Insurance companies putting together consortium for in-country oil spill coverage

Aug 26, 2022 News

By Zena Henry

Kaieteur News – After much back and forth about the topical issue of oil spill insurance, the Bank of Guyana has commenced work with local insurance companies to create a consortium to accommodate in-house insurance for the massive oil and gas development project taking place in the offshore Stabroek Block involving United States oil major ExxonMobil and partners, Hess Corporation and CNOOC.

This information was confirmed by Bank Governor, Dr. Gobind Ganga who told the newspaper that a meeting had been set between the two sides to discuss their approach to local content in this particular sector. He told the newspaper that the companies had a proposal on how their services could be utilized in the oil and gas sector.

Ganga told the newspaper yesterday, that a fairly short meeting was subsequently held with the insurance agencies, advising them to come up with a model that will allow them to tackle the necessary oil spill insurance that is supposed to be held in Guyana in case of any possible mishap that may occur at the offshore oil fields. It is understood that a group of insurance agencies will be required to handle the multi-million dollar US policy as the sum would be too much for one company.

“What I asked them to do is to go back and get a simple model for me with everyone’s involvement; that is the consortium,” Ganga told the newspaper. He said that currently, the Ghanaian model regarding the insurance consortium is being looked at, and it might be one to move towards in terms of, among other things, improving welfare of the industry and efficiency of the local insurance sector. “And that’s where we are,” the Central Bank Governor related. He noted too that the reason he gave the insurance companies the charge, “…is for them to come back with a more efficient, acceptable inclusive model in terms of setting up the consortium for the pooling and they could come back to me within two weeks.”

The meeting between the Bank and the insurance agencies comes just days after Vice President Bharrat Jagdeo would have highlighted that the insurance coverage for the Stabroek Block development to protect it from oil spill or other damages, is too big for local insurance companies to handle and that they would have to reinsure. The VP made the statement during a press conference last Friday when asked about government’s involvement in ensuring the policy is available in Guyana as it is required by law. One insurance stakeholder immediately responded to Jagdeo’s claim, stating that reinsurance is a norm in the insurance business and that it is a prominent feature that actually allows for covering risks through the sharing of the said risk. The commentator had pointed out that large international agencies also have limitations and as such, they too share risk and would split a policy to accommodate same.

As such, the source insisted that it is the obligation of the administration to ensure that the law is followed by having the insurance in-country and by facilitating the spirit of local content which insures Guyanese involvement in the oil and gas sector. The veteran submitted that government ought to have already called upon the insurance companies to organise themselves into a consortium that would allow them to cover the insurance policy. It was thus suggested that Guyana could look at the Ghanaian model where the in-house insurance companies mobilized themselves to handle the insurance relating to the sector.

In the oil and gas insurance placement for the upstream sector, Ghana said that its government also wants to optimise the exploitation and utilisation of Ghana’s oil and gas endowment for the overall benefit and welfare of all Ghanaians, present and future. It highlighted difficulties in the local insurance sector, pointing to issues rendering the insurance market “uncompetitive and ineffective” in underwriting offshore insurance, and the fact that international companies were taking advantage of the situation.

To overcome this challenge of low participation by Ghanaian insurance companies, it was said that members of the Ghana Insurers Association underwriting non-life insurance business formed a consortium – Ghana Oil and Gas Insurance Pool (GOGIP) to pull their resources together to underwrite oil and gas risks.

On another project requiring insurance, discussions are brewing over the availability of coverage for the 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. The Vice President has also said in relation to this item that the insurance coverage is not necessary at this early stage of the projects development since insurance companies would say that nothing was built and that there is nothing to insure. An insurance policy would also be required to be in country given the size of the project and the cost that might accompany any possible disaster.

A local insurance firm has thus underscored the need for a policy to be set up to cover liabilities that may occur even before the facility is built. In this regard, it was noted that ‘Construction All Risk’ would be the necessary coverage to protect the project during this developmental stage. This project is being developed to provide cleaner energy at a cheaper cost to the public, the Government has stated.

As regulator, the Bank of Guyana administers the Insurance Act and thus functions in the adherence of the legislation. The law requires foreign companies operating here to have insurance in Guyana pass a certain amount. This insurance is facilitated through a local provider. Operating company, Esso Exploration and Production Guyana Limited (EEPGL) has covered Guyana’s oil spill liability with US$600M, while ExxonMobil the owner of EEPGL is offering, a still in discussion, US$2B as a parent company guarantee to cover damages above what EEPGL can handle.