As published on www.minet.com on September 20th 2022
On 01 February 2022, Total Energies EP Uganda, CNOOC Uganda Limited, the Uganda National Oil Company (UNOC), and the Tanzania Petroleum Development Corporation (TPDC) announced the Final Investment Decision (FID) on the Lake Albert Development, thus demonstrating the commitment to develop Uganda’s oil and gas resources through the implementation of the Tilenga Project in Buliisa and Nwoya districts; the Kingfisher Project in Hoima and Kikuube districts, and the East African Crude Oil Pipeline (EACOP) project that will cross ten districts in Uganda. The FID announcement officially marks the beginning of the detailed Engineering, Procurement, and Construction (EPC) phases and a commitment to see oil by 2025.
During this phase, it is expected that Ugandans will accrue significant benefits and opportunities from the sector through local content and through the improvement of the Government’s consistent efforts in improving the infrastructure required to support the oil and gas developments (e.g., construction of the Hoima International Airport and 700 kilometers of roads).
From an insurance perspective, the FID announcement has led the Insurance sector to fast-track building capacity around the oil and gas risks and specifically for the aforementioned projects, by offering solutions through insurance brokers and capacity through the Insurance Consortium of Oil and Gas in Uganda (ICOGU) and reinsurance markets. The ICOGU is recognized by the Insurance Regulatory Authority (IRA) under the Uganda Oil and Gas Co-Insurance Consortium guidelines 2019.
Having noted that Insurance is a vital aspect of society and the investors in Uganda’s Oil and Gas sector require specialized insurance against unforeseen risks, the capacity is yet underdeveloped, and the potential for growth is enormous with important oil and gas developments at hand. Local insurance companies realize the important opportunities that are likely to come with the development and production of oil.
Whereas this is a new sector in Uganda, the oil and gas risks are equally new and of importance in size and value. Retention from the local perspective will be limited, thus creating the need for insurers to build capacity through capitalization. Over time this implies that through the Uganda Insurance Consortium, part of that risk will be retained locally, based on the available capacity and as the insurance industry builds its capacity to fully underwrite the oil and gas risks. The risks to be handled by the consortium are purely specialized risks such as the Construction All Risks (onshore and offshore ) to include Erection All Risks, Mobile Barge, Drilling Rigs Insurance, Drilling
Equipment and Rigs, and Control of Well Insurance. However, there are other areas of risk that will directly be covered by the local insurance companies by virtue of the risk and availability of treaty capacities. These include Workmen’s Compensation (a statutory insurance policy), Employee Benefit insurances (including Group life Assurance, Medical and Health Care Insurance), Asset All Risks (excluding specialized assets such as Rigs), Motor Insurance, and other non-financial risks. This implies that the local insurance companies will have to think through those risks with their local insurance brokers to understand the magnitude of the risk they carry, put in risk mechanisms to manage, and thereafter transfer to the insurance carriers and/or insurance companies.
Caroline Athiyo ǀ Director – Marketing and Business Development ǀ Minet Uganda