The real cost of oil
The highly publicised Deepwater Horizon oil spill in the Gulf of Mexico in 2010 brought home the need for shipping owners and operators to have sufficient environmental liability insurance in place. But it seems as though shipments of oil being carried on African waters are inadequately insured.
African costal economies, local business and the tourism industries in those countries would take a severe knock if a portion of the coastline was to suffer a major oil disaster. The risk of an environmental disaster has increased in recent times due to the rest of the world realising Africa’s economic growth potential and the increased trade that has resulted from it. “Africa’s growing economies and the explosion in the export of raw materials from the continent have resulted in more shipping activity around the coast of Africa. Concerns have been expressed at the increased risk created by this growth in marine traffic on the environment of coastal states and the extent to which that risk is insured by ship owners and the coastal states themselves,” says Malcolm Hartwell, a director at Norton Rose.
There are a series of international and local systems that determine a ship’s seaworthiness, which would mitigate many risks, as a compliant ship is far less likely to breakdown or leak oil. “The ship owner is obliged to comply with construction and operational standards established by the country where the ship is registered. In addition, the ship owner has to comply with the regulatory regime applicable in the ports of all of the states at which the ship calls,” explains Hartwell.
The problem facing African countries with insufficient resources is that they cannot afford to effectively enforce any local or international legislation. “Other countries in Africa with fewer resources do not have South Africa’s regulatory and enforcement mechanisms. Their exposure to environmental pollution from ships also varies according to the state of their domestic legislation and according to whether they have acceded to the various international pollution funds. Unfortunately the under-resourced coastal states also tend to attract the ships that are not as well maintained, operated or insured as those that call at South Africa. Furthermore, those coastal states are also less able to respond to environmental emergencies,” says Hartwell.
It is not just oil tankers that pose a major environmental threat. “Any ship has very large volumes of oil and fuel on board. The Eihatsu Maru, although only a small long-line fishing vessel, could have caused serious damage had the ship broken up after it ran aground off Clifton Beach in Cape Town South Africa, in May last year. Not only are fuel and oil carried in significant volumes on ships, we know that ships are illegally flushing their bilge tanks at sea, leaving large slicks of oil in their wake,” explains Andrew Aubin, Aon South Africa’s regional manager for the Eastern Cape.
According to the South African Maritime Safety Authority (SAMSA), of the nine most recent shipping incidents, seven ran into serious insurance challenges. In the salvage of the Eihatsu Maru, authorities face costs of R7.5 million, with more legal costs to come. The ship was not insured and SAMSA’s hopes of selling it and its contents to foot the bill will not even cover a third of the costs.
No insurance company in the world can fund a R23-billion oil spill clean-up, which is why the International Insurance Fund was set up, under the auspices of the United Nations. This is a fund to which the world’s major oil companies contribute, in order to cover clean-up costs from tankers over and above ship owners’ limits on their liability. “Any country that is a signatory to the enabling legislation and has paid its contributions can claim all the costs of pollution clean-up from the fund,” notes Aubin. But enforcing premium payment has proved a challenge and as with all insurance, if premiums are not paid, claims cannot be made.
South Africa, for instance, has not acceded to the updated fund and has not passed the local legislation that would enable it to claim from the existing fund. “Countries are lagging dismally in their approach to the range of risks that their coastlines are exposed to and putting proper, bespoke risk mitigation strategies in place to counter the impact of worst case scenarios. Granted, understanding
Any country that is a signatory to the enabling legislation and has paid its contributions can claim all the costs of pollution cleanup from the fund.
and getting a handle on these risks is massively challenging, as they often arise out of complex interdependencies which may not be immediately visible,” adds Aubin.
“All coastal states should be ensuring compliance by shipowners with the relevant international standards and, more importantly, should be ensuring that they have the right to claim from the large international insurance funds designed to respond to environmental pollution from tankers. Can Africa’s coastal states adequately survive a serious oil spill or other pollution threat? “Probably not,” concludes Hartwell.
When oil is spilt into the ocean, it has both immediate and long-term environmental consequences. The oil has an adverse effect on the surroundings, the birdlife, the ecosystems and the marine animals, sometimes for decades after the initial spill, if it was significant.
Damage to marine ecosystems
Oil spilled from damaged ships and oil rigs or burst pipelines coats everything it touches and is not particularly easy to get rid of. Anyone who has eaten a greasy hamburger and tried to wash their hands without soap afterwards will have a slight inkling of what oil can do to the environment.
Oil hitting a beach is bad enough, as the oil clings to rocks and every single grain of sand, but if it washes into coastal marshes or wetlands it can be even more harmful, as plants and grasses will absorb the oil, potentially destroying the area as a wildlife habitat.
Damage to birdlife
Whenever there is an oil spill it has almost become a cliché for the media to beam images of oil-soaked penguins around the world, but the fact of the matter is an oil spill is a death sentence for seabirds. When a bird is covered in oil, it makes it impossible for them to fly and destroys their natural waterproofing and insulation, which leaves them vulnerable to the elements, hypothermia and overheating. In addition, the birds will try to groom their feathers to restore the natural protection and are at risk of swallowing the oil in the process.
Damage to marine mammals
Water mammals are put at risk by oil entering their environment. The oil can clog the blow holes of whales and dolphins, making it difficult for them to breathe and hampering their ability to communicate. Oil coating the fur of seals and otters disrupts their natural protection, similar to birds, leaving them vulnerable to hypothermia. Mammals that are able to avoid getting coated in oil are still in danger, as the oil can contaminate their food supply. Mammals that ingest fish that have been covered in oil will be poisoned.