The real cost of oil

RISKAFRICA Magazine - - CONTENTS - Nick Krige

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.

En­vi­ron­men­tal dam­age

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.

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