The Petroleum Commission (PC) and Ghana Oil and Gas Insurance Pool (GOGIP), will in the coming months form a task force for the effective implementation and compliance with the Upstream Oil and Gas Insurance Protocol as captured in Ghana’s local content policy (LI 2204).
The move has become necessary following findings from a compliance monitoring exercise by the Petroleum Commission which revealed that the state may be losing significant amounts of revenue as a result of oil companies patronising overseas insurance to the neglect of the local companies as required by law.
The announcement was made during an insurance workshop for contractors, subcontractors, licensees and other allied entities within the upstream petroleum sector meant to engage and educate stakeholders on the need for compliance with the protocol.
Deputy Chief Executive at the commission, Prince Benjamin Aboagye, said, “Our interest is to maximise in-country spending by developing the capabilities of the Ghanaian companies to harness the myriad of opportunities in the industry”
He said the workshop was the first of its kind in consultation with GOGIP and the major upstream players as a collaborative engagement and effort to resolve problems in the petroleum upstream sector with regards to insurance.
“The laws are quite explicit in the LI 2204 but most of the provisions are not being complied with. This is the essence of our meeting together with the NIC and GOGIP, to fashion out a way to send a very strong message out there to the various upstream players so henceforth compliance will be enforced,” he explained.
According to the upstream regulator, the major factor for non-compliance has been the often lack of awareness and a systematic arrangement where foreign companies already patronise overseas insurance brokers who handle all insurance coverage from a global perspective.
Speaking to the media at the workshop, Head of the Technical Unit at GOGIP, Kwabena Larbi, said contrary to fears that the local insurance industry lacks the financial muscle to make claims payment in a capital-intensive sector like the oil and gas industry, GOGIP has made significant payments on their part as and when such claims come up.
“The Ghana Oil and Gas Insurance Pool is the exclusive vehicle mandated to underwrite all upstream oil and gas business is in Ghana. Whatever policies that we write and whatever percentage that we participate in, we have the resources and the financial strength to be able to meet our claim obligations when the time comes,” he stated.
“In the last four years, the gross premium that the pool has written is around US$146 million and out of this about the gross claims that have resulted is about US$600 million. The pool has paid a net of close to US$ 9 million, so it’s not that we are collecting the money and then we are not paying claims. We are paying and meeting our claim obligation.”
“A good example will be the turret bearing incident on the FPSO Kwame Nkrumah. The pool has paid its fair share and it’s a claim that’s going to go on for another 2 years because as and when the claims come we are paying” he explained.
According to Kwabena Larbi, only 12 out of the about 70 companies in the upstream sector are locally insured which accounts for significant amounts of lost revenue to the state.
“Currently, there are about 30 vessels operating offshore. We are only insuring 10 of them. The rest of the 20 vessels operating in the country are using overseas insurance and this is loss of revenue due the country that we are not getting,” he lamented.
He was however optimistic that with the introduction of the joint task force, the country can increase revenue in the local economy, if together with the Petroleum Commission, IOCs are made to comply with the law.
“Last year, we did a gross premium of around just under US$50 million. We estimate that close to about US$20 million is still out there in terms of gross premium out of which not less than a net of maybe about US$ 5 million will hit the local economy,” he said.
The insurance protocol for the upstream sector was introduced into Ghana’s local content policy in 2014 by the Petroleum Commission working in collaboration with the National Insurance Commission (NIC) to ensure that insurance placements are made locally. The objective was to ensure that in-country premium retention was maximized and technical capacities of Ghanaian insurance companies were enhanced.
To overcome balance sheet and technical challenges of the local insurance industry, an insurance pool arrangement was put in place to facilitate in-country risk underwriting in the upstream petroleum sector. GOGIP was therefore formed by general insurance companies to underwrite oil and gas insurance risks in Ghana on behalf of its subscribing members.