Sikkim project destroyed by flood may receive only a part of insurance claim

According to Sikkim Urja’s annual report for FY22, the present outstanding long- term loan (as of August 31, 2022) was Rs 8,007.84 crore. “During the last one year ending August 31, 2022 the company prepaid Rs 2,043.33 crore out of its surplus cashflows/ internal accruals (including Rs 543.33 crore towards RBI COVID-19 regulatory package) over and above the regular repayment dues against long term loan,” it said.

The outstanding long-term debt of the company was structured taken out/refinanced by REC Ltd and Power Finance Corporation Ltd in December 2019. It remains to be seen how the firm will repay the debt with production severely affected.

Reinsurers said they would have paid the entire sum assured if an earthquake had destroyed the project. The flood that originated in the South Lhonak Lake in North Sikkim on October 3 submerged the hydropower project and washed away the 60m tall Chungthang dam.

Reinsurers are yet to receive a former claim request from the company. “We have been intimated by the primary insurers led by IFFCO Tokio General Insurance about the present state of affairs of Teesta Hydro project, following its total destruction, though details of the claims have not been filed with us yet,’’ said a senior official of a foreign reinsurance company.

Iffco-Tokio and Sikkim Urja did not respond to mails. GIC Re has a total exposure of Rs 500 crore for the project and shares the risks with other reinsurers including Swiss Re and Munich Re. GIC Re also has further reinsured it and in case of claim outgo, its balance sheet is protected.

It may not be easy to settle this kind of claim and the entire thing may land up with the regulator IRDAI or in the courts before any claims are settled by the reinsurers. “One has to remember the fact that it is a government of Sikkim project and built on borrowings from the banks. The Sikkim government will not remain silent on technical reasons. The situation is worth watching and set precedents for the future,” an observer said.

Earlier this month, insurance regulator IRDAI had asked insurers to speed up the claim settlement process in Sikkim. “We are ready to handle the situation. Let us see how things are unfolding,” said a reinsurance official. As the project is majorly reinsured, it will be reinsurers and not primary insurers who suffer much losses.
The project was commissioned in February 2017.