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Reinsurers keep off Dabhol, with status unclear

Freny Patel

International reinsurers have failed to give any quotes for renewing the mega-risk cover of the beleaguered Dabhol Power Company.

This is despite the cover falling due on May 1. This is not because of shy international underwriters or the higher premiums in the global market.

Rather, there is a lack of clarity in the minds of Indian and foreign lenders as to where the project is headed.

And accordingly what sort of risk cover would be required. Currently DPC has a 'silent' operational cover under the mega risk policy.

"Who is there to take a call and decide to the nature of the cover when the lenders are not too conversant with the type of risk and the international market is not too keen to give any quotes when uncertainty over DPC's future looms large," said reinsurance brokers.

Indian insurers led by the New India Assurance Company are advising DPC to withdraw from a mega policy and opt for a standard fire cover or an industrial all risk cover from the Indian market, since the power project has been moth-balled.

Lenders to the power plant are not keen to commit more as there is no clarity on the future of this tainted project. They are equally not conversant as to what kind of a cover they should opt for.

More importantly, it has not been easy for the stake holders to reach a consensus when it comes to doling out money for expenditure at a time when Enron has defaulted in making payment to the lenders.

While lenders wish to renew the risk cover at the lowest possible cost, the international reinsurance market is not keen to take exposure to DPC following the controversy surrounding Enron.

Global reinsurers are also skeptical as the project - phase I (740 MW) and phase II (1,444 MW) - is non-operational. Phase I stopped power production since May 29, 2001 after the Maharashtra State Electricity Board suspended power purchases.

They are equally apprehensive as to whether proper care has been taken in its preservation, since the project was mothballed.

Renewal of DPC's cover is not expected to fare well considering the controversy surrounding Enron and Dabhol and the inability of the financial institutions to find the right party to sell the embroiled power company, said senior officials from the insurance sector.

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