Yes, for a large power transformer the protection scheme should have been able to detect an arcing fault and clear it rapidly. This leaves me to wonder if there was a protection misoperation that occurred in tandem with the fault. If the fault is external to the tank (for instance arcing at the termination of one of the bushings), it may not be in the differential zone of protection, but the overall protection scheme should provide for fast clearing of close-in external faults for the reasons well demonstrated by this incident.