Punjab demands end to NICL monopoly

The Punjab govt has demanded to establish a provincial insurance company

LAHORE: Expressing serious reservations over higher insurance rates against the open market in lieu of insurance of public projects and the monopoly of National Insurance Company Limited (NICL), the Punjab government has demanded an amendment to Section 166 of the Insurance Ordinance 2000.

After the approval of the federal government, the provincial government is also holding a consultation in the cabinet for setting up a provincial insurance company. In its letter to the federal government, the Punjab government has stated that owing to the monopoly of NICL, together with costly insurance rates, there has been a loss of Rs1.2 billion in the past two years.

That apart, the provincial government has paid $1,900,000 to the federal institution as commission. If insurance was sought from the private sector, then the government would have to pay only $150,000. The NICL insurance costs $1 million per year, while the Punjab government has the option of availing a cheaper option from the private sector.

Per government documents obtained by The Express Tribune, on the recommendations of the Energy Department, the Punjab government sent a letter to the Federal Trade Ministry and stated that as per Section 166 of the Insurance Ordinance 2000, all institutions operating under the government are bound to get insurance of all their projects by NICL, which is a sub-institution of the ministry. Hence, all the companies associated with energy projects under the Punjab government are forced to take up the services of NICL for insurance which helps the company maintain its monopoly.

The Competition Commission of Pakistan (CCP) has also expressed its reservation, while the government of Punjab wrote in the letter that for the past two years that, the limitation of availing NICL’s expensive insurance has affected its projects, particularly the Quaid-e-Azam Thermal Power Project (QTPL). The Quaid-i-Azam Thermal Power Company (QTPL) for its 32-month construction period, signed an insurance agreement of $5 million annually with the NICL. Due to various administrative hindrances and governmental problems, the project could not be completed per its May 20, 2018 deadline.

As a result, the NICL set $10.7 million for the insurance of the project for year 2018/19, which was way too high. Due to the pressure of the PML-N government, QTPL had to sign the agreement with NICL and has to suffer major financial losses.

During the renewal of the insurance agreement for 2019/20, QTPL had expressed its reservations by writing public letters to the government. So far, the QTPL has paid $1,900,000 in commission to the NICL. If the same insurance was availed from the open market, it would have cost $140,000.In its letter, the Punjab government also presented a comparison of the two power projects run under the federal government which have been insured by private companies instead of NICL.

Accordingly, in 2018-2019, the federal government paid $6.24 million to the private insurance company for the Haveli Bahadur Shah Project, while $5.9 million were paid for the insurance of Balloki Power Project. The Punjab government had paid $10.3 million to NICL in insurance for QTPL. The federal government got its two projects insured from NICL in 2019/20, and the insurance amount surged from the previous year.

Insurance offered by private companies on lesser rates for two power projects of the federal government has raised several questions on the performance of the NICL, because of which the government of Punjab has shown some serious reservations. In its reply to QTPL, the General Manager Reinsurance at NICL stated that the company had conducted transparent bidding but out of the world’s 10 best brokers, only one company entered the bidding and demanded $20 million. However, after many efforts, the amount was reduced to $10 million.

He further wrote that instead of questioning the integrity of the NICL, the QTPL should assess as to why international brokers have such low confidence in the company.

Speaking to The Express Tribune, the energy minister of Punjab Dr Akhtar Malik said that the rate for insurance offered by NICL for QTPL is very high, which is putting unnecessary fiscal pressure on the Punjab government. “The Punjab government wants an end to the monopoly of NICL and we want permission to set up a provincial insurance company. We have raised this matter in the Punjab cabinet and have sent a letter to the federal government for the amendment in the federal law,” he said.

Speaking to The Express Tribune, National Insurance Company Acting CEO Tariq Huda said they would reply as soon as they would get the new dispatch of the Punjab government. He added that they had clear big claims in the past, for example, they had paid timely claim for the plane crashed in Gilgit in which Junaid Jamshed was martyred as well.

Published in The Express Tribune, December 5^th, 2019.