Covering Uganda’s Oil Risk

Covering Uganda’s Oil Risk
Eazzy Banking

Kampala, February 26. With Ugandans looking forward to announcement final investment decision to be made in the first quarter of 2019, insurance industry executives agree that as a consequence the ‘First Oil’ is now expected in 2022.

Uganda has made 21 oil discoveries with the joint venture partners granted production licenses for 14 fields.

‘First Oil refers’ to that very first barrel of crude oil that signals the start of oil production. Oil was discovered in commercial quantities in Uganda in 2006 and since then the timeline for Uganda’s First Oil has been shifting.

The first target was 2013, then 2015/16, then 2018, then 2020 and now 2022. The head of the Petroleum Authority of Uganda Ernest Rubondo says they are in place to ensure optimal management of the sector and efficient management of the costs.

Prior to the cashing on the ‘First Oil’, insurance broker Minet, Uganda and European giants AON organised an oil training aimed at equipping insurers with knowledge on how to address oil and gas risks.

Industry players converged recently at Sheraton Kampala at a time when Uganda is commencing the stage of development and construction of oil production facilities.

“Just like other potential support sectors, insurance companies in Uganda are doing all they can, both privately and under their various umbrella bodies, to understand the oil industry as well as train their personnel to appreciate the risks that might manifest in this new market,” says Mr Maurice Amogola, the CEO, Minet Uganda.Adding, “The training is to help local Uganda insurers and reinsurers prepare themselves to ably cover the risks associated with the oil and gas sector.”

Uganda’s oil and gas development and eventual production will see about $15 billion to $20 billion invested in the country in the next 3 to 7 years in especially infrastructure like roads, an airfield, a refinery and an export pipeline through Tanzania to the international markets.

This unprecedented investment in the country however, presents a vast array of risks that if not well insured could be disastrous to not only Uganda, but also to the international oil companies and their suppliers and subcontractors that have already invested over $4 billion in Uganda’s nascent oil industry.

“While risks can be mitigated in various ways, insurance is very critical and must not be ignored by the government, the oil companies or their services providers. As an insurance consultancy, Minet’s job is to discuss with clients about the potential risks and subsequently connect them to suitable insurers to cover them,” says Amogola.

Cognizant of the huge risks associated with the oil and gas sector, the Uganda Insurance Association (UIA) has helped its members form the Insurance Consortium for Oil & Gas, Uganda (ICOGU), where up to 16 local insurance companies have raised specific capital to cover some of the risks under the oil and gas sector.

Mr Maurice Amogola (R), makes a point as Mr Neil Genders, Director, AON, UK (Global Broking Centre, Energy – Commercial Risk Solutions) looks on

And for that risk that will not be manageable in-country, the consortium has partnered with other international insurers and reinsurers including: Munich Reinsurance, Swiss RE-Insurance, Chaucer, Beazley, Aspen and many others from the Lloyds market in London.

Insurance opportunities in the oil and gas sector include: oil well drilling equipment, rigs, in-hole equipment, bulk cargo, Construction All Risk (CAR), business interruptions, delayed start-up, waste in transit, works and infrastructure of disposal units, pipeline, heating equipment, oil and gas stocks, storage facilities, production storage facilities goods in transit and vessels and camps amongst others.

Just under $3 billion is spent globally in insurance premium on oil and gas per year; hence re-insurance is inevitable.

“It is sensible for the local Uganda market to build up its capital base slowly and efficiently; and not take on more than it can afford to pay out in claims,” says, Mr Neil Genders, a director at AON, UK, who was one of the trainers.

Uganda’s Local Content Policy 2018 commits to supporting participation of Ugandans in the oil and gas sector, through improving the country’s human resources, employment of local citizens and enterprises plus improve local competitiveness and in-country research, development and technology transfer to Ugandans.

 

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