Insurance firm Britam has backed out of a deal to underwrite the East African Crude Oil Pipeline (Eacop) after the firm’s own internal environmental and social risk assessment revealed that its participation in the $5 billion project violated its backers’ policies and performance standards.
Details of the Britam withdrawal emerged in a response filed on November 8 to a complaint raised last year with the Compliance Advisor Ombudsman – an independent agency of the World Bank – which revealed that Britam turned away from the Eacop after conducting a review of the environmental and social risks.
“There are indications of a plausible link to harm or risk of harm to the complainant related to the sub-project,” reads the CAO response to the complaint filed by Inclusive Development International in October 2021, which questioned the World Bank’s affiliate financing Britam, one of Eacop’s insurers.
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Britam is a client of the IFC, and the latter has a $35 million investment in the insurer, and as such was billed as one of the giants of the local insurance industry, giving it capacity to insure Eacop and the upstream projects Tilenga and Kingfisher.
The complaint questioned the regional insurer’s intended participation in underwriting the pipeline through Insurance Consortium for Oil and Gas Uganda, arguing that Eacop and associated oil projects did not meet IFC’s standards.
These include failure to meaningfully consult local communities, provide adequate and prompt compensation to communities whose land is being acquired, ongoing threats and retaliation against human rights defenders opposed to the project and anticipated irreversible impacts on sensitive ecosystems such as Murchison Falls National Park.
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Britam, a Kenya-based financial services provider becomes the latest in a line of financiers caught between the desire to do business with Uganda’s Lake Albert fossil fuel projects and the growing campaign by climate advocates, to ditch oil and gas projects in favour of renewable energy.
Standards at issue
As IFC’s client, Britam was required to ensure that any high-risk project it insures meets IFC’s environmental and social performance standards.
“Britam’s decision validates our assessment and confirms what we already knew: The Eacop fails to comply with international standards,” said Coleen Scott, a legal and policy associate at Inclusive Development International.
“This is a major wakeup call to any insurance company or Equator Bank still providing or considering support for Eacop Britam should release its evaluation in full, so that other insurers and banks can consider the findings when making their own decisions regarding this project,” she added.
It is yet to be seen how Britam’s pullout will affect TotalEnergies and China National Offshore Oil Corporation, both of whom have sided with Uganda to publicly defend Eacop as a project that meets IFC’s environmental and social standards, in order to secure financing and insurance coverage for the pipeline.
According to the Uganda Insurance Regulatory Authority CEO Ibrahim Kaddunabbi Lubega, the consortium placed insurance for Eacop, Tilenga and Kingfisher on June 1, 2022. The question was whether local industry has the capacity to insure projects valued at $10 billion.
Moreover, under the EACOP Special Provisions Act of Uganda, local firms can only insure up to 30 percent of risks, yet industry giants from Europe who are expected to take up the bigger portion, continue to shun the projects.
Omar Elmawi, the co-ordinator of the StopEacop Coalition says Eacop still requires significant foreign insurance and reinsurance support because a substantial portion of reinsurance should come from international firms which have the appropriate credit ratings and financial capacity to absorb the losses if and when accidents occur.
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“We are yet to hear any confirmation of an international insurer committing to insure Eacop, which means they still have a monumental task ahead of them to get this project going,” he says.
Dennis Kakembo, the Managing Partner at Cristal Advocates, and an energy law expert also cast doubt on the capacity of the local industry to underwrite these mega projects.
“Insurance was a contentious clause in the making of this law,” he says. “We know that no one has capacity to insure all the risks 100 percent. Even if they reinsure with companies like Uganda Re, Zep Re and Africa Re, you will still see them patch up.”
“Because I am not the project owner, I am not in position to discuss this,” said Alex Mukasa, Marsh McLennan Uganda CEO.
Source: The East African