Miga Sees Bigger Role After Enron Fiasco

After the Enron fiasco, foreign investors in India could increasingly resort to taking political risk insurance cover from Multilateral Investment Guarantee Agency (Miga).

Miga, a World Bank Group member, plays the role of promoting foreign direct investment (FDI) into emerging economies, by offering political risk insurance cover.

"We expect to player a greater role in increasing investment to India especially as public and private lending will see a shortfall," said Miga chief counsel Srilal Perera.

The September 11 attacks have also heightened the uncertainty for emerging markets. "We anticipate a further slide in FDI post September 11 on account of the big political divide among countries right now," said Perera.

There has been a flight to quality post September 11. Some of the investments have been delayed or stand cancelled. Projects with political risk insurance cover in place however, will go ahead as anticipated, said MIGA executive vice president Motomichi Ikawa. "Other committed projects will now go ahead only if political risk insurance cover can be obtained," he added.

Even as a host of insurance companies across the world have either increased premiums substantially, or have excluded terrorism and war from their insurance coverage, Miga does not propose to increase its premium costs.

"We need to assess the situation. This is the time for us to stretch ourselves further as post September 11, the market has shrunk in terms of private insurers. To counterbalance this, we need to be more visible," said Ikawa.

The premium ranges between 0.3 to 1.5 per cent of the total investment made in a country. It varies between countries, the value of the project and the nature of protection sought. In the Asian region, Pakistan and China have seen maximum investment covered by political risk insurance.

Two Indian corporates which have made investments in Zambia and Tanzania, have taken political risk insurance from Miga, to cover war and civil disturbance in these countries.

Since Miga's 13 years of existence, it has paid out only one claim, that to Enron. Two years ago, Enron was forced to exit from Indonesia after the local government issued a decree cancelling the its power project. Enron's political risk insurance cover taken from Miga helped it recover $ 15 million. Miga was later able to recover the amount from the local government.