The two contractors of the Punatsangchhu Hydropower Project (PHPA) II, Gammon (India) Ltd and Jaiprakash Associates, after having been awarded the work has insured with Royal Insurance Corporation of Bhutan (RICB).
However, the Contractors All Risk (CAR) Policy which involves the basic civil structure works has not been insured by Gammon (India) Ltd.
The CAR policy insures the work during the period of construction for a minimum of five years depending on the project period. After the end of the project period there is the defect liability period (DLP) of 12 months to 36 months. So any defect or shortcoming during the construction is covered but the natural acts such as calamities and disasters are not covered in the DLP.
“We have insured with RICB as per what is mandated in the contract terms,” said the project manager of Gammon (India) Ltd, Vikramjit Singh Sahota adding that CAR policy is not mandatory.
According to a source it is not mandatory, as the risk is being transferred from the contractors to the authority (which means at the time of an unpredicted catastrophe, the loss would ultimately be borne by the project authority), said a source.
He said that the immunity that Gammon has is due to the clauses in the contractual agreement. ‘In the event of any loss or damage to the works or any part thereof, during the period for which the contractor is responsible for the care thereof, from any cause whatsoever, other than the risks defined by sub clauses (v) and (vi).’
The two sub clauses which the contractors won’t be responsible include risks like war, hostilities, ionizing, radiations, pressures caused by aerial devices, any operation of the forces against which an experienced contractor could not reasonably have been expected to take precautions and others.
The General Manager of RICB, Wangchuk Namgyel said the Royal Charter and also the Financial Services Act mandates any business emanating from within the country should be insured with an insurance company within the country.
“As per our understanding any major loss during the construction period would be borne by the principle authority, that is the government of Bhutan,” he said.
The insurance normally takes place prior to the commissioning of the works but so far, insuring with the CAR Policy for the civil works has not happened with Gammon India.
He also said that Gammon (Ltd) understands the need for such insurance but since the risk is borne by the principle authority, they do not require taking the CAR policy.
Further, the Mangdechhu Hydropower Project Authority had it clear in their contract document that the CAR policy must be insured. “MHPA standards allow them to insure, however PHPA II doesn’t.
“Why should there be two different standards for two similar projects?,” asked the General Manager.
“As a practice in any project, if a contractor is designing the project, he/she is solely responsible. In this case, the design came from us, so if something happens we cannot blame the contractors,” a PHPA official told The Bhutanese was the primary reason why the management decided on not insuring with the CAR policy.
The second reason is the high premium amount owing to the size of the work.
The bone of contention lies in what happened in the past with PHPA- I. It was insured in India. Since the insurance had already been done, it couldn’t be reversed. This directly pushed aside the regulations in place.
However, during a meeting between the local insurance institutions, officials from the economic affairs ministry and the PHPA authorities, instructions were clearly meted out that PHPA II should insure with the local institutions.
The major insurance policies hydropower projects undertake include the CAR Policy, Erection All Risk Policy, Plant and Machineries.