‘Insurance coverage crucial during construction of massive gas-to-shore project’— local insurer

Aug 22, 2022 News

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…as Jagdeo claims ‘too early’

By Davina Bagot

Kaieteur News – As Esso Exploration and Production Guyana Limited (EEPGL)- commonly referred to as ExxonMobil Guyana- continue daily work in preparation of a US$1.3 billion pipeline to transport natural gas from the Liza Fields in the Stabroek Block to Wales on the West Bank of Demerara, a local insurance firm has underscored the need for a policy to be set up to cover any liabilities that may occur during the construction phase of this massive venture.

The company spoke off the record to this newspaper on Saturday during a telephone interview. It was explained, “Everywhere in the world once a project is engaged, what happens is that you have insurance that literally covers the project while it is in the form of being carried out.”

According to the insurance company, this coverage is called ‘Construction All Risk’ and is taken out by the contractor that has been hired to complete the job. The credible source explained, “Technically it’s in your care, custody and control until you hand it to me as a finished product. You have problems and your problems are the construction while you are working, that material is worth money so if that material is destroyed while it is in your care, custody and control, you have a problem and your problem is to reimburse me, the owner (if something goes wrong). So how would you do that unless you have coverage for it?”

It is for this reason that the insurance firm stressed the need for coverage at all points during the construction phase to ensure all of the assets are secured.

In addition to covering the materials, it was also noted that it is more important to institute a policy that caters to workers on the site. “You have workers on site so consequently if one of them is injured, you need to make sure there is coverage that looks after them so that’s called ‘Employers Liability’. Once you have that work site as well, anybody who goes on that work site, because its under your care, custody and control it means that liability could arise against you so that’s insured by something called public liability,” the source explained.

This coverage, the company noted, was especially important as an employee who becomes injured during construction can sue against the contractor and owner of that project. “Similarly, if you got subcontractors coming on site, you would want to make sure that they are covered as well,” the source noted.

To this end, the company outlined, “Essentially, the minute a project is engaged, what happens is that the contractor who is going to be working on the project has to secure himself. In fact, what we are trying to explain to the oil and gas contractors is what their obligations are as a contractor so if I pick up the phone and say I have this project we are working on what happens is the minute I give you this project, I am going to ask you to give me certain levels of coverage. I want to make sure all of the assets that are located on that site while they are in your care, custody and control if they are destroyed that some insurance is going to come along and ensure you are reimbursed and consequentially, I am reimbursed.”

Even though this is the position of the insurance body, Vice President Bharrat Jagdeo has dismissed the need for insurance at this stage of project. Currently, ExxonMobil is engaged in preparatory works for the pipeline, after being granted an approval by the Environmental Protection Agency. Works on the actual project have not commenced yet as the operator is still awaiting the green light from the regulatory body.

To this end, Kaieteur News asked the VP on Friday whether the administration has entered into discussion with ExxonMobil Guyana for insurance of that aspect of the project. Jagdeo responded to say, “It’s reasonable. It’s common sense. You can’t not know the cost of the total pipeline as yet and seek to insure it. You understand. If you have a house and you build a house for $20 million, you don’t know the house, you start the foundation and you go to the insurance company, they’d say what are we insuring?”

He stammered, “How we gonna do, it’s like how you gonna start the insurance, first of all, the people are gonna say, the insurers, where is this pipeline? Have you built this pipeline, no. We are now procuring material. We are procuring the material to start laying of it. We are now mapping the route; we are still mapping the route. We are completing the environmental studies and we have to put in place, they’d say well when you have done that, when you know the final cost then we can talk about insurance.”

Already, former Head of the EPA, Dr. Vincent Adams have outlined his disagreement with the VPs position. Dr. Adams believes, “That doesn’t make any sense. I mean we can’t wait until the structure is put up. You already have a design, and as a matter of fact for Liza Two for example, the full coverage language was put in place before the project even started up. I believe it was in June 2019 but that project just started up.”

He pointed out that the GTE Project Manager from Exxon, Friedrich Krispin, said during a public consultation that the oil company will not walk away from any damages, yet the operator is reluctant to sign onto a guarantee letter to simply say they will cover all liabilities caused by them. To this end, the Specialist argued, “Why wait until everything is finalised? All this is part of the negotiations as part of the entire package. Exxon needs to commit in writing for that gas pipeline that they will cover all liabilities whether it is with insurance or company guarantee that they will cover all cost attached to all liabilities if something happens. What’s so unfair about that?”

To drive home his point on the need for proper safeguards to be instituted, the former EPA Head reminded that an oil spill in Peru forced the government to sue the operator as there was no provision in place. As such, he reasoned, “Is that where we want to be? To wait until something happens to start putting all this in place or will we just ask them to sign a letter of guarantee where they can safeguard the operation?”

Given that the estimated US$1.3 billion expense will ultimately be on the backs of Guyanese, citizens have been questioning whether this investment will be safeguarded with a sound insurance policy. Jagdeo explained that the cost of the project will be repaid through the monthly electricity bills of Guyanese. He has calculated that the cost of power will be slashed in half from the current $30 cents per kilowatt hour to $15 cents per kilowatt hour.

 

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