No insurance for ONGC in Sudan

The Cabinet Committee on Economic Affairs (CCEA) today exempted ONGC Videsh Ltd (OVL) from taking political risk insurance for their investment in Sudan. An ONGC release said the project would cost around $200 million with normal credit guarantees from OVL. With political risk insurance, the project would have cost close to $246 million.

To broadbase the equity risk, the CCEA decided to apportion 67 per cent of the project equity to OVL with the remaining shared between Indian Oil Corporation and Oil India Ltd. OVL, which will lay the 741-km petroleum product pipeline from Khartoum refinery to Port Sudan, would be paid back in crude oil with 12.12 per cent return on their investment.

Earlier, the Finance Ministry was insisting that OVL take insurance cover; since bulk of its investments were headed for Sudan, it was important that it balance the risk equitably. However, the Petroleum and External Affairs ministries did not think insurance cover necessary as Khartoum signed peace pacts with the rebels earlier this month.

OVL was opposed to political risk insurance as it lowered the rate of return from the pipeline project. It would have cost OVL an additional $32.12 million to buy insurance, thereby bringing down the project return to 10 per cent from 12.12 per cent.