The National Insurance Commission (NIC) and the Petroleum Commission have reached an agreement that mandates companies in the upstream petroleum sector to cede their insurance business to local insurers, in line with efforts to maximise the participation of local insurance companies in the oil & gas sector.
The resolution follows a marathon set of discussions between the regulators and players in both the upstream petroleum sector and insurance industry, in a bid to ensure that activities of the burgeoning oil sector are consistent with provisions in the local content and insurance laws.
The acting CEO of the Petroleum Commission, Theophilus Ahwireng, explained that risks-cover in the petroleum industry that is beyond the capacity of domestic insurance companies will be provided through syndications and external reinsurance.
“What the Petroleum Commission has done is develop guidelines that will assist the various institutions be able to participate in the (oil and gas) sector.
“We have just concluded a session with the insurance companies in this country that will allow them to effectively take up insurance business in the sector.
“We had a very long session with the NIC, insurance companies, our international partners and other institutions, to make them understand what they (insurers) need to do and the magnitude of business they can syndicate and can also do with external reinsurance.
“This arrangement has been done and very soon it will be launched,” he said.
Ghana started commercial production of oil almost four years ago, opening up a several billion dollars industry. The government last year enacted the Petroleum (Local Content and Local Participation) Regulations, 2013, in a bid to ensure that the country benefits from more than just fiscal receipts of oil revenue by enhancing participation for local firms in the sector.
According to the Petroleum Local Content and Local Participation Regulations, the provisions are meant to among other things promote the maximization of value-addition and job-creation in the petroleum sector through the use of local expertise, goods and services.
The regulations also provide that entities in the petroleum sector must submit their local content plans regarding the use of local goods and services, and the transfer of advanced technology and skills to the Ghana National Petroleum Corporation (GNPC) or the Petroleum Commission and Ghanaians.
B&FT gathered that the insurance directives agreed on by the Petroleum Commission, NIC and insurance companies will apply to all insurance policies that are due for renewal, in order to halt the present practice whereby upstream operators cede their insurance business to insurers outside the country’s shores in contravention of the Insurance Act 2006 and the Petroleum (Local Content and Local Participation) Regulations.
Already, a consortium — Ghana Oil and Gas Insurance pool (GOGIP) — has been formed by all the general insurance companies to pool resources and underwrite oil and gas risks.
The Ghana Insurance Brokers Association (GIBA) has also formed a brokerage pool called GIBA Energy Company to undertake insurance placements in the petroleum sector. The formation of these two bodies are seen as a major breakthrough for the industry, as it offers an avenue for spreading the risk involved in oil and gas insurance.
However, some of the upstream petroleum operators have expressed some concerns about the guidelines, seeing it as a new way to force insurance companies and brokers on them — a position the NIC has rebutted by saying: “These are not new laws and regulations”.
Currently, concerns are rife among local insurers that upstream operators are not complying with the laws and regulations intended to boost local content by taking their business outside.
Additionally, there is a widespread worry that despite the huge sums of money spent every year on servicing operations within the oil sector, only a very small portion of the accruable profit is available to indigenous oil servicing firms — resulting in capital flight within the oil and gas industry as profits from the contracts are repatriated abroad, where most of the international service firms are located.