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Karachi Insurance Institute: Risk Management Workshop, Karachi

Tuesday 26th January, 2010

Bruce Garrett, Managing Director, Marsh Ltd Energy Practice, London

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Agenda

Introduction of Marsh speakers

Where are we in 2010:

Power project risks

Power operating risks

Major infrastructure risks

Energy project risks

Energy operating risks

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Construction, Power & Utilities Practice Power Project Experience

North AmericaComancheHighbridgeRiversideBruce Power, NuclearPt Lepreau, NuclearRoxboro FGDNelson EnergyKendall Combined CycleLawrenceburgh Energy Jackson Combined Cycle CovertWaterford EnergyMystic Station Redevelopment Fore River Meriden ProjectHay Road Martin Expansion ProjectGhila River El Dorado Pike County ProjectSouthhavenGreen County Energy Ouachita Brazas Valley EnergyRedhawk HarquahalaBlytheElk Hills Duke Energy, CliffsidePepCo HoldingsDuke Energy – EdwardsportSuez AstoriaNational Grid UpgradeFlour – Brazos Electric

North AmericaComancheHighbridgeRiversideBruce Power, NuclearPt Lepreau, NuclearRoxboro FGDNelson EnergyKendall Combined CycleLawrenceburgh Energy Jackson Combined Cycle CovertWaterford EnergyMystic Station Redevelopment Fore River Meriden ProjectHay Road Martin Expansion ProjectGhila River El Dorado Pike County ProjectSouthhavenGreen County Energy Ouachita Brazas Valley EnergyRedhawk HarquahalaBlytheElk Hills Duke Energy, CliffsidePepCo HoldingsDuke Energy – EdwardsportSuez AstoriaNational Grid UpgradeFlour – Brazos Electric

IrelandEdenderry Power $70mDublin Bay Power $270mCoolkeeragh $160mBord Gais $640m

IrelandEdenderry Power $70mDublin Bay Power $270mCoolkeeragh $160mBord Gais $640m

Central & South AmericaInterandes CCGT, Argentina/ ChileCana Brava, Brazil Uruguaiana, Argentina/ BrazilMacae Power, BrazilSeneca, VenezuelaPedregal Power, PanamaTamuin I, MexicoTamuin II, MexicoMexicali, Mexico Andres Power, Dominican RepublicSan Pedro de Macoris, Dominican Republic PQU II, BrazilAngamos AES ChileKallpa III

Central & South AmericaInterandes CCGT, Argentina/ ChileCana Brava, Brazil Uruguaiana, Argentina/ BrazilMacae Power, BrazilSeneca, VenezuelaPedregal Power, PanamaTamuin I, MexicoTamuin II, MexicoMexicali, Mexico Andres Power, Dominican RepublicSan Pedro de Macoris, Dominican Republic PQU II, BrazilAngamos AES ChileKallpa III

AfricaJorf Lasfar, MoroccoBelle Vue, MauritiusRades, TunisiaTakoradi, GhanaTageta Project, TanzaniaHadjeret Ennous, Algeria $900m

AfricaJorf Lasfar, MoroccoBelle Vue, MauritiusRades, TunisiaTakoradi, GhanaTageta Project, TanzaniaHadjeret Ennous, Algeria $900m

Middle EastAl Taweelah 2, UAE $1.5 billion Al Taweelah 1, UAEUnited Power, OmanAl Kamil, OmanShuweihat, UAE $2 billionTaweelah B, UAERas Laffan B, Qatar $2 billionRabigh, Saudi ArabiaFujairah F2, UAEMesaieed A, Qatar $1.7 billionFujairah F1, UAE $2.2bn

Middle EastAl Taweelah 2, UAE $1.5 billion Al Taweelah 1, UAEUnited Power, OmanAl Kamil, OmanShuweihat, UAE $2 billionTaweelah B, UAERas Laffan B, Qatar $2 billionRabigh, Saudi ArabiaFujairah F2, UAEMesaieed A, Qatar $1.7 billionFujairah F1, UAE $2.2bn

Indian RegionUpper Bhoti Koshi Power Project, Nepal Venkatesh Coke and Power, IndiaKelanitissa, Sri Lanka

Indian RegionUpper Bhoti Koshi Power Project, Nepal Venkatesh Coke and Power, IndiaKelanitissa, Sri Lanka

PakistanUCH Power Saba Power Kot Addu

PakistanUCH Power Saba Power Kot Addu

AustraliaCallide “C” PowerPelican PointSwanbank “E”Truenergy

AustraliaCallide “C” PowerPelican PointSwanbank “E”Truenergy

South East AsiaThai Oil, ThailandRayong Electric, ThailandIndustrial Power, ThailandKhanom Electric, ThailandGulf Co-Gen, ThailandThai National Power, Thailand KEGCO, ThailandGenting Sanyen Power, MalaysiaAutoman Power, MalaysiaPaiton 5 and 6, IndonesiaCoco Phase 3, ThailandIlijan, Philippines Kobe Steel, Japan Paiton 7 and 8, IndonesiaBugok Project, KoreaWolsong, Nuclear

South East AsiaThai Oil, ThailandRayong Electric, ThailandIndustrial Power, ThailandKhanom Electric, ThailandGulf Co-Gen, ThailandThai National Power, Thailand KEGCO, ThailandGenting Sanyen Power, MalaysiaAutoman Power, MalaysiaPaiton 5 and 6, IndonesiaCoco Phase 3, ThailandIlijan, Philippines Kobe Steel, Japan Paiton 7 and 8, IndonesiaBugok Project, KoreaWolsong, Nuclear

ChinaLuannan ZhenjiangShuzhouDaya Bay 1&2, GuangDongLing Ao Nuclear, China

ChinaLuannan ZhenjiangShuzhouDaya Bay 1&2, GuangDongLing Ao Nuclear, China

EuropeRosen SpA - Italy, API Energia, ItalyTurbogas - Portugal, Entek Bursa, TurkeyMarmara Ereglisi - Turkey, Csepel II, HungaryAnkara CCGT - Turkey, Vertes Power, HungaryBC Euromu CHP, HungaryTVO – OL3 Nuclear Station FinlandCernavoda Unit 2 Nuclear, RomaniaTejo Energia, Portugal $720mGas Natural, Spain, MalagaGaz de France $400mMochove 3&4, Slovakia

EuropeRosen SpA - Italy, API Energia, ItalyTurbogas - Portugal, Entek Bursa, TurkeyMarmara Ereglisi - Turkey, Csepel II, HungaryAnkara CCGT - Turkey, Vertes Power, HungaryBC Euromu CHP, HungaryTVO – OL3 Nuclear Station FinlandCernavoda Unit 2 Nuclear, RomaniaTejo Energia, Portugal $720mGas Natural, Spain, MalagaGaz de France $400mMochove 3&4, Slovakia

United KingdomRugeley FGDLockerbie BiomassSeabank Power $618mThames Power $165mHumber Phase I and II $544m South Coast Power $216mGrangemouth CHP $85mDidcot B $220mBrigg PowerShotton CHPWest Burton FDGWinnington CHPMichelin CHPPort of Liverpool CHPKelmsley II FBCHickson & Welch CHPSizewell B Nuclear Power StationTorness Nuclear Power StationDungeness Nuclear Power Station

United KingdomRugeley FGDLockerbie BiomassSeabank Power $618mThames Power $165mHumber Phase I and II $544m South Coast Power $216mGrangemouth CHP $85mDidcot B $220mBrigg PowerShotton CHPWest Burton FDGWinnington CHPMichelin CHPPort of Liverpool CHPKelmsley II FBCHickson & Welch CHPSizewell B Nuclear Power StationTorness Nuclear Power StationDungeness Nuclear Power Station

(N.B. Nuclear projects in blue print)

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The International Reinsurance MarketsPower Project Risks

A buyer’s market!

Capacity @ USD 1.5billion; new markets entering the fray

Rating levels- lowest level for a decade

Deductible and wordings: relatively stable

Most power projects so far on LEG/2 basis but……….

Technology: still a key area of interest for specialist underwriters

Some new technology may be about to emerge

So how do clients achieve the best results?

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Power Specific UK Experience 2008 – 2009

Stratford100MW

Takoradi180MW

Angamos464MW

Palo Viejo120MW

Estreito1050MW

Chilca III186MW

Brazos620MW

Cliffside800MW

AECLRetube

Mochove Slovakia

3 Sites380MW

Whitegate328MWDuke

630MWAstoria575MW

Delta328MW

San Pedro120MW Fujairah

200MW

Mesaieed2000MW

Pego416MW

Navoi400MW

Buck620MW

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Steps to SuccessPower Projects

Warranties: Be sure about the extent of cover afforded, and that which is not protected

Provide detailed project value breakdown data

Project Bar Chart: minimum level 2 please!

Testing and Commissioning: Explain in detail

Partial operations/handover: Be clear from the start

Do not skimp on information;

Use colour and always seek to differentiate

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Major Infrastructure Projects

Tunnels: major area of focus

Contractor compliance with International Tunnelling Code of Practice

Marsh: we have our very own “Mr Mole”

Caveat Emptor: Price should not blind any client – significant wording differences abound

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Marsh’s Tunnelling Credentials

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Construction Markets

London / Europe: best for “mega” projects

Middle East: growing; hungry and close in culture and time

Singapore: cultural synergy; competitive and capacity abounds

As buyers / insurers we encourage you to seek alternative market views.

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Power Operating Risks2010

Market closer to losses than some sectors = lower deductibles

Loss statistics = more attritional losses

But few Nat Cat losses

Capacity abounds; competition is fierce

Softer market seems likely

Capacity: circa $ 3 billion

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To buyers of Power Risk Transfer Protection

Quality information is “King”

Sell your risks; differentiate your risks; communicate powerfully and clearly

Leave adequate time for marketing negotiations

New entrants are coming to the market

Intra market and regional competition exists – not to be ignored

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Energy Market Update 2010

Exceptional results in 2009, after very poor result in 08

Pricing stable in first half but reductions available from Q4

Capacity at its highest since 2001

Willingness of leaders to compete

Softening trend to accelerate during 2010

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Energy Market Update 2010

Onshore Property – Most competitive segment–10 potential leaders– Capacity increasing – Few significant losses in 2009– Market still disciplined on coverage &

deductibles

Offshore Property – Some significant losses in 2009 but no hurricane losses– Hurricane premium represents 30-40% of market premium– More competition outside of Lloyd’s

Most underwriters looking for GROWTH IN 2010

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Contact Details

Oil, Gas & Petrochemical risks

London

Bruce Garrett bruce.garrett@marsh.com / Tel: +44 20 7357 5542

Dubai Risk Engineering

Ian Roy ian.roy@marsh.com / Tel: +971 42129337

Power Projects

Scot Peachey scot.peachey@marsh.com / Tel: +44 20 7357 2595

Paul Holliday paul.holliday@marsh.com / Tel: +44 20 7357 3832

Power Operational Risks

Simon Howell simon.m.howell@marsh.com / Tel: +44 20 7357 1864

Rigby Watson rigby.watson@marsh.com / Tel: +44 207 357 5887

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Thank you

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