1. construction and operations. These may also include protection


The scale of
investment involved in a power plant project attracts a complex set of risk
which could lead to immense financial loss These risks include technical failure,
natural hazards, breach of contracts, political risks, terrorism, etc. The wide
array of risk involved in the such projects leads to employment of multiple
insurance standards for risk mitigation and to safeguarding the investment in the
project. The insurance policies utilised can broadly be categorized into two

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Contract Insurances: These insurances coverages protect
the investment against non-plant related risks such as political risks,
non-honouring of financial obligations, etc.

Plant Insurances: Such insurances involve protection against
losses incurred due to plant construction and operations. These may also
include protection against losses due to reduction in plant operations


1.1.  Contract Insurances


Policy Risk Insurances

These umbrella insurances may cover one or more of the following


Inconvertibility and Transfer Restriction Coverage

Such a coverage
is often put in place to protect against losses arising from an investor’s
inability to legally convert local currency into foreign exchange and/or to
transfer local currency or foreign exchange outside the country where such a
situation results from a government action or failure to act. The acts may include:

more restrictive foreign exchange regulations

by an exchange control authority to approve of — or simply to act on — an
application for hard currency

unlawful effort by the host government to block funds for repatriation

host government actions resulting in an inability to convert and transfer local

depreciation is not covered under such an insurance policy.


Expropriation Coverage

Often projects
require protection against losses sustained from government actions that results
in loss of ownership of the project for investor either through outright confiscation
of the asset or reduction in ownership of the investor. Traditional
expropriation coverage protects against nationalization, confiscation and
creeping expropriations which result in a loss of the total investment. Coverage
for partial expropriation is also available on a limited basis.


War, Terrorism, and Civil Disturbance Coverage

Also known
as political violence insurance, these insurances usually compensate investors
for equity assets (including property) and income loss to varying extent for
the following events (but not limited to):

or undeclared war

actions by national or international forces

insurrection, and civil strife

and sabotage


for covered tangible asset and loss due business interruption (total and/or
partial depending upon the agreement) would be decided as per the evaluation methodology
prescribed in the contract.


Breach of Contract Coverage/Contract Repudiation

These insurance
policies protect the insurer against losses arising from the government’s breach
or repudiation of a contract with the investor. In the event of an alleged
breach or repudiation, the investor invokes a dispute resolution mechanism
(e.g., an arbitration) set out in the underlying contract.


The above-described
coverages may be purchased individually or in combination. Such a coverage
becomes essential for investors when they enter a developing economy. Such risk
alleviating measures also promoted by large organisations to invite investment
in such countries. Few of these major organisations include:

Investment Guarantee Agency (MIGA)

Private Investment Corporation (OPIC)


Credit Enhancement

Enhancement coverage is unique to MIGA and protects an investor against losses
resulting non-payment of financial obligation by a sovereign / sub-sovereign
government or a state level entity provided such authorities have a favourable
credit rating.



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