook responded he did not know of such cases.
Rep. Corrine Brown (D-Fl), in contrast, called for large skimmers to protect her state and she didn’t care where they came from. She thought one was in Norway. “I want the big one,” she stated emphatically, holding up a printed photo of a large vessel. “How do I get it---the big one?”
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