Tanir Bavi Project Gets Risk Cover

The country's first floating power project -- the 220 mw Tanir Bavi power plant in Karnataka -- struck a deal for international reinsurance cover on Christmas day.

The cover for the Rs 900 crore barge-based power project, which was commissioned on November 21, was finalised at a premium of Rs 4 crore.

The power project is jointly promoted by the GMR Group & Associates and PSEG Group of the US.

The operational insurance covering fire and loss of profit risks for the power plant, was led by The New India Assurance Company and was co-insured by the state players -- United Insurance Company and National Insurance Company as well as the new players Royal Sundaram Alliance Insurance and Reliance General Insurance Company (GIC).

 

This is the first operational risk to have been taken by the Indian insurance industry involving a floating power project and hence had to be placed facultatively.

That is to say that while it was directly underwritten in India, the insurance companies sought to reinsure it overseas and were seeking corresponding international rates.

Said a reinsurance broker: "The Indian market does reinsurance on land. This particular project is a borderline case between land and a floating project. It would be excluded from ordinary treaties and would not necessarily conform to the rates set by the Tariff Advisory Committee."

Initially, in a hardened market, global reinsurers were quoting higher rates of around 50 to 60 per cent than the premium at which Indian insurers took the risk on their own books. After the GIC stepped in, the pricing of the cover for the plant continued to stand at Rs 4 crore.

However, the company had to agree to a substantially higher deductible of around Rs 5 crore in keeping with the terms and conditions of the reinsurers.

GMR officials stated that the naphtha-based plant is fully operational and is running at 100 per cent capacity.

GMR has signed a seven-year power purchase agreement (PPA) with the Karnataka State Electricity Board (KSEB) for the offtake of power. The plant is anchored on Gurpur river in Mangalore, and the open cycle (first phase) has commenced late this year.

As per the PPA, the current cost of power to the KSEB stands at over Rs 3 per unit, partly varying with the price of naphtha. Officials stated that prices of naphtha had been decreasing and have now stabilised.

The barge-based power plant has a debt-equity ratio of 70:30, with debts coming from the major financial institutions including the Industrial Development Bank of India. The GMR group holds 51 per cent of the equity, with the balance 49 per cent held by the US group.

PSEG is a Fortune 500 company with a capacity of 13,000 mw and service territory of 1,16,000 sq miles, serving 3.1 million industrial, governmental and residential customers worldwide. The GMR Group has already completed its first power project of 200 mw at Basin Bridge, Chennai.