Doing Business in Myanmar

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DOING BUSINESS IN MYANMAR

RISK AND INSURANCE, WHAT POWER & UTILITIES COMPANIES NEED TO KNOW

Oliver Massmann – Partner, General Director


POWER IN FOCUS

― Over 345,000 MW of Power placed globally

― Power and Utility clients in over 27 countries

― Broker for 5 of the top 20 Power Generation companies (in megawatt

capacity)

― Power focused risk engineers supporting best practice and placements

― Placements for Property Damage and Business Interruption with total asset

values exceeding USD 340bn

― Experienced in placing all types of conventional power generation from Hydro

to Combined Cycle Turbines projects

― Centre of Excellence in Singapore


Establishing the baseline - Risk Analytics


Willis Energy Loss Database (WELD)

Gas Turbine Loss History

WELD is an industry loss database not an insurance database

Records ground-up loss of $1,000,000 or more at the time of

loss.

WELD contains over 10,000 incidents from past three

decades (1,400 power plant related)

100 specifically identified as originating from and impacting

gas turbines.


Power sector losses trending at USD 2 to 3.0 billion per year.

Power Sector Loss History

Ref: Willis Energy Loss Database


Average Major Power sector loss trending at USD 15 to 25 million per incident

Power Sector Loss History



Majority of incidents impact Core

Systems – Turbines, Generators &

Transformers

„Structures‟ significant originating item

Power Sector Loss History 2010-14



Positive Claims record for construction risk for a number of years

Only 4 CAR losses/2 T&C losses

Largest average CAR loss is Faulty Design – focus upon proven nature of GT

Fire (no explosion) causes the highest average losses during CAR & T&C

| 8

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

Faulty design Mechanicalfailure

Average Indexed CAR Losses US$

Average Indexed US$

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

Faulty design Mechanicalfailure Fire no explosion

Average Indexed CAR & T/C Losses US$

Average Indexed US$

Gas Turbine Plant Loss History



Typical Development Insurances


RISK IDENTIFICATION


CONTRACTUAL RISK MANAGEMENT

Review of all project contracts :

Power Purchase Agreement

Fuel Supply Agreements

EPC Contract

O&M Contract

Long Term Service Contract

Project Financing Documents


ASSESSMENT OF CONTRACTUAL RISK

Benefits:

• Clear visual risk delineation between phases and contracts

• All contract related insurances assessed concurrently across entire plant life cycle

• All risks and obligations aggregated into design of overall insurance program

• Clarity on insurance responsibility and avoidance of duplication in insurance costs

Pre-CAR Inception Post CAR Inception

Contract for Provision of a Technology Package for LNG Process Plant WLNG/CAN/6025

Assumed Contract for Provision of Ship Conversion - Engineering & Procurement Services (EPS) Pre-BAR Incept Post BAR Incept Ship Conversion

Assumed Contract for Provision of Ship Conversion Pre-BAR Incept Post BAR Incept

EPCIC Contract (Including BOP) Pre-CAR Incept Post CAR Incept

Overall Project Phases

Site Works Operational Period

Linde Contract Role and Responsibilities

* Provide Front End Engineering and Design services for Project

* Engineer, procure and supply specific long lead time items

* Manufacture Cryogenic Heat Exchanger

* Deliver equipment FCA to any seaport

* Engage and supervise subcontractor input

* Effect third party liability up to EUR 3 million limit

WLNG Contract Role Responsibilities

* To effect CAR insurance for damage to the Plant and all materials, equipment and supplies to be incorporated

into the Plant plus third party liability (to cover damage to surrounding property and principal's existing property)

(EUR 50,000 deductible).

* Transit and Importer of all goods, supplies and equipment from origin of jurisdiction

* Responsible to delegate HSE Management to EPCIC Contractor on the Project Site

* Conduct all activities leading to Performance Test including detail engineering, civil works, integration,

installation, erection, start-up, T&C at own risk

FSO EPS Contractor Role and Responsibilities

* Provide Engineering and Design services for FSO Conversion

* Procure and supply all equipment, material & supplies

* Deliver equipment to selected Conversion yard OR nearest sea port


* Effect third party liability insurance. Limit (TBA)


* To effect FSO BAR insurance for damage to the Plant and all materials, equipment and supplies to be

incorporated into the converted FSO plus third party liability (Limit and deductible TBA)

* ACTION: Decide whether Contractor OR WLNG responsible for transit and import of all goods, supplies and

equipment from origin of jurisdiction

* Responsible to delegate HSE Management to FSO Conversion Contractor at chosen Ship Yard

* Delegate all activities to FSO Conversion Contractor leading to Performance Test including detail engineering,

civil works, integration, installation, erection, start-up, T&C at own risk

FSO Contractor Role and Responsibilities

* Provide FSO Conversion services

* Pre-commissioning at Shipyard

* ACTION: Decide whether Contractor OR WLNG responsible for transportation and joining and/or hook up at

Project Site


* Effect Professional Liability insurance (Limit TBA)


* To effect FSO BAR insurance for damage to the Ships and all materials, equipment and supplies to be



Project Site


* Liable for all activities to FSO transportation, joining and hook up leading to Performance Test including detail

engineering, wet civil works, integration, installation, erection, start-up, T&C at own risk


FinancingEngineering

Procurement Manufacturing Transit

EPCIC Contractor Role and Responsibilities

*Project Management, engineering, design, technical documentation, procurement, training and fabrication,

construction, installation, testing, hook-up, commissioning, operation, and start-up of the LNG Plant

* Effect Worker's Compensation, Employer's Liability (US$ 10 million limit), Professional Liability (USD 20 million

limit), General liability (USD 30 million limit) Auto Liability & PD (USD 5 million Limit), Hull and Machinery, PI (min

Limit USD 10 million per crew) and Property insurance (Limit (TBA))

* Hold WLNG Harmless for Contractor's and Tools, WLNG provided Materials and Property, liability to WLNG

personnel and property and Pollution

* Can claim LD payments from Linde under EPS Agreement and liable to pass to WLNG

* Accept liability for 3.2.2.1 location of work, 3.2.2.2 availability of equipment, labour and resources, conditions

relating to site access etc. 3.2.2.5 conditions affecting labour 3.2.2.6 hook-up...climate terrain etc.


* To effect CAR insurance for damage to the Facility and other Work to full replacement value (Deductible< USD 2

million).

Wrap-up liability (Limit >USD 100 million and deductible USD 2 million)

* To effect DSU insurance to cover delay (per Lenders requirement (TBA))


* Monitor all activities leading to Performance Test including detail engineering, civil works, integration,

installation, erection, start-up, T&C to confirm related contractual performance requirement met and

communicated

Primary Contracted Activities/Responsibility by Responsible Party

Overview of All Expected Contracts :

Role, Responsibilites and Key Risk Obligations by Project Phase

Contract Role and Key Risk Responsibilities for LNG Process Plant Project Contracts

LNG Plant Process Unit & BOP (incl. FEED and Construction Engineering)

XLL & LLI / Steel Delivery Period

CW Heat Exchanger Fabrication

Negotiate/AssessLenders

requirements & input into all risk transfer

measures

Provide MechanicalWarranties

Transit and Importer of all goods, supplies and

equipment

Meet plant performance to

Specification

Not responsible for damage or liability

O&M to sound engineering proceduresProvide ISR/BI Insurance

Liable for all supplies & services to receive,

install and test Linde provided equipment

Complete & assume liability for

Commissioning & Performance Test

Title of transfer of all equipment from Linde to WLNG upon dispatch fromorigin of jurisdiction

Title of transfer of all equipment from subcontractor to WLNG upon dispatch from origin of jurisdiction



measures

FSO EPS Services

Pre-FEED & Basic Engineering

Delivery Period

Transit and Importer of all goods, supplies and equipment to ship yard


Title of transfer of all equipment from subcontractor to WLNG OR FSO EPS OR Conversion Contractor upon dispatch

(TBA)

Meet ship performance to Specification


Liability of Pre-FEED engineering to be assumed by FSO EPS contractor




measures

FSO Conversion






Transfer to BC and joining of ships

Transfer to BC, and joining of ships

Decide upon best party to transfer, join and hook-up ships







measures

Detailed Engineering for LNG Plant Process Unit

Ex-XLL & LLI Procurement

Modules FabricationProvide Mechanical

Warranties


POG/WLNG/DMCC Linde FSO EPS FSOConversion EPCIC BOP EPIC Undecided

Responsibility Decision Pending

Legend:

Recipient

Role/RiskTransfer



measures

Detailed Engineering Design for LNG Plant Procurement (Ex-XLL & LLI )

Modules Fabrication

Project Manage, construct, install , test

hook-up, commissioning,

operatiom and start-up for the Facility. Meet

Performance Guarantees

Act as Importer of all goods, supplies and

equipment to Project Site

Provide 24 month Warranty

O&M to sound engineering proceduresProvide OperationalPD/BI Insurance

Title of transfer of all equipment to WLNG upon dispatch from origin of jurisdiction

Transit of all goods, supplies and equipment

to Project Site

Each contract analysed to identify all Principal’s risk obligations:


Pre-CAR Inception Post CAR Inception

Contract for Provision of a Technology Package for LNG Process Plant WLNG/CAN/6025

Assumed Contract for Provision of Ship Conversion - Engineering & Procurement Services (EPS) Pre-BAR Incept Post BAR Incept Ship Conversion

Assumed Contract for Provision of Ship Conversion Pre-BAR Incept Post BAR Incept

EPCIC Contract (Including BOP) Pre-CAR Incept Post CAR Incept

Overall Project Phases

Site Works Operational Period

Linde Contract Role and Responsibilities

* Provide Front End Engineering and Design services for Project

* Engineer, procure and supply specific long lead time items

* Manufacture Cryogenic Heat Exchanger

* Deliver equipment FCA to any seaport


* Effect third party liability up to EUR 3 million limit


* To effect CAR insurance for damage to the Plant and all materials, equipment and supplies to be incorporated

into the Plant plus third party liability (to cover damage to surrounding property and principal's existing property)

(EUR 50,000 deductible).

* Transit and Importer of all goods, supplies and equipment from origin of jurisdiction


* Conduct all activities leading to Performance Test including detail engineering, civil works, integration,

installation, erection, start-up, T&C at own risk

FSO EPS Contractor Role and Responsibilities

* Provide Engineering and Design services for FSO Conversion

* Procure and supply all equipment, material & supplies

* Deliver equipment to selected Conversion yard OR nearest sea port




* To effect FSO BAR insurance for damage to the Plant and all materials, equipment and supplies to be


* ACTION: Decide whether Contractor OR WLNG responsible for transit and import of all goods, supplies and

equipment from origin of jurisdiction


* Delegate all activities to FSO Conversion Contractor leading to Performance Test including detail engineering,

civil works, integration, installation, erection, start-up, T&C at own risk

FSO Contractor Role and Responsibilities

* Provide FSO Conversion services

* Pre-commissioning at Shipyard


Project Site


* Effect Professional Liability insurance (Limit TBA)


* To effect FSO BAR insurance for damage to the Ships and all materials, equipment and supplies to be



Project Site


* Liable for all activities to FSO transportation, joining and hook up leading to Performance Test including detail

engineering, wet civil works, integration, installation, erection, start-up, T&C at own risk


FinancingEngineering

Procurement Manufacturing Transit

EPCIC Contractor Role and Responsibilities

*Project Management, engineering, design, technical documentation, procurement, training and fabrication,

construction, installation, testing, hook-up, commissioning, operation, and start-up of the LNG Plant

* Effect Worker's Compensation, Employer's Liability (US$ 10 million limit), Professional Liability (USD 20 million

limit), General liability (USD 30 million limit) Auto Liability & PD (USD 5 million Limit), Hull and Machinery, PI (min

Limit USD 10 million per crew) and Property insurance (Limit (TBA))

* Hold WLNG Harmless for Contractor's and Tools, WLNG provided Materials and Property, liability to WLNG

personnel and property and Pollution

* Can claim LD payments from Linde under EPS Agreement and liable to pass to WLNG

* Accept liability for 3.2.2.1 location of work, 3.2.2.2 availability of equipment, labour and resources, conditions

relating to site access etc. 3.2.2.5 conditions affecting labour 3.2.2.6 hook-up...climate terrain etc.


* To effect CAR insurance for damage to the Facility and other Work to full replacement value (Deductible< USD 2

million).

Wrap-up liability (Limit >USD 100 million and deductible USD 2 million)

* To effect DSU insurance to cover delay (per Lenders requirement (TBA))


* Monitor all activities leading to Performance Test including detail engineering, civil works, integration,

installation, erection, start-up, T&C to confirm related contractual performance requirement met and

communicated

Primary Contracted Activities/Responsibility by Responsible Party

Overview of All Expected Contracts :

Role, Responsibilites and Key Risk Obligations by Project Phase

Contract Role and Key Risk Responsibilities for LNG Process Plant Project Contracts

LNG Plant Process Unit & BOP (incl. FEED and Construction Engineering)

XLL & LLI / Steel Delivery Period

CW Heat Exchanger Fabrication



measures


Transit and Importer of all goods, supplies and

equipment

Meet plant performance to

Specification







Title of transfer of all equipment from Linde to WLNG upon dispatch fromorigin of jurisdiction

Title of transfer of all equipment from subcontractor to WLNG upon dispatch from origin of jurisdiction



measures

FSO EPS Services

Pre-FEED & Basic Engineering

Delivery Period



Title of transfer of all equipment from subcontractor to WLNG OR FSO EPS OR Conversion Contractor upon dispatch

(TBA)



Liability of Pre-FEED engineering to be assumed by FSO EPS contractor




measures

FSO Conversion






Transfer to BC and joining of ships

Transfer to BC, and joining of ships

Decide upon best party to transfer, join and hook-up ships







measures

Detailed Engineering for LNG Plant Process Unit

Ex-XLL & LLI Procurement

Modules FabricationProvide Mechanical

Warranties


POG/WLNG/DMCC Linde FSO EPS FSOConversion EPCIC BOP EPIC Undecided

Responsibility Decision Pending

Legend:

Recipient

Role/RiskTransfer



measures

Detailed Engineering Design for LNG Plant Procurement (Ex-XLL & LLI )

Modules Fabrication

Project Manage, construct, install , test

hook-up, commissioning,

operatiom and start-up for the Facility. Meet

Performance Guarantees

Act as Importer of all goods, supplies and

equipment to Project Site

Provide 24 month Warranty

O&M to sound engineering proceduresProvide OperationalPD/BI Insurance

Title of transfer of all equipment to WLNG upon dispatch from origin of jurisdiction

Transit of all goods, supplies and equipment

to Project Site


OWNER CONTROLLED INSURANCE PROGRAM


PROJECT RELATED INSURANCE


SCHEMATIC OF THE MAIN PROJECT CONSTRUCTION INSURANCES

Commencement of Construction All

Risks Insurance

Third Party Liability

Mechanical Completion

T & C Phase

COD - Hand over to

operational phase

insurances

Cargo / Transit

Construction

Terrorism

Maintenance

Engineering

Procurement and Fabrication

Delay In Start Up

Delay In Start Up

Delay In Start Up

On Site Activities

commence

Professional Indemnity

Operational

Insurances


CONSTRUCTION/ERECTION “ALL RISKS” &

THIRD PARTY LIABILITY


GENERAL FEATURES OF A CONSTRUCTION POLICY

Construction is unique in many ways

SOME OF THE FEATURES OF A “CAR/TPL” POLICY ARE:

It is multi-year without review or break

It is non-cancellable - except for on-payment of premium

It covers all types of onshore construction plus wet works if connected to land

(e.g. breakwaters and jetties / terminals)

Is an “All Risks” policy with the 4 main General Exclusions of

• War Risks and Government related risks

• Nuclear risks and radioactivity

• Normal Wear and Tear

• Terrorism

Specific exclusions regarding defects in design, workmanship and specification

(see latter)


C/EAR AND TPL

PERIOD OF COVER

• Entire construction period including construction, installation, testing, commissioning, initial operations and maintenance/defects period

WHO IS COVERED?

• Project Company/Owner

• All Contractors and Sub-Contractors of every tier

• All Suppliers, Consultants and Engineers (manual activities on site only)

• Lenders (as applicable)


C/EAR – DEFECTS COVERAGE

Design Coverage

• Loss or damage caused by defects of materials, workmanship, design, plan or specification

LEG 1/96

• Outright exclusion

LEG 2/96

• Excludes defective portion but covers consequences of defects

LEG 3/96

• Covers defective portion plus consequences of defects


THIRD PARTY LIABILITY (TPL)

INSURING CLAUSE

Indemnifies the Insured against all sums which the Insured is legally liable to pay (including claimants costs and expenses) arising out of or in connection with the Insured Project”

INDEMNITY PROVIDED

• Subject to a maximum limit of indemnity per occurrence (or in all)

COVER INCLUDES

• Accidental death, personal or bodily injury to or illness of or disease contracted by any person

• Accidental loss of and/or damage to third party property


ADVANCE LOSS OF PROFITS (ALOP)

& DELAY IN START-UP (DSU)


INSURED PARTIES

WHO IS COVERED?

Those with a financial interest in the successful completion of the project, i.e. Project Owners and Lenders only

WHAT DOES ALOP/DSU COVER?

Financial loss actually sustained due to a delay or interruption in completion of the insured project (Indemnity)

Delay must be caused by physical loss or damage indemnified under the CAR/EAR policy e.g.

• Contract Works

• Suppliers or customers premises

• Surrounding existing property


SELECTING THE INDEMNITY PERIOD

• The policy will be subject to an Indemnity Period of typically 12 / 24

or 36 months

Considerations:

• Procurement of replacement items (lead times and delivery times)

• The response time and mobilisation to initiate inspection of damage

• Investigation into the cause and agreement on the actions required

• Planning / authority approvals

• Repair / reconstruction times

• Testing/commissioning


WHO BUYS ALOP/DSU

WHO’S RESPONSIBLE?

• Owners/Employers

• Concession Companies

• Lenders

CONTRACTOR’S ARE TYPICALLY NOT AN

INSURED PARTY UNDER THE ALOP/DSU


MAKE UP OF THE SUM INSURED

GROSS PROFIT OR FIXED COSTS

Gross Profit = Turnover less variable expenses (i.e fuel costs if not subject to take or pay obligations)

OR

Fixed Costs only, identified costs such as debt service/wages/rentals and the like


INSURED AND UNINSURED DELAYS

UNINSURED

• Change in specification

• Labour disputes

• Unforeseen ground conditions

• Late delivery of key materials

• Regulatory/local authority permits / licensing


Other Project Insurance


Other Project Insurance

• Marine Cargo and Marine Delay in Start-up

• Project Professional Indemnity

• Terrorism and Sabotage

• Environmental Liability

• Cyber Liability

• Employer‟s Liability / Personal Accident


Insurance Market in Myanmar


Overview of Myanmar Insurance Market – Background

Myanma Insurance (MI)

Established in 1952, started as a life insurance company

State owned insurer and the only insurer until 2013

Private Sector

2013: 12 newly established insurance companies were given the license to underwrite a number of businesses. (Appendix 1)


Overview of Myanmar Insurance Market – Foreign Insurers (Rep Offices)

General Insurance

1. ACE

2. Allianz

3. Dongbu Insurance

4. Sompo Japan Insurance Inc.

5. Tokio Marine & Nichido Fire Insurance Co., Ltd.

6. Mitsui Sumitomo Insurance Co., Ltd

Life Insurance

1. AIA

2. Prudential Holdings Ltd

3. Samsung Life Insurance Co. Ltd

4. Taiyo Life Insurance Company

5. Maung Thai Life Assurance Public Co. Ltd.

6. Manulife Financial

7. MetLife

8. New India Assurance

9. The Great Eastern Life Assurance


Overview of Myanmar Insurance Market – Recent Developments

3 Japanese insurance firms have been granted license to underwrite direct business in the SEZs.

Mitsui Sumittomo Insurance Group (MSIG)

Sompo Insurance

Tokio Marine Insurance


Overview of Myanmar Insurance Market – Legislation

Myanmar Insurance Law 1993

Foreign Investment Law 2012

– Supported by Foreign Investment Rule (2013)

Insurance Business Law 1996

– Supported by Insurance Business Rule (June 1997)

Environmental Conservation Law (Jan 2014)

•Any holder of a permit to operate a facility which may cause environmental damage must have insurance to cover any accident which affects the environment


Overview of Myanmar Insurance Market – Legislation

Foreign Investment Law

“Economic Organizations which have been formed under a permit under the Union of Myanmar Foreign Investment Law shall effect only with the Myanmar Insurance the classes of insurance which the Myanmar Insurance determines from time to time.”


Creating a Bankable Insurance Programme

• Direct policies with Myanma Insurance

• International quality policy coverage

• S&P/AM Best Rated Reinsurance Security

• US$ or Euro denominated policies

• Assignment of the Insurance and Reinsurance

• Competitive premium rates and capacity for larger projects

• Financiers named as a joint insured


Thank you! Oliver Massmann – Partner, General Director

[email protected];