Local industry too small to cover mining industry: Insurers

Kampala, Uganda | THE INDEPENDENT | Uganda’s mining industry is likely to face a struggle to access the needed insurance cover as they plan more exploration and production.

As different companies step up their activities, huge amounts of money will be spent covering for any eventualities that might result in loss.

However, like it was with the oil and gas industry, before financing and insuring these projects, the service providers take into consideration climate and environmental effects, as has been with the East African Crude Oil Pipeline.

The local insurance sector’s strategy to access the opportunities involves pooling resources so as to have the capacity to insure the high-capital projects.

However, this is not likely to give the advantage that the insurers had expected, according to Maurice Amogola, the Chief Executive Minet Uganda.

He says that even if the companies combine all their resources, they will be unable to cover a mining project worth 200 million dollars, like the Makuutu Rare Earth project in Busoga, because they wouldn’t afford to pay the claim if a loss occurred.

Uganda’s insurance sector raised a combined premium (the total clients paid for insurance at all the companies) worth 711 billion shillings last financial year, which is less than the total value of the Makuutu mines.

Of this total, underwritten premium, the companies paid out 242.5 billion shillings in claims. The challenge they now have is seeking the support of global multinationals including insurance and reinsurance companies.

However, Amogola says multinationals are increasingly tying climate mitigation measures to their financial products, meaning the borrower must prove that their projects will either not harm, or will enhance environmental health, human livelihoods, and good governance.

Uganda’s extractives industry has over the last few years attracted negative publicity, especially regarding the violation of human rights and the environment.

This includes issues child labor, underpayment, sexual abuse, forced eviction, and environmental degradation, all of which the government and the investors have to deal with to attract financing and global investors.

Ritah Mutesi Kabayiza, the Executive Director Willis Tower Watson Uganda, says the negative publicity makes it even more challenging for one to accept to insure a project.

She also warns that the cost of insurance globally is increasing and that investors in Uganda should brace for this, especially as political conflicts persist between major economies.

These enhance safety and security fears for investments, and make the insurers, just like lenders, more cautious.

The environment and climate change-related campaigns have not only affected the fossil fuel industry but others too, including mining.

Apart from the local regulations that set requirements like environmental and social impact assessments, multinationals are also increasingly asking their prospective clients to put in place such measures before they get the finances.

Amogola says this means that countries like Uganda and the investors must put in place systems that provide for this.

The government has insisted that the climate protection campaign that calls for an energy transition from fossil fuels to renewable energy is necessary, but that the country will not be rushed.

This means, attracting global investments and financing will continue to be a challenge. Michael Ahimbisibwe, the Principal Energy Officer at the Ministry of Energy and Mineral Development says while Uganda supports, energy migration cannot move at the same pace as others.

He says already, the country’s energy mix is evidence that it is migrating, but that there might be a need to increase the pace.

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