Insurance Operators, Brokers call on Regulator to provide better response to deficiencies in oil sector

Jan 03, 2023 News

Kaieteur News – There continues to be much uncertainty regarding Guyana’s environmental protection relative to oil and gas operations and local industry operators (Insurance Companies and Brokers) are urging the Commissioner of Insurance to play a greater role in ensuring that Oil Companies adhere to the Laws of Guyana.

While a number of inconsistencies have been raised in relation to oil spill coverage here, the most important remains the lack of Parent Company Guarantee to cover any damage above what the operating company is able to pay.

The Local Industry Operators have added the loss of millions of US dollars to the dilemma saying that by law, oil insurance should be held in country where local businesses cover and earn premiums, ceding commissions and other revenue.

Kaieteur News had recently confirmed that Guyana allowed ExxonMobil and Partners to significantly reduce the oil spill insurance sum for the Liza 2 project from US$2.5B to US$600M. It was revealed too in a news item that a local company in 2019, Diamond Fire and General Insurance, had received the US$2.5B policy before it was reduced.

Concerned Industry Operators have stated however that no local company was able to take part in any of the policies the Oil Companies claim are available. “The coverage in the 2019 news item was never placed. It appears that Diamond was selected to front for Lisa 2 and Payara but neither policy was ever engaged by Exxon although wording etc. was prepared.”

Further, this newspaper was told that another named Insurance Company was selected to front for the offshore Canje Block and Stabroek Block, “but it appears that again, preparatory work was done but the policies were never taken up. This is absolutely startling information,” the source revealed. He suggested the information to mean that “not even fronting fees were ever paid – in other words absolutely nothing for Guyana.”

“The Regulator is a key figure in the correct and available insurance for the oil sector. He must approve all oil & gas placements,” the newspaper was told.

“So that, they have knowledge of how the placements were finalized. Direct placement to overseas is specifically and expressly forbidden by the Act. If this was allowed, it was a deliberate breach of the Act. How could this have been facilitated by the Regulator? The Commissioner of Insurance, Dr. Gobin Ganga or the Director may be able to shed some light,” the source continued.

“If the placements were not fronted, it means that not only is all of the commission lost to the industry, but the premium was not taxed; for premium taxes which is 9% of the gross premium,” the source said while adding that this is another aspect of the matter that the Guyana Revenue Authority (GRA) might be interested to know.

“So that both the Insurance and the Tax Act would have been breached, if this in fact occurred. More so, it also means that the Commissioner of Insurance may have failed to enforce the Act and may have acted in a manner that undermines the well being of the industry he is appointed to protect. It boggles the mind that this may have occurred but in absence of proof from the Office of the Commissioner that the policies were fronted through a Local Insurer and approved by them, this could well be what happened,” the source said.The source added, “We are certainly aware that there is no local trace of the US$600M environmental impact coverage policy that they said was in place and it looks as if that was certainly not fronted, again in breach of the Act. Ultimately the Commissioner’s Office must have knowledge of the placements – this is their obligation as regulation and enforcement of the act is their principle function. One would imagine this would be a standard agenda item on their report to the Ministry of Finance under whose portfolio they fall.”

Though there are more questions than answers, Kaieteur News was told that, “It is very difficult for industry players to raise questions about the Regulator’s role as it is that very Regulator whose issues their licenses. Yet, the direction in which this is leading is quite alarming.”

Former Environmental Protection head, Dr. Vincent Alexander speaking on the US$2.5B ExxonMobil alleged was placed, said that at the time the oil company had purchased the policy from a company in England and had to show the proof of the purchase to the EPA before signing the Liza 2 Permit.

He said, “When I went public with it, the Insurance Association kicked up a storm and said it had to be transferred locally, hence our meeting with the Bank of Guyana.”

Dr. Adams reminded, however, that while insurance has its role to play within the scope of local content, “the parent company has always been the key to the sector’s guaranteed protection. It doesn’t matter if the insurance is $1, the parent company guarantee which is the legal requirement in the permit, has to cover everything over that $1.”

Dr. Adams mentioned that currently Vice President Bharrat Jagdeo is talking about the Parent Company Guarantee, “except he is talking about a guarantee between $2B and $10B, which is ridiculous and not what is in the permit which has no limit. Who will cover the cost above $10B for example, like the BP spill in gulf which cost $145B?”

Melissa De Santos, President of the Insurance Association of Guyana, told Kaieteur News earlier this month that the group had met the deadline in providing information of a consortium to the Bank of Guyana’s Dr. Ganga.

She said while the bank has not yet summoned the consortium, she understands that preparations are being made for that to be done.