Maritime Transport (Offshore Installations) Amendment Bill

I move, That the Maritime Transport (Offshore Installations) Amendment Bill be now read a second time.

The Maritime Transport Act implements a “polluter pays” regime. In simple terms, this means that owners of offshore installations, like those at the Māui and Pohokura oil and gas fields, have unlimited liability for the costs of any pollution damage from their installation. The owner’s liability is extensive and includes costs of clean-up, reinstatement, and impairment to the environment. This bill does not change the owner’s liability at all. As well as the “polluter pays” regime, the Act provides additional protection by requiring owners to demonstrate to Maritime New Zealand that they hold insurance or other financial security from a third party for pollution risks from the installation.

The third-party assurance regime under the Maritime Transport Act has two purposes. Firstly, the fact that a parent company or the international insurance market is prepared to stand behind the owner gives the Crown and the public a level of confidence in the operation. Secondly, if there were a significant oil spill, the availability of the third-party assurance reduces the financial risk to the Crown and to others. It does this by creating a direct right of action against the third-party insurance provider if the owner is unable to meet its obligations. It’s this aspect of the regime that the bill focuses on.

The changes, together with the changes to marine protection rules, clarify and strengthen the third-party insurance requirements. The current regime requires owners to have third-party insurance cover for all of their liabilities, but only up to a cap of $27.7 million. This cap is totally inadequate to cover the likely costs if there was a significant pollution event. Modelling undertaken in 2015 for the Crown estimated the median clean-up costs from a credible worst-case spill scenario at an offshore installation in New Zealand to be around $800 million. The uppermost estimate in the modelling was $1.2 billion.

Under the new regime, the rules will include a scaled framework for specifying the amount of cover required for each particular installation, based on the modelling of a credible worst-case scenario event. While some installations could be at the higher end of this modelling, most will be lower, for the majority are likely to require cover in the hundreds of millions of dollars. The new regime will, therefore, require owners to obtain much higher levels of cover than the paltry amount currently required.

To get this cover, most owners will need to go to the international insurance market, where there are relatively standard insurance policies available. Most owners already have this type of cover for their own business purposes. While parent company guarantees could also be an option in some cases, a guarantee is only as good as the financial strength of the person or organisation giving it and the ability to recover from that person. The key challenge is that while these internationally available insurance policies are likely to be available at the levels required, these policies will not cover all potential pollution liabilities associated with an offshore installation.

The key trade-off that the bill asks Parliament to make is between the current regime, which requires third-party insurance for all pollution risk but subject to a totally inadequate cap, or the regime proposed in the bill and the associated rules, which will require third-party insurance for the key risks and costs at a level that can be expected to cover those risks and costs. The key risks and costs covered will include costs arising from pollution damage, costs of clean-up, and costs of reinstatement arising from an out-of-control well. Whether or not you agree with the continuation of an oil and gas industry in Aotearoa New Zealand, the answer to this dilemma is pretty clear: if we’re going to continue to allow oil and gas exploration under the current permits, and if we are going to continue to extract oil and gas from fields like Māui and Pohokura, we owe it to New Zealanders to ensure that we require the best cover that they can get, and that is what this bill allows us to do.

I would like to take this opportunity to acknowledge the work of the Transport and Infrastructure Committee and thank them for their time and contribution to the development of this bill. I would also like to thank submitters for their contributions and I acknowledge their genuinely held views on some aspects of the bill. I am pleased that the Government’s main objective for the bill—to clarify and strengthen requirements for owners of offshore oil and gas installations to hold insurance or equivalent cover for their liabilities in the event of an oil spill—received unanimous support from submitters and the select committee.

I also support the changes recommended by the select committee. I want to touch briefly on three of those changes. The first change clarifies that a claimant may commence proceedings based on the alleged liability of the owner of the oil or gas installation to the claimant. This change makes it very clear that claimants do not need to obtain judgment against the owner before they can seek redress from the insurer. The second change adds a requirement that a claimant obtains the leave of the court before taking direct action against the insurer. It makes sense that the first port of call for redress are the owners of the installation. It is the owner who has primary legal responsibility for the spill.

I understand that based on existing case law in relation to the equivalent provisions in New Zealand and overseas, a court is likely to grant leave if it is satisfied that the owner has had a judgment issued against it that it has failed to satisfy, or if there is an arguable case that the owner is liable to the claimant, an arguable case that the insurance policy covers liability, and a real possibility that if the claimant obtained judgment against the owner, the owner would not be able to meet the claim.

The third change I want to mention will prevent the insurer relying on so-called after the fact defences. I agree with the committee that insurers should be prevented from relying on contractual defences arising out of the insured’s conduct or inaction in the claims process. A potential example is the failure by the owner to provide sufficient information or assistance to the insurer. This kind of technical defence is inappropriate in this context.

I also want to bring to the House’s attention that I’m preparing a short Supplementary Order Paper (SOP) for the bill aimed at ensuring a smooth and timely transition to the new regime. The change to the new financial assurance regime has been very well signalled. It was scheduled to come into force by the previous Government, so the market has been aware of the key requirements for several years. The market also supports the change, but is, understandably, keen to have certainty over the transition. While the Government is comfortable for existing installations to transition to the new regime within a year of the new rules coming into force, more risky drilling activities should have to comply with the new rules before next summer’s season. It is unacceptable that we could have inadequate cover for this kind of activity for longer than is absolutely necessary. My SOP will provide more certainty in relation to this transition.

Again, I want to thank all those who submitted on the bill and the rules. I would like to acknowledge your participation in the democratic process. I commend this bill to the House.

Before I put the question to the House, I do want to remind—I don’t often sit in the Chair during readings on bills, but I’ve noticed a growing habit of members reading their speeches. That is not permitted.

Mr Speaker, thank you for the opportunity to speak to this bill, the Maritime Transport (Offshore Installations) Amendment Bill. This is a bill which we support. We see the sense of it. We see the absolute necessity for our marine environments to be protected, and, in fact, having the world’s best practice in terms of permitting is something which I think New Zealand is proud of. But if there was any eventuality that there was an oil spill from an offshore installation, not only would we want to have that assurance of the companies and their associated arrangements for capability to be able to mitigate and work against and do the appropriate actions that any spill would require but, behind all of that and backing all of that, there is, of course, the financial capability for that to occur. We understand that there is massive expense.

This bill actually had its genesis in the previous Government. The work was done, the research was done, and the preparation for it to come to Parliament was done, interrupted only by the 2017 election. So it is good to see that this work is carried on, and we certainly do support it.

The regime’s primary focus is, of course, to ensure that financial capability. Having third-party insurance and the access to that is absolutely vital. It is a common practice around the world and is something that this bill enables, and we appreciate that.

The changes that the select committee did, we support. The fact that a claimant can now put in a claim on alleged liability is important, because we don’t want to have any work, any compensation, or any mitigation held up by due process that may go through a legal proceeding, but it does need, of course, the leave of the court for that claimant to go forward. I think that’s a very sensible mix.

I’m not part of the Transport and Infrastructure Committee, but I do have an interest in this particular area, so I want to commend the committee on the work that they have done. We are very happy to support this bill through the House in its second reading.

Thank you, Mr Speaker. I’m pleased to rise and take a call on the Maritime Transport (Offshore Installations) Amendment Bill. What this piece of legislation does is it increases the level of insurance that offshore oil and gas installation owners are required to hold. I guess for a worst-case scenario, where we would have a serious oil spill, it is important and essential that we know that these people are going to be insured adequately to help with the clean-up, etc., of this. So I have no hesitation in commending this bill to the House.

It’s a pleasure to rise and support the Maritime Transport (Offshore Installations) Amendment Bill in this, its second reading. A very sensible and quite necessary measure it is. Not only should we support world’s best practice in terms of exploration but we should—and do—have a regulatory framework which is focused very much around preventing hazards and discharges.

We do need to make sure that in the event—although it’s a low probability—of a spillage or of environmental damage, the polluters are responsible for dealing with the mess and effects that they have brought about, whether that is done by an act or an omission, or by some other means. So with the bill not only being very clear about that liability but the need for the potentially liable party to have insurance to cover that, we give very strong clarity to the explorer about their obligations but we give a lot more confidence and certainty to New Zealanders that in permitting these sorts of activities of offshore oil exploration, should adverse consequences arise from those activities, we have the means to ensure that the damage to the environment is both contained and addressed and that the liability for that rests solely with the party who is held responsible for it.

So it’s a sensible measure, and it is something that was initiated under the previous Government, as so many of the sensible measures that have passed in this term were. But it’s well worth doing, and we commend it to the House.

Bill read a second time.