What losing insurance deal means for East Africa Crude Oil pipeline future

Britam, a Kenya-based financial services provider, is a client of the International Finance Corporation (IFC). The former's withdrawal comes in response to a complaint to the Office of the Compliance Advisor Ombudsman (the World Bank's complaint and accountability mechanism for people impacted by IFC) against IFC raised last year in October.

The complaint was raised by the Inclusive Development International saying, "there are indications of a plausible link to harm or risk of harm to the complainant related to the sub-project."

Since Britam is under the IFC, with a $35 million investment from the Corporation, it was eligible and had capacity to insure EACOP and sub-projects Tilenga and Kingfisher. However, as a client of IFC, it's participation in the highly contested project was questioned because the projects do not meet the IFC environmental and social performance standards.

The violated standards include:

Failure to meaningfully engage local communities
Failure to provide adequate and timely compensation to communities affected by the project
Threats and retaliation against human rights activists opposing the project
Possible irreversible damage on ecosystems such as Murchison Falls National Park

Far reaching consequences of the withdraw

According to Coleen Scott, a legal and policy associate at Inclusive Development International, Britam's withdrawal serves as an example to all insurers in the region to stay away from the project. She urged the out-going insurer to publicise its findings for other companies to consider before deciding on their involvement with the project.

"Britam’s decision validates our assessment and confirms what we already knew: The Eacop fails to comply with international standards. 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 said.

Low-capacity local insurers

The question now, according to Uganda Insurance Regulatory Authority Chief Eexecutive Officer, Ibrahim Kaddunabbi Lubega, is whether local insurers have capacity to ensure projects as big as $10 billion.

The EACOP Special Provisions Act of Uganda limits local insurers to 30 percent of risk. Meanwhile, insurance giants from Europe with the capacity to absorb any losses incurred, have continued to shun the projects.

Climate activism

Omar Elmawi, the co-ordinator of the StopEACOP Coalition said about the setback that, "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."

Dennis Kakembo, an energy law expert, said that the capacity required to insure the project is beyond available options. 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. 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," Kakembo said.

Britam becomes the latest financier to crack under the conflict to participate in the project and the growing climate activism opposing the project in favour of renewable energy. TotalEnergies and China National Offshore Oil Corporation appear to be the last standing defenders of the project in order to secure insurance coverage and financing. They maintain that the project is in line with IFC standards.