Enron Buys Rs 3,100-Cr Insurance Cover For Dpc

Both these companies have covered risks in the pre-commissioning stages with the United India Insurance Company.

The other companies negotiating insurance cover with the four subsidiaries of General Insurance Corporation for their fast-track power projects are AES, Neyveli, Cogentrix and Dawoo power.

The sum insured for the remaining six fast-track projects will amount to more than Rs 10,000 crore with the insurance companies valuing the projects at the rate of Rs 2.5 crore per mega watt.

This is lower than the estimated project cost of Rs 4 crore per mega watt because insurance companies do not cover expenditure involving little or no risks.

 

Indian insurance companies have for the first time begun offering sophisticated covers like delayed start-up insurance to cover the risks involved in a project before it is commissioned. Among those who have bought this policy are BSES and Nippon Denro.

Policies like delayed start-up do not fall strictly within the control of the tariff advisory committee, allowing more leeway to public sector insurance companies to structure the deals according to market situation and compete among themselves. They enable them to earn high premiums between 1.5 and 2 per cent of insured value.

The public sector insurance companies are re-insuring a major part of the risks they underwrite with international insurance companies.

The idea is to bring down the burden of risks on themselves. We are in a position to retain risks amounting to Rs 700 crore or so and the remaining part is re-insured, a senior insurance official stated.

Dabhol Power Company has opted for marine, storage and erection policy worth $610 million and a delayed start-up policy for $272 million. It has also bought a public liability insurance to cover third party risks for $5 million.

In rupee terms, the sum insured by Dabhol Power Company works out to Rs 3,100 crore. This is besides the political risk insurance which is not offered by Indian companies and DPC is believed to have bought overseas.

GVK has taken the MSE policy in two forms: one with Deutsche mark component of DM 458 million and another with a rupee component of Rs 230 crore.

It has also bought a delayed start-up policy for $25 million. Put together, the value of the two policies amount to a little over Rs 1,500 crore.

National Thermal Power Corporation had sought a delayed start-up cover for its Vindyachal project but could not buy it because it did not get the necessary go-ahead signal from the power ministry, sources said.

Insurance companies are, however, reluctant to cover the entire amount of risks involved in loss of profit for the fast track projects because of differences over the calculation of profit.

Another reason for the reluctance is the uncertainties surrounding most of the projects.

The cover for loss of profit is part of the delayed start-up insurance which includes components like interest charges on loans, fixed expenses like salaries and insurance premium itself.