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Dabhol Power opts out of mega-risk policy

Freny Patel

After Reliance, Dabhol Power Company has become the second corporate entity to opt out of the mega risk policy post September 11, 2001 terror attacks on the US.

The beleaguered DPC renewed its risk policy for 2002-03 by seeking the most economical insurance cover on Tuesday.

The company has sought a cover worth only around Rs 32 billion under the standard fire policy to protect its existing assets while the cost of the power project is in excess of $3 billion.

The power company has paid around Rs 90 million for the silent/standstill cover, and has paid an additional sum towards terrorism risk as per the tariff.

The silent risk cover was arranged by Indian insurers led by the New India Assurance Company.

"In view of the fact that the plant is not operational, this works out to be the most economical cover that Dabhol could have opted for.

"Had Dabhol gone for an industrial all-risk cover, it would have cost the company two to three times as much," said senior insurance officials.

As the plant is non-operational, there is no question of taking cover against loss of profit or business interruption, which is included in mega and all industrial risk policies.

Further, DPC is currently in the hands of the lenders, who are not in a position to take any major decision unless the controversy surrounding the power plant is settled, and a consensus is arrived at by all the stakeholders.

DPC and its lead Indian insurer had sought quotes from the international reinsurance market earlier in the month.

However, post US terrorist attacks, cost of mega risk covers, which are directly renewed in overseas reinsurance market, have increased substantially.

Global reinsurers have also decided not to take too much risk onto their books, and are also including stringent terms and conditions in the policies.

Many Indian corporates have seen high exclusions on renewing their covers. Bharat Petroleum Corporation renewed its mega policy in April.

However, there was a high pay off between a low 25 to 30 per cent hike in premium against higher deductibles (initial amount that is not paid by the insurance company at the time of claims).

Reinsurance premium for India have escalated by at least 30 to 50 per cent in the last couple of months, forcing corporate India to shell out more towards protection of their assets following the September 11 attacks.

National Thermal Power Corporation, which renewed its mega risk cover on April 1, was forced to pay thrice the premium cost.

Air-India was equally hit and paid nearly 50 per cent more when it renewed its cover in April.

The national airline paid over $12 million towards for the cover, against $7 million last year.

This did not include the Rs 400 million terrorism premium paid in October last year, which is valid for a year.

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