BP pays $46m settlement after breaching US anti-pollution laws

BP has agreed to pay out nearly $46m (£30m) in an out-of-court settlement after being sued for breaking strict anti-pollution laws in California.

The settlement, which was struck after BP was prosecuted by the state's attorney-general Bill Lockyer, is the largest compensation payment ever made by the oil giant.

The company was sued after it emerged that its subsidiary, Arco, had failed to improve leaking underground fuel storage tanks and pipes at 59 petrol stations, 10 years after the legal requirement was introduced across the US.

To embarrassment of BP's chief executive, Lord Browne, who has tried to promote the oil group's green credentials, the payment includes a $25m fine, which is the biggest penalty yet paid by any oil company in the US for failing to replace or upgrade leaking fuel storage tanks.

In total, California's oil companies face paying up to $200m in compensation because of fuel leakages, but BP is now the largest fuel supplier in California, with 20 per cent of the market.

BP's settlement includes $20.8m that it has already spent improving its fuel tanks, but the company faces further spot checks on its 1,200 stations, and legal action and fines if it fails to comply.

Suspect stations were found after BP bought Arco in April 2000 but Cheryl Burnett, a BP spokeswoman, said Arco had spent $200m trying to clean up its sites. Once it found some stations had been missed out, it helped investigate the scale of the problem. "We have co-operated in this case in the last two years to ensure compliance at all our stations," she said.

California, along with other states, has suffered heavily polluted drinking water and soil from leakages of fuel, particularly involving a potentially toxic additive called MTBE. Ironically, MTBE was introduced across the US to improve air quality and fuel performance.

The water pollution crisis led the UK's Environment Agency to investigate the risks of MTBE contamination of water supplies in Britain, but no similar problems were found. The five major oil companies insist either that they never use MTBE in the UK, or that they do so only in about 1 per cent of fuels, particularly high-octane "super unleaded" or ultra-low sulphur blends. But oil industry experts admit MTBE could be used in far greater quantities in Britain, as part of the European Union's Auto Oils programme, to improve fuel quality.