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DPC may find it tough to renew risk cover

Freny Patel

The beleaguered Dabhol Power Company faces a stiff task as its 'silent' insurance cover, that is, cover for a plant which is not operational, under the comprehensive mega policy comes up for renewal on May 1.

The cost of coverage is likely to go up as premium rates in the international market harden further.

The controversy shrouding Enron and DPC and the inability of domestic lenders to find the right party to sell the company will hamper its risk cover renewal, said senior officials from the insurance industry.

Global reinsurers are skeptical as the plant has not been operational since June last year and apprehensive about the preservation status of the site.

Construction on Phase-II of the plant came to a halt on following the inability of the Maharashtra State Electricity Board to pay for the power drawn from DPC.

Meanwhile, representatives from the Oil and Natural Gas Corporation, United India Insurance and lead international reinsurance brokers Aon commenced talks on Monday in London for renewing the corporation's $750 million insurance programme.

ONGC and its insurance company United India plan to complete the underwriting the full cover well before the due date in mid April.

Last year, Aon had failed to get ONGC's cover renewed by the due date, March 31. The corporation thus went without any risk cover for more than a fortnight, and ended up with a high deductible of Rs 1 billion.

Meanwhile, National Thermal Power Corporation managed to renew its mega insurance cover for the current fiscal on April 1, but saw a three-fold rise in its premium cost, said insurance officials.

Bharat Petroleum Corporation Ltd is in the midst of finalising its insurance programme before its due date -- April 12. Munich Re and Swiss Re have quoted different terms.

BPCL is trying to decide between a higher deductible on claims at a lower premium cost and a lower deductible on claims but at a higher cost of insurance.

New India Assurance and Oriental Insurance are fighting it out in the international market trying to get BPCL the best possible terms. Both however, gauge that BPCL will be lucky to get away with a 100 to 150 per cent hike in premium cost.

Nearly 25-30 per cent of Indian corporates have opted out of terrorist cover and more are expected to follow suit, said a senior insurance company official.

Moreover, the lack of international capacity in the wake of September 11 attacks in the US, has resulted in global reinsurance companies canceling terrorist coverage for many long-term project policies of three-four years.

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