Mr. TAUZIN. I am going to come back for another round. Mr. COBLE. Thank you, Mr. Chairman. Let me put these questions to you generally and anyone can respond. The United States never became a party to the international oil spill protocol, as you will recall, through no fault of the House. That proposal encountered shoal waters in the other body, you may remember. Would the Coast Guard support the United States ratifying these protocols in case that ever came to light? Admiral KRAMEK. Mr. Coble, when this was an issue back several years ago, the Coast Guard did support international standards, international ratification of the protocols, and the liability limit which I think was about $250 million or so at that particular time, and it was our recommendation that that protocol be accepted. However, that was not the protocol accepted by the Congress at that time. Mr. COBLE. And that remains your position, I presume? Admiral KRAMEK. Our position now is as an agent of the Administration to mete out the OPA 90 rule, mete out the law and to come up with a rule which will best fulfill the requirements that OPA 90 tasks this Nation to do. So we came up with a rule that will best meet that. I don't have a position whether we should go to the international protocols at this time. Mr. COBLE. Gentlemen, we may get into this subsequently as the day advances, but have you all at the Coast Guard been-for want of a better word-convinced or been the recipient of evidence that Shoreline will have the capital reserves to respond to a major oil spill or for that matter, possibly multiple oil spills in a limited amount of time? Mr. SHEEHAN. Thank you, Mr. Coble. That is part of the approval process. When Shoreline and the other insurance entities come forward with portfolios, that will be in their financial statements, and that will be one of the criteria by which we will judge the acceptability of those entities, sir. Mr. COBLE. Well, do you know now, Mr. Sheehan, I mean, can you tell me today whether you have been given that evidence? Mr. SHEEHAN. I have not been provided that evidence. Shoreline came to us in December of 1993, and indicated in conceptual terms the structure and outline of a company, as well as a financial arrangement, and asked us if we could approve this conceptually. We said conceptually we could, however, at the end of the day, it would have to be determined on their capitalization, on the amount of risk that they were willing to retain on their reinsurance contracts, on the degree of supervision that they would be given by the insurance entity where they were chartered, as well as the appointment of a U.S. agent, so they have not come forward with all of those specifics on which we would need to make a determination. Mr. COBLE. Let me put another question to you involving Shoreline, and we may get to that when the Shoreline representative is here. I have been advised-and I don't recall my source, but somewhere along the line I read or heard that Shoreline plans to per haps insure vessels on a per voyage basis. I guess my question is twofold: is this true to your knowledge? And if so, what sort of financial burden would that impose upon the Coast Guard? I mean, this sort of a piecemeal operation, is that going to require more manpower, Admiral, for you all to be sure that compliance is satisfied, et cetera? Admiral KRAMEK. We don't think that would be any more work for us if they did that, sir-changing vessels for insurance on a per voyage basis. Mr. COBLE. Is my first premise accurate? Have you all been advised that there may be a per voyage approach? Admiral KRAMEK. We have heard that as one of the proposals, but again we have not received any formal proposal to evaluate at this time. I had been told that we would receive it during the month of August and we are waiting for a proposal now so that we can evaluate it. Mr. COBLE. If that is the case, you anticipate no difficulty as far as your end is concerned? Admiral KRAMEK. Not with the paucity of information that I have been given so far. Mr. COBLE. This question extends, Mr. Chairman, your line of questioning. And gentlemen, this is a hypothetical, but I think it can be a crucial hypothetical. What will the Coast Guard do if the majority of oil vessel owners are unable to secure or afford a guarantor by December? That is a loaded question, I will admit. Admiral KRAMEK. That is the $64,000 question, and we will respond to that. Mr. COBLE. Does anyone have an answer to that because, gentlemen, and Mr. Sheehan, I am not throwing daggers at you all, but this question, folks, as my late grandma used to say, makes my coffee taste bad in the morning when I think about the bad answer to this, so I would be happy to hear from you. Mr. SHEEHAN. Sir, we have no intention of shutting down the economy of the United States. We have a number of administrative enforcement procedures that we could go through, including and up to suspension of the rule. We don't anticipate the need to do that. That is one of the options that we have available to us. Selective enforcement is another. I think one thing that is important to note is that all of the tankers that trade in the U.S., while the deadline is the 28th of December, they all are not going to be here on the 28th of December or within that window, so there is a much smaller population that we are really talking about in that period of time. But we will have, I am sure, some advance warning about the availability of the other insurance entities and about the self-insurance provisions. And we do have tools within our tool kit to handle that possibility. Mr. COBLE. Thank you, Mr. Sheehan. I don't mean to be portraying the role of pessimist with this question, but the Chairman and I just went through an arduous time as a result of the Amtrak collision with a bridge that you figured would never happen, but these things have a way of happening. I thank you, Mr. Chairman. Mr. TAUZIN. Will the gentleman yield? Mr. Sheehan, you mentioned selective enforcement. What is that exactly? Mr. SHEEHAN. One of the things that occurs on an almost daily basis with us with respect to the current certificates of financial responsibility that we issue is that we receive binders. Very often it is at the last minute for a vessel, which is either in-bound or to be in the U.S. port within a short period of time. While they don't meet the absolute letter of the law by having the appropriate certificate on board, we accept those binders as proof that they have engaged in the guaranty process and so we will let them come in without the actual valid certificate, but with the assurance of the guarantor that they have provided coverage. So, we would not hold them up for a technicality as long as the underlying insurance was there. Mr. TAUZIN. I want to come back to that. I thank the gentleman for yielding. The gentleman from Virginia, Mr. Pickett, for questions. Mr. PICKETT. Thank you, Mr. Chairman. Will the effect of these rules be to give any kind of preferable treatment to foreign carriers as opposed to U.S. carriers? Mr. SHEEHAN. No, sir. Mr. PICKETT. And what kind of procedures are going to be used to ensure that foreign carriers coming into U.S. ports are going to be in compliance with these rules? Mr. SHEEHAN. Foreign carriers, their owners and operators will have to apply for a certificate of financial responsibility. There is a form which is required to do that. The Coast Guard then issues. a document to those owners and operators which is carried on board that vessel. We have enforcement personnel located throughout the United States who when we receive notification that a ship is in-bound, pull it up on our marine safety information system and look at the status of the certificate of financial responsibility. Is it valid? Is it invalid? Is it issued to the current operator? If it is not valid, we have two options. We can deny entry. Normally what is done is we will then contact that owner and operator, and perhaps it has been a problem with their guarantor. The guarantor, to alleviate that problem, can come to us and give us a binder. But we have a routine where we board these ships today to make sure that this law is adequately enforced. We have had a number of detentions Mr. PICKETT. The companies that you have made reference to here, that I think you said the two companies and I saw them listed somewhere in the materials here, what kind of investigation and what kind of procedures do you have to ensure that they will be financially solvent and able to meet all the commitments that they may be insuring? Mr. SHEEHAN. We have, over the past 20 years as part of the certificate of financial responsibility program, routinely examined, approved and rejected insurers. We go through a number of tests of these insurers. We look at their net worth. We make sure that the net worth or after-capitalization is sufficient to cover a potential loss. We look at the amount of risk that they retain. We look at the amount of risk that they reinsure. We look at their reinsurance arrangements. We also make sure that they have oversight in the area in which they are chartered. We also make sure that they have a U.S. agent for process. If it were a U.S. insurer, we would look to the A.M. Best Company rating system, which is a standard industry-wide methodology of examining the viability of insurance companies. Mr. PICKETT. I notice here that one of these companies, for example, that is referred to, it states that it is incorporated in Bermuda, and I understand there are some very creative accounting procedures that may be followed by some of the offshore insurance companies. What do you do about those kinds of situations? Mr. SHEEHAN. Bermuda does have a recognized and legitimate insurance authority which oversees the general operation of insurers. We currently have a number of insurers that are currently based in Bermuda and we have had good experience with those, including P&I clubs. Mr. PICKETT. Picking up on the final question, and deep concern that I have is implicit in some of the other questions that were asked, but what we have done by the law and now the regulations that are being established is to create a situation where only the very large companies, the very large oil companies, are going to be able to participate in this market and that pricing of products will be at the discretion of these very few very large companies? Mr. SHEEHAN. The pricing of the insurance surely is going to be at the discretion of the insurance companies in terms of premiums. Mr. PICKETT. Excuse me, I am speaking of carriers, the petroleum carriers themselves. Have we set up a situation where onlyvery large oil companies with large resources will be the only ones with access to the market and, therefore, they will be able to dictate what prices are going to be? Mr. SHEEHAN. I don't believe that is the case, sir. Mr. PICKETT. Well, can you expand on that a little bit? If we have all of these heavy financial requirements and only the very financially strong and powerful companies are going to be able to qualify, how can it be otherwise? Mr. SHEEHAN. If you need to provide a coverage upon which we issue a certificate of financial responsibility, that becomes a business cost that is spread across the entire tanker industry. That is going to be a cost. There is no doubt about that. It is going to be more than what they are currently paying. Those that self-insure and have the ability to self-insure are genuinely going to have a slight advantage over someone who cannot. However, these costs are ones which, in our view, and I think, as we had stated in the final rule as well as in the Regulatory Impact Analysis, these costs are ones which in our view are still under the control of the ship owner. If the P&I Clubs, and I think you will be hearing from them today, but if the ship owners, which are the P&I Clubs, direct their P&I Clubs to provide coverage, then you will be back on an absolutely level playing field. So it is in many ways a situation which is somewhat self-generating. You will hear, I think, probably some testimony this afternoon which says, no, we can't do that. But I would submit, sir, that one of the organizations which is here and going to testify is indeed a P&I club. We have another P&I club called Ocean Marine, which is going to write dry cargo coverage, so it doesn't share the same concerns that the rest of the clubs do. So there doesn't appear to be total unanimity with respect to the Clubs' position. Mr. PICKETT. The part that concerns me a bit is this issue about the availability of insurance to the smaller or less financially stable companies and the parallel in my mind is that of the risk that is associated with the writing of bonds for construction purposes, that this has gotten to be quite a high-risk business and it has come to the point that in many cases there are only a very few companies that can get a responsible insurance company to write a bond for them. Is that where we are headed in this business with the bonding of the oil transporters? Mr. SHEEHAN. I don't believe that that is the case. I would expand a bit on my previous answer. If you are also addressing the inland, the barge industry, which is a large component of this particular industry, that delivers petroleum, we have had no indication that the Water Quality Insurance Syndicate, which currently provides guaranties upon which we issue certificates of financial responsibility, we have had no indication that they are not going to continue that practice. And, indeed, I have talked to their representatives and as far as I am led to understand, they are going to be able to continue to provide that. And indeed, they can expand their marketplace to provide coverage to a wider group in the tank-barge industry than is currently served today. Mr. PICKETT. Thank you, Mr. Chairman. Mr. TAUZIN. Thank you, Mr. Pickett. The gentleman from Virginia, Mr. Bateman is recognized. Mr. BATEMAN. Thank you, Mr. Chairman. I have very few questions, frankly, because I have not had the opportunity to go through the material that is here before me. I want to comment, though, that I have listened with very grave trepidation about where we are and where we appear to be heading. I have not been one of the great fans of our oil spill liability solution. I think from the beginning it has been fraught with the likelihood that we wanted to feel good and sort of a "wouldn't it be nice" approach that too often ignored the realities of the actual world of commerce and the marketplace. What I am hearing today seems to reinforce, frankly, those concerns. I find it very disconcerting that we are embarked on something where we are dealing with wonderful concepts, but without any confidence that they are rooted in any reality. And concepts are nice, but not when they defy reality. To sit here and to hear it said that there is no defense to someone who is insured or guaranteed of losses from some liability occurrence, even though they haven't paid a premium, just defies any logic. How do you possibly get anyone to accept that kind of a risk if they are not even assured of getting paid whatever premium or fee was supposed to be the commitment? Why would anybody undertake to do anything if we are going to do such things as that? I can assure you, Mr. Chairman, that you more than tweaked my interest, and I will be visiting this issue and will want to discuss it with you and my colleagues on the committee, but I can't tell you |