The AES Transpower-owned Central Electricity Supply Corp (Cesco) is in talks with New India Assurance Co Ltd, the country's largest non-life insurance company, for a policy cover for its distribution assets in Orissa.

"We are now negotiating with the insurance company for finalising the deal," AES Transpower senior vice-president Anil Patnaik told The Financial Express.

However, sources in Cesco said New was reluctant to provide the cover at the quoted price. "So, we are talking to them with an option in hand to go in for the second lowest bidder," the sources added.

Cesco had floated a tender three months back seeking an insurance cover to its assets. Three companies - New India Assurance Co, National Insurance Co and Oriental Insurance Co - had offered their bids. The premium of the New India Assurance Co was found to be the lowest with 0.22 per cent followed by the National Insurance Company with 0.3 per cent. For the insurance cover, Cesco would have to dish out a yearly premium of Rs 40 lakh.

According to Cesco sources, all the machinery and sub-stations of the distribution company, barring its transmission and distribution lines, would be covered under the policy against all types of natural calamities.

"We didn't go in for an insurance cover for our transmission and distribution lines since these would have attracted a higher premium because of vulnerability," they said and added, "As the consumers are not in a position to absorb the high premium cost in the tariff, we did not cover these items for the time being."

The distribution company lost its entire infrastructure in the 1999 super-cyclone. Cesco estimated the damage at Rs 100 crore, which was not covered under any policy.

Cesco had to borrow funds to finance its restoration work. It took a Rs 20-crore loan from World Bank and a donation of Rs 4.5 crore from AES Transpower besides using about Rs 10 crore from its internal accruals to rebuild the infrastructure. The distribution company is also waiting for a Rs 30-crore loan from Power Finance Corporation. It has already spent Rs 75 crore for restoration of power supply in the cyclone-affected villages.

The super-cyclone had snapped power supply to 9,282 villages. However, Cesco says it has restored supply to all but 115 villages. Some of the villages had been washed away by the tidal waves that gushed in from the sea and some could not be supplied power as they were inaccessible.