Monday 6 April 2015

Malakoff IPO - Project delay can be insured?

Paragraph of Malakoff Draft Prospectus

"The EPC contractors for the construction of the Tanjung Bin Energy Power Plant have reported to us that, as at the Latest Practicable Date, the actual physical completion stood at approximately 79%, against the scheduled completion of approximately 88% resulting in a variance of approximately 9% in the construction progress due to civil engineering works at the plant site. Plans are currently being developed by the EPC contractors to reduce this variance. The civil engineering works related to the plant have now been substantially completed, and we believe that the variance will be further reduced. We expect to make an insurance claim with respect to any delay in achieving the plant's commercial operation date and expect that the insurance proceeds will substantially mitigate any claims under the TBE PPA."

Two common insurances that are taken up to cover risks in engineering projects are:
i) Contractor's All Risks; and
ii) Workmen's Compensation

If potential delay in a construction project can be insured, then life would be much easier for clients and contractors. But does such insurance covering project delay exist? If so, the controversy on LAD for the delay in completion of KLIA2 could have been avoided, and the risk of delay in completion of MRT project needs not be shouldered by Project Delivery Partner, as it could be transferred to insurance company.

But in actual, is life so easy for the contractors?

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