Financial security regime for offshore installations Ngā tukanga tiaki pūtea mō ngā whakatūnga ki waho

The Maritime Transport (Offshore Installations) Amendment Act 2019 came into force on 1 January 2020 and clarified the liabilities of insurers to the Crown and to other third parties entitled to claim compensation from an owner in the event of an oil spill. In the case of financial security, the Act clarifies the extent of the liabilities of those providing the financial security.

Amendments to the Act did not change the polluter-pays regime. Owners still retain unlimited liability for the cost of pollution damage from an oil spill from their facilities in New Zealand waters. This means that the Crown and any other person affected by pollution damage from an offshore installation is entitled to make a claim against the owner. This unlimited liability includes the:

• cost of measures to prevent or reduce pollution damage
• cost of reasonable measures to reinstate the environment, and
• loss of profit from impairment of the environment.

The Amendments provide more protection

Under the Act, owners must prove to Maritime New Zealand that they hold insurance or some other financial security to pay for any pollution they cause. This gives the Crown and the public more confidence in the operation because:

• a parent company or the international insurance market is prepared to stand behind the owner for an amount akin to the costs likely to be incurred for clean-up and compensation, and
• if there were a significant oil spill, the availability of the third-party assurance reduces the financial risk to the Crown and others by creating a direct right of action against the third-party assurance provider if the owner is unable to meet its obligations, if, for example, the owner was insolvent.

We undertook public consultation on the proposed amendments to Maritime Protection Rules Part 102 and Part 131. The consultation ran in parallel to the Maritime Transport (Offshore Installations) Amendment Bill 2019 passing through Parliament.

We received 6 submissions, which all supported strengthening the financial security regime. The main themes in submissions relating to the Rules were:

• whether or not financial security should cover all of an owner’s liabilities under the Act
• ensuring that internationally available best practice insurance policies can be used
• whether the upper limit of NZD$1.2 billion is appropriate, and
• the scope of the financial assurance if an installation is decommissioned or abandoned.

We made some minor amendments to the draft rules as a result of submissions.

In May 2019, Cabinet agreed to proposals to strengthen the financial security regime for offshore installations, which would need more legislative change than previously agreed on, including a Maritime Transport (Offshore Installations) Amendment Bill 2019 and amendments to Part 102 and Part 131 of the Marine Protection Rules.

Cabinet also agreed that we would undertake consultation on the proposed amendments to the Rules.

Following the earlier public consultation on options to improve the financial security regime for offshore installations, Cabinet agreed we should consult on draft amendments to Part 102. These amendments would ensure the financial assurance provided by permit holders was more aligned with the risk associated with their activity.

Amending Part 102 would ensure the risks associated with the oil and gas industry would be addressed. The draft amendments would also provide greater protection to the Crown and the public in the event of a significant oil spill and refining the scope of liabilities would also enable permit holders to use conventional insurance policies to meet their assurance requirements.

While submitters supported amendments to the current assurance requirements, they also raised several issues. However, the 2017 general election meant no further action was taken.

In December 2016, Cabinet agreed to the release of a discussion document on options to improve the financial assurance regime and address the issues found during the review. A document describing the results of modelling of oil spill scenarios in New Zealand was also released.

We asked submitters to respond to the 3 key issues identified by the review:

• the lack of a financial assurance requirement for the costs of containing oil well spills
• the low level of assurance required for clean-up and compensation, and
• incompatibility between financial assurance requirements and conventional insurance policies.

In 2016, officials from the Ministry of Transport and the Ministry of Business, Innovation and Employment reviewed each aspect of the financial security regime for offshore installations to determine their relevance, effectiveness and suitability.

They found the regime was mostly fit for purpose but 3 main issues were identified with the financial assurance requirement for offshore installations set out in Part 102, and established under the Maritime Transport Act.