By an OGJ correspondent
MUMBAI, June 11 -- The growing risk of war between India and Pakistan has jacked up insurance premiums on drilling rigs and fixed installations, both onshore and offshore, for India's state-owned Oil & Natural Gas Corp. (ONGC), the country's largest oil company.
The firm's annual insurance premium has risen from 1.35 billion rupees ($28.2 million) to the equivalent of $51 million in a hardening global insurance market, officials said.
The company said it managed to obtain war-risk coverage—including coverage for terrorism—for total assets, primarily offshore, worth more than $14 billion, despite a general reluctance among insurance companies to underwrite such policies in that area. ONGC's coverage was underwritten by all four of India's state-owned insurance companies.
Although ONGC was claim-free for 2001-02, officials said, the firm was handicapped in its effort to renew coverage by the fact that its insurance claims in the previous 5years were more than twice what it paid in premiums during that period. "Our premiums have been rising in the last 3-4 years," acknowledged R.A. Sharma, ONGC's finance director.
"We have taken several steps for risk mitigation, and these have renewed the confidence of the international market," he said. "Third-party agencies are conducting safety audits. And despite the market situation being much worse this year, we have managed to keep our deductible constant at $20 million for our reinsurance program." That means the company would have to pay nearly 1 billion rupees out of its own cash reserves in the event of any catastrophic property loss.
ONGC's insurance premium for offshore Ravva oil field, where UK-based Cairn Energy PLC is lead operator, jumped to $2.5 million from less than $1 million previously.
The Panna-Mukta offshore oil fields were insured for a hefty premium of 74 million rupees, up from 12 million rupees last year. ONGC is a 40% equity owner of those fields, with Reliance Industries Ltd. and British Gas PLC owning 30% each. BG bought its equity from collapsed Enron Corp., Houston.
Most oil companies operating in India have been forced to renew their insurance coverage at much higher premiums than before, observers reported.