Latest update December 23rd, 2024 3:40 AM
Jagdeo says oil spill insurance too big for in-country capacity
…stakeholders say government must facilitate local involvement
Kaieteur News – In wake of calls for the oil spill insurance policy for ExxonMobil and partners’ offshore operations being in-country by legal requirement, Vice President Bharrat Jagdeo said that the multi-million US dollar coverage that is currently available for Guyana is beyond what in-house insurers can handle.
The Vice President was answering questions about the location of the oil spill policy during a media briefing last Friday when he indicated that Guyanese insurance companies would have to reinsure the large oil spill policy if it were handled here. Jagdeo explained that (for a foreign company) insurance policies exceeding a particular threshold have to come through a local broker. He indicated that given the US$600M set aside by the Stabroek Block operators to cover oil spills per disaster, “it means a lot of money for one broker.” To that, he felt that the policy: “It is beyond the capability of the local insurance industry to provide such coverage…they would have to reinsure and that means going through a broker,” he told the media.
Jagdeo was at the time weighing in on the insurance matter which has been in the public domain. It involves the availability of an oil spill policy that covers a disaster but includes also, a parent company guarantee where ExxonMobil covers all oil spill liability above what its subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) can handle.
Despite the Vice President’s belief that the insurance policy may be too big for Guyana, local stakeholders insist that it is government’s obligation to ensure the Guyanese are involved in the business, and to facilitate them as is required by law. The commentator charged that in the insurance business, it is absolutely common for insurers to reinsure as part of splitting risks and ensuring coverage beyond what the insurer could afford. “Reinsurance is very common,” the newspaper was told by a major local insurer. “Even (London’s well-known) Lloyd’s syndicate has limitation of capacity and they have reinsurance. So, to say insurance has to get reinsured is tantamount to saying a car has to get oil to run,” the source said. It was explained that what should have already happened is that a local consortium of insurers should have been created and they discuss among themselves what they could handle and what has to be reinsured. The newspaper heard that in providing an insurance policy, there are amounts that an insurance company can handle. In other cases, where the policy is high, the insurance company will seek to share the risk by asking other insurers to cover parts of the policy. The insurer in turn shares the premium paid on the policy with all those involved.
The source told the newspaper that it is in that manner that the oil spill coverage is supposed to be handled by local companies if the policy is too big for one agency to handle. The source reiterated that it is the duty of the administration to seek ways to facilitate Guyanese participation. It was noted that if this is the continued posture of the government, then local persons will never get an opportunity to conduct business is this area. It was highlighted that Guyana should follow the steps of Ghana as they created a consortium of insurance companies in that country and was able to handle the oil spill policy in-country.
As it relates to the parent company guarantee that ExxonMobil must present Guyana, Jagdeo said no side will have to face costs upfront. He said, “If it’s a parent guarantee, it does not cost the company any money therefore the premium, nor does it cost us because we are a part of this.” In relation to the said parent company guarantee, Petroleum engineer and former Environmental Protection Agency head, Dr. Vincent Adams has been arguing for Guyana to get a written commitment from Exxon that it will cover all liabilities pass that of EEPGL capabilities. The government and Exxon and currently discussing however, a US$2B parent company guarantee sum that will provide coverage above that of EEPGL.
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