Dec 09, 2022 News
…Insurers say ‘chicken feed fronting fee’ being offered by company to locals
Kaieteur News – For the next five years, Guyanese Insurance Companies will be unable to provide services to cover the massive multi-billion dollar energy projects ExxonMobil affiliate, Esso Exploration and Production Guyana Limited (EEPGL) will soon bring on stream.
Instead, ‘a small fee’ will be offered to the local company that agrees to ‘front’ the insurance policy which will cover the US$9B Yellowtail Project offshore Guyana in the Stabroek Block, as well as the more than US$1B Gas- to-Energy project that will land the commodity at a facility in Wales, West Demerera.
Industry operators say that Exxon has effectively blocked them from partaking in the provision of the insurance policy and is also keeping them out of the deal for the next five years. Based on the request in the oil company’s recent advertisement, the operators say that Exxon has already decided on the terms and conditions of the policy which will be held and controlled overseas, and only wants a local company to look like it is the one handling the coverage. The advertisement also gives the timeline for the policy, and it shows that the local operator will be fronting for the next five years, a concerned industry member opined.
“What it says there is that coverage is now in place and the PI policy-which is the material damage- that that is exiting until January 2026 and that their liabilities are existing until 2027. In other words, they have shut out the industry completely, not just for now, but for the next four to five years.” The ExxonMobil advertisement under the heading “Duration of Coverage: Program currently in effect, covering period from,” noted that the insurance is from February 1, 2022 to June 30, 2026 for Property Damage (PD) and February 1, 2022 to December 31, 2027 for Third Party Liability (TPL) and Operator Extra Expense (OEE).
It was explained that since the advertisement is seeking to identify a local fronting company, “it is presumed that the oil company will weigh the responses for the agency willing to work for the least amount of money which is the fronting fee -and that could only be a few thousand us dollars. And the country essentially loses or is unable to capture the real revenue which is the brokage commissions and the premium itself and of course, ceding commissions which insurers pay. We lose a lot, and we have lost a tremendous amount of money over the last five years easily.”
The industry operator told the Kaieteur News that this business with Exxon under the current terms will only see the local fronting company issue “the paper”, a policy document on terms and conditions set by the overseas placement. The local company will have no say or control and will blindly issue the relevant documents directly from the overseas firm. “All decisions will be made by the people overseas… and all commissions, premiums and everything is collected in the backroom by Exxon’s overseas broker.”
With this challenge, the local Insurer said that firms here will have no choice but to accept what is being given to them by the oil company. “Figuring that there is no end in sight to this thing, every local company will want to through their hat in the ring. Because they’re gonna vie now for the meagre fronting fees. It will be like throwing feed to the chicks and watching them fight over it”. He continued that if this matter is not addressed an ‘unimaginable’ sum of money will be lost. “Millions and millions and millions of US dollars in premiums.” He said when you look at the environmental impact risk alone…if you sit down and add up the assets that are sitting out there, all of them has to be insured; every shipment that leaves here has to be insured, every activity has to be insured, every liability has to be insured. But we don’t know where that money is going, that’s the problem. And without the local industry involved the government does not have a yard stick by which to measure what’s happening,” the operator warned. It was noted that insurance for the energy sector, is not being discussed enough when there is massive “leakage” taking place.
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