Malana Power hydrology risk cover renewed

ICICI Lombard General Insurance Company has renewed the hydrology risk cover for the Malana Power Company for a coverage of Rs 10 crore.

The premium for the cover has been increased by about 50 to 60 per cent. Under the policy terms, should the power generation at Malana fall below a specified percentage, ICICI Lombard will pay the first Rs 10 crore towards loss of profit to the power company.

This will enable the power entity to pay the dues to fund institutions among other expenses, stated V Ramakrishna, managing director, India Insure Risk Management Services. India Insure Risk had arranged the hydrology risk cover.

"Projects dependent on the vagaries of weather are now increasingly relying on a special insurance cover "" weather derivatives "" for credit enhancement, said Ramakrishna. With the crop insurance sector experiencing losses of over 400 per cent, the use of weather derivatives can help reduce these losses.

Malana Power is India's first hydel power generating unit, with a generating capacity of 86 MW. At a competitive capital cost of Rs 3.75/MW, the unit will sell power at Rs 2.45/KW, which is one of the lowest generating costs.

Many lenders of hydro-power projects are looking for hydrology cover prior to financing such projects. In the event of a shortfall in rainfall or snow melt, which affects the quantity of power generated, ICICI Lombard will pay for the loss of profit.

The insurance company has seen a a major growth in demand for weather-based insurance covers with premium income from this rising from Rs 2.5 lakh last year to Rs 45 lakh so far in fiscal 2005. This has been possible with our tying up with non-government organisations and state governments as well as directly approaching clients," said Ritesh Kumar, head of reinsurance, ICICI Lombard.

However, the key impediment in offering this cover is the non-availability of sufficient data. This makes it difficult for many projects to get reinsurance cover, said Kumar.

Meanwhile, ICICI Lombard has also entered into a tie-up to offer innovative weather based loan portfolio insurance to Bhartiya Samruddhi Finance Limited (BSFL), an non-banking finance company of the Basix group involved in agricultural finance and agri-related activities.

ICICI Lombard received technical assistance from the Commodity Risk Management Group of the World Bank in designing the policy structure.

This cover would compensate BSFL for deviations in rainfall below the threshold level "" fixed at a percentage of the average rainfall in the area.

The weather-based loan portfolio insurance will help BSFL guard itself against delayed repayments and defaults. This in turn should benefit the rural sector because BSFL's asset portfolio aids the livelihood of the farming community in the rural areas.