Setback for Essar Oil in refinery insurance

Written by fe Bureau | Mumbai | Updated: Feb 29 2012, 07:48am hrs
Essar Oil said on Tuesday that an insurance tribunal had ruled against the company in a case relating to its R3,020-crore ($615 million) insurance claim for damages sustained by its refinery during a cyclone in 1998. Essar Oil said it would contest the ruling.

The tribunals verdict has no impact on our business since the claim amount has never been accounted for in Essar Oils books, it said in a statement on Tuesday. The tribunal allowed the companys claim of material damage but disallowed the claim for advance loss of profit.

Essar Oil had drawn an insurance policy with United India Insurance in 1996 that covered all risks to its assets including advance loss of profit, the company said. It filed a claim after a tropical cyclone in 1998 caused damage to its under-construction refinery at Vadinar.

After settlement talks failed, the parties agreed for settlement through the arbitration route. Prima facie, it appears the arbitral tribunal has not dealt with certain issues that were put forth during the hearing, the company said in a statement.

Essar Oil will explore all legal options to set aside the award, the company statement said.

The ruling comes weeks after a Supreme Court order that reversed an earlier Gujarat High Court order that enabled the company to benefit from a sales tax deferment scheme.

On Monday, London Stock Exchange-listed Essar Energy, the holding company for the Essar Groups energy portfolio, of which Essar Oil is a subsidiary, had said it posted a $568 million loss for the fiscal 2010-11, compared to a profit of $248.4 million a year ago, after the Supreme Court ruling.

Essar Energy is the majority shareholder in Essar Oil which is currently seeking a review of the Supreme Court order. The net effect of the apex courts order is $655.5 million on the companys profit after tax, Essar Energy said.