Prestige - A Charterer's Reaction

The following was excerpted from Mr.

Hart's presentation at INTERTANKO's Washington Tanker Event.

Ships continue to sink and pollute, and crews continue to lose their lives or be imperiled. This is the 21st century — the shipping industry is one of the oldest in the world so one has to ask how this is possible that in this day and age? Why can't this industry guarantee that ships won't break up and sink? Why have we not learned the lessons of the past?

In using the term charterer in my paper for this conference, I am referring to responsible charterers. I can only speak for BP as a responsible charterer, and for companies like BP There are obviously other companies and organizations that have different criteria for the way they conduct their business, different policies, if they have any, and different standards.

The title of the paper is regrettably not a new one. The only thing that seems to change is the name of the ship. If the Erika incident was not disturbing enough, within six months of its sinking, other ships names hit the headlines in Europe — do you remember the Krystal, the Ievoli Sun and the Castor? Is there any wonder there is such public and political outrage?

My previous role with BP Shipping in the U.K. was as head of our global marine assurance activities, which included Ship Vetting. As such, the Erika incident dominated my time, and that of many of my colleagues, for well over a year, and BP was not even involved in the incident. Today, my colleagues are likewise wrestling with the aftermath of the Prestige. We are all adversely affected by the outrage and the repercussions, by the reactionary legislation, and by the negative reputation and public perception. The Prestige sinking and pollution has reinforced many of these perceptions of our industry — an industry which should be a great one, but which continues to disappoint.

None of us want more regulation, indeed many of us believe that there are already more than enough laws and regulations in place which ought to be sufficient to govern the safety of this indus- try, but the continued failure of this international framework, that should ensure ships go about their trade safely, makes additional regulation more likely with each incident.

The interdependent safety framework I speak of falls down when: • Flag States cannot fulfill their role due to lack of expertise and resources, and often a lack of commitment. I understand Mongolia is offering a Flag service now.

• Insurers fail to understand the risks they are insuring.

• Many Classification Societies fail to provide consistent industry wide standards and expertise, and transparency of information. Class have responded well to criticism after the Erika incident and we welcome these improvements. Our sense is that there is more that can be done, however.

• Failure of Port State Control to inspect ships entering their ports to enforce existing legislation. The Prestige should have been a high priority target - checking the Equasis database indicated it had not been looked at by any European Port State Control agency for three years. Even with the hindsight following the Erika, this ship was not identified as a target for inspection. Port State Control agencies also fail to utilize the SIRE inspection material made available to them at no cost by OCIMF.

Accessing these reports would help them manage their limited resources far more effectively. They could focus on the ships exhibiting the poorer inspection results, and leave the well operated, well maintained, well crewed ships to go about their business — yes, despite what you may think - we do know there are some good ships out there.

• And of course, with due respect to this audience, and I know none of you fall into this camp and I am preaching to the converted, but the failure of many ship owners or managers to fulfill their role in maintaining a well operated, sound and seaworthy vessel — complying with SOLAS, STCW, MARPOL and basic industry good practice. Such shipowners demonstrate a complete disregard for the safety of their crews, the environment and the countries they trade to or pass by.

If the key elements for this safety framework functioned as they should — BP and our colleagues in other oil companies would have no need for our vetting departments. Instead, they grow larger and more sophisticated every year! BP inspects 2,200 tankers/year, utilizes about 1,000 SIRE reports, handles over 25,000 internal vetting enquiries/year and audits about 30 ship owners/year. There are over 12,000 tankers in our data base — we have a potential business interest to charter around 5,000 of those — the others are coasters, or committed into various closed trades not available for spot use and so on, yet we only approve of around 2,500 tankers. Half the fleet that we would want to charter is unacceptable to us. Even with the half that is acceptable, many will still fail an initial inspection.

We often have ship owners, many of whom are in this audience, asking us to relax our standards and to trust them.

Against the background I have just described, I think you can see why this is just not possible for us. The issue is that that the oil companies are seen to be the bad guys. After the Prestige, the EU has continued to press for a voluntary billion euro compensation fund, to be funded by the Oil companies - they are now starting to realize that we are only responsible for about a third of all international hydrocarbon movements and there are many other independent trading houses and charterers who actually move large quantities of oil - many without the same self imposed standards as the oil majors. Regrettably, whenever there is an incident involving a tanker - it is always the oil companies that seem to be hauled into the limelight - or perhaps 'searchlight' may be a more accurate description Some of you would be aware BP is currently in the midst of expanding its fleet — we have nearly a dozen ships delivering this year alone. Have you asked yourselves why we are doing this?

I will save you the question — we are doing it to be less dependent on a spot market that continues to disappoint — remember the figure I quoted before — only half the ships we could use, we can use. And so our assurance strategy — which was embryonic at the time of the Erika incident, and which matured in the 12 months following, has determined a path for us across a broad range of our marine activities, but one more visible feature was to increase our capacity to move our own cargoes. That is not to say we don't have a place for the spot market or indeed many of you here today. It does however help us be more flexible and better control our destiny in this vital area. We fully recognize the role and importance of independent tanker operators and the spot market. You are important players in one of the world's most important trades. It is crucial to our business and the global economy that this market be dynamic and reliable. But with that comes responsibility — we firmly believe the ship owner must be accountable for his ships. BP, and our other major oil company colleagues are very proud of our brands and our reputa- tions and take safety and environmental concerns extremely seriously. We have a lot at stake globally and will not take the risk of exposing ourselves to the outrage and condemnation that rightly emerges from these incidents.

So, where does that leave us in terms of our response to the Prestige incident?

Our assurance strategy and vetting policies have again been reviewed to ensure they are fit for purpose, both now and in the future. After the Erika incident we did this, and some elements were strengthened, specifically structural controls and inspection frequencies on older ships. We found no need to adjust our vetting criteria after the Prestige sinking.

We have worked hard with our industry colleagues through the good offices of the Oil Companies International Marine Forum, OCIMF, to provide sound and robust comments and advice on the EU proposals. We have also met directly with EU decision makers. Most of the EU proposals were about fast tracking or advancing the plans that emerged after the Erika, including an immediate ban on single hull tankers transporting heavy grades of oil.

We believe that sub standard ships should be driven out of the industry.

This means that more focus and accountability must be brought to bear on the ship owners who operate these vessels and the Flag States that condone them by allowing them on their registers.

We want to see more transparency from and accountability placed on Classification Societies, whose role and importance in the industry we do not dispute, but who must step up across the board to the expectations and the trust that is placed upon them by Flag States, shipowners and charterers alike.

BP is cautious about rapid and ill-considered bans on single hull tankers, especially in the smaller sizes where we feel it is actually not feasible. I understand that the latest proposal by the EU for phasing out small tankers has been pushed back to 2008 — this is far more practical than was previously proposed. We have expressed concern at the impact on the North Sea shuttle tanker business where many of these specialist vessels are single hull. This is an area that needs further consideration. We are particularly concerned that adoption of regional solutions does not simply export the problem ships to other areas of the world.

We support global solutions through the IMO — not regional and local reactions that eventually make it impossible to conduct international trade efficiently.

You will have seen the reports of the French and Spanish navies escorting ships beyond their 200 mile economic zone, or even boarding them, and the Italians who have banned single hull tankers entering their ports. International shipping cannot work in a world filled with local restrictions. I know that Intertanko shares this view as well. It was reassuring to learn of the recent meeting between the IMO Secretary General and the European Commission vice president, in which they confirmed the importance of global standards for shipping. BP recognizes that age alone is not by itself a determining factor as to the quality of a vessel — we have however realized that the legislators and the public identify quality ships with two main criteria — low age and double hulls. This perception has become an embedded reality and one that now needs to be embraced. To continue to debate this is to be out of step with community expectations.

We support efforts to improve the effectiveness of the port state control agencies, indeed BP is helping train port state control inspectors. As 1 have mentioned, there is enough legislation already, what is lacking is the implementation and enforcement of it. Port state control can be a powerful weapon in the war against sub standard ships, as demonstrated by the USCG the UK's MCA. Australia's MSA and others. The lack of cohesion of the multitude of countries and agencies in Europe has been a barrier to effective port state control there in the past, and so we applaud the renewed efforts to unify and better coordinate this essential activity.

We are concerned that reactive legislation will only further burden the quality operators who already comply and do a good job - leaving the ones who are the root cause of the problems to continue to duck their responsibilities, ultimately leading to more incidents.

We have to be able to influence the behaviors and the mind-sets of those that bring our industry into disrepute.

BP, and our colleagues in OCIMF support the International Compensation regimes, which have served the international community, particularly the victims of pollution, well over the years.

We have supported the introduction of the International Supplementary Fund, which will provide an additional layer of compensation to all States party to it The Supplementary Fund upper limit should be set to ensure that sufficient funds are available to cover the likely cost of the worst pollution damage. However, we feel the European Commission's proposed I billion Euros as an upper limit for the Supplementary Fund is excessive. It will be a deterrent to smaller States joining (or even remaining as Members) and, if called upon, will cause considerable financial hardship to Fund contributors.

To sum up. BP, as a major charterer in the industry and customer of yours will continue to work with all stakeholders to help illuminate the issues in an attempt to see practical and constructive improvements in the overall safety framework I highlighted earlier. We are not alone in this effort, many companies and organisations, whether they be oil companies, shipowners, Class, or government agencies, all share the same end goal — none of us want to see any more incidents like the Prestige. It is incumbent upon all of us to learn from the past and work together to make this a reality.