Surana Power Project

Risk Care Insurance Broking Services Private Limited
Surana Power Project: Vadalur, Raichur
Project Overview Name of the Project Principals Project Type Fuel Major Equipment Supplier Project Cost Lead Banker Project Commission Date 2x210 MW Power Project Surana Power Limited Thermal Coal BHEL Rs.2400 crores IDBI June 2014
Insurance Type & Values Erection All Risk Insurance BHEL Package: Rs.1241.32 crores BOP Packages: Rs.1275.00 crores
Advance Loss of Profits
Rs.490.22 crores representing Gross Profit before interest Rs.1114.47 crores, as part of BHEL insurance policy 37 months including 2 months testing
Marine All Risk Insurance
Project Duration
BHEL Policy Period
18.5.2011 to 17.6.2014
Snapshot of Insurance Proposal under consideration Erection All Risks for BOP Advance Loss of Profits for entire project Rs. 1275 crores Rs.490.22 crores Time Excess: 60 days/45 days Indemnity Period: 12 months
Terrorism Insurance for BOP
Rs.1275 crores Rs. 490.22 crores(ALOP) Terms as per Indian Pool

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Premium Comparison(Pre-Tax Premium Rs. Lacs)

Insurance Company EAR +EQ only Terrorism for EAR ALOP only Terrorism for ALOP
United India
2,23,12,500
Not Quoted
60days: 2,46,10,000 45 Days: 2,95,32,000 2,36,25,600 2,21,49,000
Not Quoted
National RGIC
1,22,28,047 99,83,250
1,80,25,263* 80,33,047 (Upfront) 1,14,75,781 (instalments) 88,60,451
*Included 1,47,06,600
L&T
92,70,844
Not Quoted
Not Quoted
BHEL Terms x 1Esclation 2TPL 3Surrounding Property 4Earthquake 5Fragile Items 650:50 clause 7Additional Customs Duty 872 hours clause 9Automatic Reinstatement 10 Cost of reproducing/re-acquiring information 10 crores 10% of SI Full Rs.10 crores As applicable Rs.10 crores As applicable 10% of SI Rs.20 lacs Rs.50 lacs 30% of net claim amount
United 10%Yes Yes Yes Yes NA NA Yes Yes Yes NA Yes Yes Yes Rs.50 crores Rs.50 crores 12 months As per pool Yes NA Yes NA
National Reliance L&T Yes Yes Yes Yes NA NA Yes Yes Yes NA Yes Yes Yes Yes NA Yes Yes Yes Yes Yes Yes NA NA Yes Yes Yes NA Yes Yes Yes Yes NA Yes Yes Yes Yes Yes Yes NA NA NA Yes Yes NA Yes Yes Yes Yes NA Yes Yes
11Debris Removal 12Air Freight/Express Freight 13Waiver of subrogation 14Property held in care/custody of insured 15Off site storage 16Extended Maintenance 17Terrorism

Policy Excess(Deductible) Chart: BHEL
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Description Turbine Generator, Unit Transformer Other Equipments Third Party Liability Max/Min limits
Normal Perils Rs.15 lacs
AOG/Testing Period Rs.50 lacs
Rs.5 lacs Rs.5 lacs 5% of claim amount with minimum as above
Rs.15 lacs Rs.15 lacs 5% of claim amount with maximum Rs. 5 crores per event
Max Min Limits for Fire/Explosion Claims
20% of claim amount with a maximum of Rs. 20 crores.
Terrorism
0.5% of SI for EEL. Minimum:Rs.1,00,000 & Maximum: Rs.1,00,00,000

Description Normal United 5% of claim amount;Mini mum of Rs.25 lacs EEL National 5% of claim amount; minimum of Rs.35 lacs EEL RGIC 5% of claim amount: minimum of Rs.1 lac EEL L&T 5% of claim amount; minimum of Rs.1 lac EEL
`AOG/Testing
10% of claim amount; minimum Rs.100 lacs
10% of claim amount; minimum of Rs.75 lacs
TPL
Rs.5 lacs for TPPD claims
5% of claim amount; minimum of Rs.35 lacs(TPPD)
5% of claim amount;minimum Rs.4 lac.
Description
United
National
RGIC
L&T
Fire/Explosion
20% of claim amount with minimum testing period excess
10% of claim amount with minimum Rs.75 lacs
Same as United
Same as United
TPL
Rs.5 lacs for TPPD claims
5% of claim amount; minimum of Rs.35 lacs(TPPD)
5% of claim amount;min imum Rs.4 lac.
Comparison of Excess Description ALOP Terrorism United 60/45 days Not Quoted National 60 days excess 0.5% of SI Maximum Pool limit per location is Rs.750 crores. For terrorism claims max indemnity is 10% of SI limited to Rs.100 crs. RGIC 60 days excess Same as National L&T Not Quoted Same as National for PD. Not quoted for ALOP
Analysis of Quotations: EAR We have compared the scope of coverage with the BHELpolicy and have found that all the companies have offered similar coverage There is a wide difference in premiums quoted by the four insurance companies. While highest premium of Rs. 2.23 crores is quoted by United India, L&T have quoted Rs. 92.70 lacs for same coverage.
Analysis of Quotations: EAR

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When we compare the terms of excess of the four companies, we find a vast difference. Excess is the amount that SPL will have to bear for each and every loss(EEL).
Excess limits are determined by erstwhile tariff and there was an amendment to the excess applicable in April 2011. According to amended limits, excess applicable for Power Plant (Thermal) are: For Sum Insured up to Rs.1500 crores for 210 MW: Normal Excess: Rs. 1 lac/ Testing Period&AOG: Rs.5 lacs
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Analysis of Quotations: EAR Impact of Excess on Premium: There is an option in the tariff for the client to avail discounts on premium by opting for excess limits higher than normal applicable limits. Higher excess will therefore lead to lower premiums. However, United & National have offered excess limits way beyond the normal limits and still have quoted high premium in comparison with RGIC & L&T. We need to discuss this with the insurance companies.
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Analysis of Quotations: Terrorism Cover Indian Market pool offers terrorism cover at fixed tariffs. Maximum cover under Indian Pool is limited to Rs.750 crores, though premium is charged on full sum insured. The tariff prescribes two options: (a) where payment for entire project period is collected upfront, a maximum discount of 30% can be allowed (b) where instalment facility is allowed, no long term discount is to be allowed. BHEL policy has availed pool coverage and hence total limit of pool cover of Rs.750 crores is exhausted for the location.Even after paying premium under BOP policy, terrorism cover will be for Rs.750 crores only.
Terrorism Cover...Contd
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Ideally, SPL should have taken combined policy, in which case there could have been substantial savings of premium with lesser complications in the event of any claim. Terrorism premium is chargeable on ALOP insurance also where limits are lesser than for property damage. Maximum indemnity is limited to 10% of SI or Rs.100 crores whichever is less.
Terrorism Cover...Continued
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National Insurance have quoted Rs.1.80 crores (pre tax) for terrorism cover including ALOP, while United have not quoted for terrorism at all. Risk Care have independently sourced a combined terrorism quote (PD+ALOP) from the international market which offers better coverage terms at a very low cost. SPL needs to examine and discuss terrorism coverage in the light of the issues highlighted above.
ALOP Insurance ALOP is a speciality product and is offered by insurers in combination with the Material Damage cover for the Project It is customary practice that all contracts under Project insurance are covered under a single policy as this is easy to administer and offers seamless insurance. In the present case, BHEL have taken the material damage insurance from United on specially agreed terms, without a corresponding ALOP policy.
ALOP Insurance This has placed United India in an advantageous position vis a vis other insurance companies as far as cover for ALOP is concerned. The quotations received for ALOP from National & Reliance do not offer cover for BHEL assets. United have not indicated any subjectivity and they should confirm cover is available for whole project. SPL to consider option of insuring only debt servicing charges for ALOP.
Issues for Discussion

1.
Premiums quoted by United & National are very high and they should be asked to offer lower rates matching those of Reliance/L&T. Excess suggested by United & National are too high and they should be asked to impose excess as per tariff only. Terrorism: SPL to take a call on whether they would (a) pay premium upfront and avail discount (b) avail instalment facility or (c) go in for a standalone insurance cover. Terrorism must be discussed in conjunction with ALOP cover.
2.
3.
Issues for Discussion 4. Issues involved with ALOP cover to be thoroughly discussed before finalization. There is scope for reduction in premium for ALOP. SPL should consider insuring only debt servicing charges as this will satisfy lenders and result in saving of cost. Present proposed value should also be reviewed to ensure all possible components are covered adequately. United to confirm that ALOP quote will cover entire project (including BHEL). 5. For all reinsurance driven coverage SPL to ensure that securities (reinsurers) are sound. Servicing related issues must be discussed and agreed upon through a Service Level Agreement. Sum Insured proposed for insurance should be revalidated prior to taking insurance policy.
6. 7.
Issues for Discussion 8. Policy Period should be reviewed. Must be concurrent to BHEL insurance policy.
Contact Details
Risk Care Insurance Broking Services Private Limited 629/1243, First Floor, UBS Building, Behind Teachers Colony, Off Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. Maharashtra. India. Phone: +91 22 61315200 Fax: +91 22 26572018 Website: www.riskcare.co.in Email: info@ riskcare.co.in
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