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MIGA may tie up with ECGC for risk cover abroad

C. Shivkumar

Abhrajit Gangopadhayay

BANGALORE, Nov. 6

THE Multilateral Investment Guarantee Agency (MIGA) is expected to tie up with the Export Credit Guarantee Corporation for providing risk cover for Indian investments aboard.

MIGA's Executive Vice-President, Mr Motomichi Ikawa, told Business Line that discussions were at an advanced stage. ``Negotiations with ECGC are for jointly promoting Indian investments into underdeveloped regions like Africa,'' he said.

MIGA, an affiliate of the World Bank, covers investors and lenders against a series of risks including political or legal breach of contracts, war and civil disturbance.

Several Indian companies including the Tatas, Indian Railway Construction Corporation Ltd (IRCON) and other public sector entities have significant exposures in the African continent and West Asia.

IRCON's exposure in Africa is through the lease of metre gauge diesel locomotives and railway construction contracts. The Tata Group has exposure through its group companies for export of transport and engineering equipment.

Mr Ikawa said these exposures could be covered, consequently helping ECGC to reduce its liabilities in some of the regions. However, he added that the premia for such investments would be partly linked to the region.

In practice, however, MIGA's cover is priced on a project basis. For instance, if the projects are in a volatile region with a history of defaults, then pricing could tend to be on the higher side. MIGA's risk cover is priced between 0.3 per cent to 1 pe r cent of the total risk cover. However, there have been occasions where MIGA has also charged premiums of 1.5 per cent.

MIGA provides cover of up to 90 per cent of the equity investments and in the case of debt, it is usually 95 of the principal amount, Mr Ikawa said. MIGA provides the cover for a period of 15 years, though on a case to case basis, it is extended to 20 ye ars, he said. The agency on its own can cover up to $200 million on a single project, he added.

Mr Ikawa emphasised that post-September 11, there has been a sea change in risk perception. This is despite the fact that most private sector insurers have chosen to hike premiums in a bid to cut underwriting losses.

MIGA so far is satisfied with the track record of India. Therefore, few foreign investors have taken any risk cover on investments in India, either for equity or debt. However, in countries such as China and Indonesia, there is a substantial exposer. In fact, some investors have already made claims against investment losses in Indonesia, he said.