While force majeure events often exonerate parties from liability when unforeseen circumstances occur, governments are required to cover all disaster response and recovery costs. The Coalition for Disaster Resilient Infrastructure (CDRI) has suggested that the private sector should share some of the government burden.
In a recent policy brief on making the power sector more resilient to extreme weather events in coastal regions, international organizations noted that extreme weather events have severe impacts on critical infrastructure such as power systems, transportation networks, health facilities and water systems.
-
read: Prime Minister approves Chennai’s first urban flood mitigation project at Rs 5,612.9 crore
Power infrastructure in coastal areas is particularly vulnerable: More than 75 percent of India’s coastline is prone to extreme weather events such as cyclones and tsunamis, with the eastern coastal states of Tamil Nadu, Andhra Pradesh, Odisha and West Bengal being the most vulnerable.
Force majeure typically refers to unforeseeable circumstances that prevent a party from fulfilling its contractual obligations. In the disaster context, force majeure clauses often excuse a party from liability when an event occurs that is beyond the party’s control, such as a natural disaster or natural calamity, CDRI said.
“However, these clauses may impose a disproportionate burden on governments, as they often bear the costs and liabilities associated with disaster response and recovery. To address this imbalance and promote public-private partnerships, we recommend that the contracts be revised to ensure that the private sector also shares the burden in these situations,” the recommendation said.
-
read: Kerala flood relief: Central government approves additional Rs 3,048 crore aid
CDRI is a partnership between governments, UN agencies, multilateral development banks, the private sector and knowledge institutions aimed at promoting the resilience of new and existing infrastructure systems to climate and disaster risks in support of sustainable development.
Disaster preparedness
The agency said the extreme weather could have a devastating effect on power plants, substations and transmission lines, causing prolonged power outages and paralyzing electricity supplies to homes, businesses and essential services such as hospitals and emergency response forces.
This will hinder disaster response efforts, delay recovery and reconstruction, and exacerbate the impact on lives and livelihoods, it added.
CDRI stressed that innovative financing solutions for adaptive preparedness need to be integrated to increase reliability: risk assessment should be part of financial planning.
They argued that introducing a grant element into existing funding would address new needs and strengthen financial preparedness for extreme weather events at the state level.
Partnerships with the private sector could establish a grant component focused on disaster risk financing and mitigation. These collaborations, which could include insurance, reinsurance and catastrophe (CAT) bonds, would provide innovative financing mechanisms to ensure communities can recover and support critical infrastructure development, CDRI said.
Insurance companies are introducing a wide range of life and non-life insurance services and products in the Indian market. With rising household incomes, the Indian insurance industry is poised to experience strong expansion owing to product innovations, competitive premiums, improved claims management and strengthened regulatory oversight.
“To harness this potential, it is suggested that thorough due diligence be carried out and insurance mechanisms be put in place in collaboration with insurance companies and private sector stakeholders that would act as a social safety net and complement existing financial mechanisms,” it added.
Funding for disaster prevention
CDRI suggested developing a strong state-level strategy that would include a grant component to address emergency needs and strengthen financial preparedness for extreme weather events.
For example, a grant component could be established that focuses on non-structural measures related to disaster risk financing and risk reduction financing for transmission and distribution (T&D) utilities, similar to the U.S. Department of Energy grant, he added.
“The introduction of a utility-focused fund is essential to address the risks and vulnerabilities of electricity transmission and distribution infrastructure in the face of extreme weather events,” the report suggested.
