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RIL cushioned by recent insurance

RIL is safe from losses due to a fire that engulfed its Jamnagar oil refinery on Wednesday, reports Arun Kumar.
None | By Arun Kumar, New Delhi
UPDATED ON OCT 26, 2006 02:51 AM IST

Reliance Industries Ltd (RIL) is safe from financial losses arising out of a fire that broke out on Wednesday at its petroleum refinery in Jamnagar, having renewed insurance for the entire plant only earlier this month.

The total loss including those in assets, inventories and profit hits arising out of the damaged units should be less than Rs 100 crore, said a senior insurance industry official, who did not want to be identified.

"In fact the loss of asset would be between Rs 20 and Rs 30 crore. The main loss is loss of business profit, which is difficult to comprehend as of now. It depends upon the time taken for repairing the units which will only be known after the technical evaluation of the plants," he told Hindustan Times.

Reliance officials said that the damage claim would not be very high as there was no business loss arising from production in the unit that treats crude with sulphur in the run-up to refining.  "The plant was not shut even for a minute and we have managed to redirect the fuel supply to the main refinery though other plants," a Reliance Industries spokesman said.

Reliance has insurance cover of Rs 40,000 crore for the entire range of its assets at Jamnagar and had paid a premium of around Rs 200 crore on October 1, an insurance industry source said.

In order to restrict the risk, Indian insurance companies bought re-insurance coverage for 80 per cent of the total cover from multinational general insurance giants such as Munich Re.

The fire, whose cause is not yet known, broke out in one of the secondary processing units of the Jamnagar refinery located in Gujarat. One Reliance worker was seriously injured, and the exact extent of damage to the unit called VGO Hydrotreater II is still being assessed, the Reliance spokesman said.

"As a precautionary measure, the neighbouring diesel hydrotreating unit—II has
been shut down safely. We expect to re-start the same shortly. All other refinery units, including both the crude units and petrochemical units, are operating normally," he added.

The coverage, being large in size, involved risk sharing. Lead insurance companies involved included New India with a 60 per cent share; Oriental Insurance with 15 per cent; and National Insurance and United Insurance, which had a five per cent share each. Ten per cent was provided by ICICI-Lombard and 5 per cent by Bajaj Allianz.

"The actual impact on the Indian insurance companies would not be big enough to affect their balance sheet as a substantial part of the coverage was reinsured," said M Ramadoss, chairman and managing director of Oriental Insurance Company.

The losses would be on two counts—loss of machinery on account of fire as also loss of inventories. "Once we receive the claim and evaluate the damages through surveyors, only then we would know the damage and its implications," said R Shekhar, financial advisor (FA) of New India Assurance.

"This (insurance design) would be one of the best-in-class insurance managements provided in the country," said Sandeep Dikshit, chief executive of ICICI Lombard. "It is premature to comment at this point of time on the amount of losses," he added.

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