Proposal to better protect taxpayers from cost of potential oil spills

  • Hon Julie Anne Genter

Offshore oil and gas operators would be required to hold higher levels of insurance to ensure they can cover the cost of an oil spill under proposed new rules announced today by Associate Minister for Transport Julie Anne Genter.

Cabinet has agreed to consult on increasing the amount of insurance that oil and gas operators are required to hold. Currently, operators are required to hold insurance worth around $27 million. The new proposal would require them to hold levels of insurance proportionate to the risk posed by the installation, up to a maximum level of $1.2 billion.

 “While the likelihood of an oil spill is low, if one occurs it could have significant environmental, financial and cultural impacts and cost tens or even hundreds of millions to clean-up,” Julie Anne Genter said,

“Communities and taxpayers shouldn’t be left to foot the bill for clean-up of an oil spill, like we saw with the Rena. It’s only fair that operators are able to cover the clean-up cost of a worst-case scenario oil spill.

“Under the proposed regime, operators would be required to hold insurance proportionate to the risk posed by their installation poses.

“The proposed upper limit has been set at $1.2 billion to future-proof the regime in the event that a future installation proceeds in a higher-risk, deep water location.

“For existing operators, the amount of financial insurance required would be well below the upper limit of $1.2 billion.

“I understand that the amount of insurance or financial insurance estimate for current production installations in Taranaki ranges from about $170m to $360m.

As part of the proposed new regime, the Minister has also introduced a Bill to amend the Maritime Transport Act 1994 (the Act) to provide certainty in relation to the liability of insurers (or, in the case of financial security, the persons providing the financial security) to the Crown and to other third parties who are affected by the pollution.

The Bill clarifies that rules may specify the types of liability that will need to be insured against, and may provide for the insurance or other financial security to cover the cost of well control measures and other costs of implementing marine oil spill contingency plans. The rules will also propose the amount of insurance or financial security required to be held.

“Under the existing Act owners of offshore oil and gas installations face unlimited liability for the cost of pollution damage and clean-up resulting from a spill from their facilities in New Zealand waters. The Amendment Bill does not change their unlimited liability.

“Members of the public and interested parties will have the opportunity to have their voice heard on the Bill during the Select Committee process.

The remainder of the regime, including the increased limits for financial assurance, will be implemented through marine protection rules. Consultation on these draft rules will occur alongside the Bill.

The Government last year announced an end to new offshore oil and gas permits, while allowing existing permits to run their course. Part of that deliberate, planned and managed transition over the coming decades is ensuring the existing operations are well managed and risks are mitigated where possible,” said Julie Anne Genter.