Insurance Policy issues in oil sector must be addressed before 2020 – EPA Head

Oct 26, 2018 News

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By Kiana Wilburg
Guyana currently has no policy that provides guidance on whether oil companies should be allowed to self-insure or be made to lodge an internationally recognized insurance policy with the relevant authorities. In the absence of clear direction, Head of the Environmental Protection Agency (EPA), Dr. Vincent Adams, expressed the opinion that there could be varying implications for the sector.
During an exclusive interview with this newspaper, the Environmental Engineer insisted that this is an issue which must be addressed before 2020.
Dr. Adams said, “I am not sure if we are the only body which must decide on this matter. But I do know that we would have a say in it…Currently, the ExxonMobil-Guyana contract allows the company to self-insure. This means that the company has given us some assurance that they will handle the liabilities that come with any possible oil spill…”
The Engineer added, “Guyana must now decide if this is the route it wants to go for other oil companies. We must also consider the pros and cons of self-insurance versus having insurance policies. In the USA, oil companies have to put a bond and provide an insurance policy… they also have to provide other things to the authorities to prove they can cover any liabilities…But in Guyana’s case, we need to decide the way forward. We need to ensure that companies, if they are going to operate here, they can guarantee sufficient coverage.”
Dr. Adams noted, however, that this is an issue which must be carefully analyzed. He said that there should be no hasty adoption of mechanisms that exist elsewhere.
In this regard, he said, “I do believe that this is something that needs to be analyzed, it needs to be addressed; it needs to be regulated before 2020. As the lead regulator, I am for the principle that there must be a policy in place that states how we are to address this matter.”
The EPA head added, “I wish to state, however, that we should be cautious. Let us not just adopt willy-nilly, any sort of system or governing policies in other countries. We need to do our own risk analysis and tailor something that fits us.”
MAKE IT MANDATORY
Founding Director of the Agency for Security, Energy and the Environment (ASEA), Carlos De Regules has insisted that it would be in Guyana’s interest to make insurance policies mandatory for the oil and gas sector.
Regules said, “With self insurance, companies show their own balance sheet as a guarantee and that we (Mexico) will not accept as a valid guarantee. We always insist on having an insurance policy. Self insurance is not good enough. You must show a policy that is in line with international standards…”
Stressing the importance of insurance policies, the ASEA Director noted that there is an international law or understanding that you cannot claim abroad what you do not claim domestically. He said, “If a country expects to demand compensation for an oil spill or accident, it needs to have a domestic framework to show if that happened domestically, they would be claiming response and remediation and that is very important to bear in mind.”
Further to this, the ASEA Director said that setting the appropriate obligations to ensure oil and gas operators are capable of responding in a timely manner to oil spills is hinged on two things: insurance policies and making it mandatory for the operators to have sufficient technical capacity to respond to emergencies. He said that this means the country must have trained personnel, materials and equipment to be deployed within the first hours of an emergency.
Regules said, “This is very important and it is a lesson that can be learned from any of the major oil spills that occurred around the world. You can contain a crisis more efficiently when you are prepared. So making those two things, insurance policies and technical capacity, mandatory are the two ingredients for preparing for an emergency in this industry…”
In sharing a bit of the Mexican experience, the Oil and Gas regulator also said that it would also be important for Guyana to have a robust system in place to review insurance policies.
He said, “In Mexico, you must have an insurance policy before a permit is granted. In fact, companies have to comply with our insurance regulations and our SEMS which stands for Safety Environmental Management Systems Regulations.”
The ASEA Director said that the oil operators also have to go through a rigourous Environmental Impact Assessment (EIA) and provide an appropriate design for their project. He said that once they comply with all those things, and a thorough review is done, then it is a go.
VAGUE TERMS
In the Production Sharing Agreement (PSA) signed between the Government of Guyana and USA oil giant, ExxonMobil, there is no provision regarding any adverse impact on fishing grounds and coastal communities or on neighbouring countries.
This alarming observation was first pointed out by Chartered Accountant, Chris Ram and political Commentator, Ramon Gaskin. The two have been extremely critical of the vague terms in the contract especially as it relates to environmental protection.
Ram in his recent writings noted that Article 20.2 of Guyana’s 2016 Oil Agreement deals with Insurance in respect of, but not limited to, assets, pollution, third parties and employees. The Attorney-at-Law pointed out that the Agreement does not require any loss of production insurance as will apply in the case of any major disruption of production or environmental accidents. He said that while this provision is absent from the 2016 Agreement, the 1999 Agreement which was signed by the Jagan administration, allowed for insurance to be taken out by Esso Exploration and Production Guyana Limited’s affiliate insurance company. Esso is a subsidiary of ExxonMobil.
Ram stated, “That requirement has been changed and now allows the Contractor to have the right to self-insure against the risks identified. This is a major concession by (Natural Resources Minister, Raphael) Trotman on an issue that only specialist lawyers know about. What it means in practice is that anyone seeking to make an insurance claim will have to lodge that claim against Esso, CNOOC/Nexen or Hess, all of which are external companies. Those potential claimants must thank Raphael Trotman for making their chances even more difficult to succeed.”

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