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Gulf Coast senators to Obama: Ensure BP spill deal is fair

* Senators cite reports of types of fines in spillsettlement

* Senators worried local, state governments will have lesssay

* Urge Obama to reject approach By Roberta Rampton

WASHINGTON, Oct 5 (Reuters) - Senators from the U.S. GulfCoast urged President Barack Obama on Friday to ensure that anylegal settlement for the 2010 Gulf of Mexico oil spill does notundermine a recently passed law that would funnel billions ofdollars worth of fines to their states.

The U.S. Justice Department and BP Plc have discusseda potential settlement for damages caused both to Gulf watersand the coastline, which could be worth billions of dollars tostates still trying to recover from the worst offshore oil spillin U.S. history.

While the details of those discussions have been kept underwraps, Democratic and Republican senators from the region saidthey have "grave concerns about developments of the settlementterms" that have been cited by local media outlets.

Senators pointed to recent press reports that the JusticeDepartment and BP are discussing settlement terms that wouldmaximize penalties to be paid under Natural Resource Damageassessments, and minimize those paid under the Clean Water Act.

The RESTORE Act, signed by President Barack Obama on July 6,directs that 80 percent of Clean Water Act penalties paid by BPbe placed in a new trust fund for restoration efforts in thefive coastal states damaged by the worst U.S. offshore oilspill: Louisiana, Alabama, Mississippi, Florida and Texas.(FACTBOX at )

In a bipartisan letter - a rare sight ahead of the Nov. 6presidential elections - eight senators told Obama they areworried the Justice Department is considering allowing the bulkof fines to be assessed under the Oil Pollution Act for damagesassessed to the coastline, with a minority of fines assessed fordamages under the Clean Water Act.

Fines arising from Clean Water Act violations could reach$21 billion, if BP is found to be grossly negligent of causingthe April 20, 2010, explosion aboard the Deepwater Horizondrilling rig that killed 11 rig workers and unleashed 4.9million barrels of oil that soiled the shorelines of four GulfCoast states. BP has adamantly denied any accusations of grossnegligence, and declined to comment on the senators' letter.

Without the bill, federal Clean Water Act fines would havegone straight to the U.S. Treasury. Anywhere from $4 billion to$16.8 billion could flow into states' coffers under the bill'sterms.

The Mobile (Alabama) Press-Register first reported theproposed deal earlier this week, citing unnamed officials whohad been briefed by the Justice Department.

The potential settlement could be attractive to BP, becausefines under the Oil Pollution Act are treated more favorably bythe U.S. tax code than are Clean Water Act fines, congressionalsources said.

"Not only would the federal government have final say as towhat qualified as environmental damage but BP, who isresponsible for this, would also get a tax deduction that couldwrite off millions," Representative Jo Bonner, an AlabamaRepublican, told Reuters. "The audacity of giving BP a taxwrite-off."

A Justice Department spokesman had no comment on eithernegotiations nor the criticisms from elected officials.

Senators told Obama the trade-off would mean less moneyallocated through a formula lawmakers negotiated in the RESTOREAct, legislation which puts decisions on how the money is spentin the hands of states and local governments.

"Circumventing the will of Congress by short changing theRESTORE Act is wholly unacceptable to us. We urge you to rejectsuch an approach," said the letter, signed late on Friday byMary Landrieu, a Louisiana Democrat, and Richard Shelby, aRepublican from Alabama, who co-authored the legislation.

Shelby is concerned that Alabama's two coastal countiescould lose out on planned recovery projects if the settlementwas skewed toward Oil Pollution Act damage assessments, aidestold Reuters.

"We urge you to negotiate a robust settlement that does notachieve a higher amount under one of these statutes at theexpense of the other," said the letter, also signed by Floridasenators Marco Rubio, a Republican, and Bill Nelson, a Democrat.

Republicans Jeff Sessions of Alabama, Thad Cochran and RogerWicker of Missouri, and John Cornyn of Texas also signed theletter.

Louisiana, which bore the brunt of environmental damage fromthe spill, expects to be compensated for damages regardless ofthe legal means, said Garret Graves, senior environmentaladvisor to Louisiana Gov. Bobby Jindal.

"Every statistic that's out there in regard to the impact ofthe spill clearly points to a disproportionate impact on thestate of Louisiana, and Louisiana's focus will be ensuring thatwe fulfill our legal obligation to address all of these impactsto the Gulf," Graves said.

(Additional reporting by David Ingram in Washington, VernaGates in Birmingham, Ala., Kathy Finn in New Orleans and EmilyLe Coz in Tupelo, Miss.; Editing by Chris Baltimore, Gary Hill)

((roberta.rampton@thomsonreuters.com)(Twitter

@robertarampton)(+202 898 8390))

Keywords: BP OILSPILL/SENATORS