Conflict over insurance of public projects

State-owned insurance firm Sadharan Bima Corporation and foreign contractors of Bangladesh's large public projects are in a tussle over insurance of the projects, including the much-talked-about Rampal power plant.

The contractors want the public projects to be insured outside Bangladesh but Sadharan Bima is against the idea as it would be a gross violation of the country's laws.

The demand of foreign contractors, if realised, would not only deprive local insurers but also the government of earning taxes from this very lucrative insurance premium, industry players said.

Some of the projects for which regulatory approval to insure outside Bangladesh was sought are: Rampal power plant, Sembcorp's Sirajganj power project, Rooppur nuclear power plant and Bangladesh's first satellite.

The Dhaka mass rapid transit project, to be implemented by a Japanese firm, has already been waived from following the insurance laws.

“We have expressed our concern against the move of the foreign contractors over insuring the ongoing public projects,” said Abdus Salam, managing director (in-charge) of Sadharan Bima.

The state-owned non-life insurance firm has given its opinion to the Insurance Development and Regulatory Authority, he said.

As per the existing insurance laws of Bangladesh, any public property, moveable or immovable, has to be insured only with Sadharan Bima.

After private players entered the insurance sector in the 1980s, Sadharan Bima's monopoly on public property came under scanner.

Later in 1990, a deal was signed between the Bangladesh Insurance Association, a forum of the private companies, and Sadharan Bima on insuring the public property.

As per the deal, Sadharan Bima will solely issue insurance policy for public property but will share 50 percent of the premiums with the private insurers.

This distribution of share will be equal among the private companies, no matter what the size of the company is. For example, premium earnings from public property insurance were nearly Tk 390 crore in 2015.

According to the rule, Sadharan Bima got 50 percent of the premiums worth Tk 195 crore and the remaining 50 percent was distributed among 44 other non-life insurers equally, meaning that each company got about Tk 4.43 crore from public property insurance.

“If the insurance of public property is taken out of the country, 45 non-life insurers will be deprived of huge premium income,” said Akhtar Ahmed, an expert and adviser of Reliance Insurance. “It is totally detrimental to the insurance industry,” he added.

Industry people said this wholesale move of insuring large-scale public sector property outside will also tarnish the image of the country and hamper the growth of the local insurance industry as well.

“Maybe, we are not experienced in handling insurance of a nuclear power plant or a satellite, but we are capable and experienced in doing insurance of any other power plants and infrastructure projects,” said a chief executive officer of a leading insurance company wishing not to be named.

The proposal for insurance of the controversial Rampal power plant, a joint venture between the Bangladesh and India governments, outside the country has been sent to the regulator. Sadharan Bima in its opinion given to the IDRA has said that the insurance must be with Sadharan Bima as per laws.

Similarly, Sembcorp, a Singapore-based company that is setting up a 414-megawatt power plant in Sirajganj at a cost of more than $400 million has also applied to the IDRA to insure the project abroad.  The regulator has not yet approved the proposal. Tokyu Construction Company that has got the work of implementing the Dhaka mass rapid transit project initially declined to insure the project with Sadharan Bima.

The Japanese firm wanted to insure the project with Green Delta Insurance bypassing the laws, but the move was not successful due to strong opposition from Sadharan Bima. Later, IDRA after consulting with the stakeholders, allowed the Japanese firm to insure the project with Sadharan Bima and Green Delta, with each insurer having 50 percent of premiums.

Industry players also blamed the government agencies that have signed these projects with foreign parties without knowing the insurance laws of the country.

Foreign contractors have put clauses in these contracts that they are not bound to insure their projects in Bangladesh. The Daily Star spoke with a high official of the Economic Relations Division, the government branch that deals with loan agreements with foreign countries, on the issue.

“Government agencies and autonomous bodies sign commercial contracts with foreign parties. Later, loan agreements are done in the ERD without making any big change in the contracts,” said the official. The deals are finally signed after the law ministry's vetting.