Adequate insurance coverage for a wide range of events is especially important for a PPP project because the single-purpose and thinly capitalised nature of the PPP company make it unlikely that the company will be able to self-insure to any substantial extent.

In this regard, the interests of the public authority and the senior lenders for the most part are well aligned and it may therefore seem that the public authority can rely on the lenders to impose adequate insurance requirements on the PPP company. Nevertheless, it is a prudent safeguard for the public authority to require inclusion in the PPP contract of certain minimal insurance requirements (which should not go beyond what the lenders are likely to require). These insurance requirements should be developed and negotiated with the support of professional insurance advisers since project finance-related insurance is a highly specialised area.

The main categories of insurance coverage that the public authority would normally require include the following:

□ During the construction phase:

• Contractors' "all risks" insurance (physical loss or damage to all works and equipment at the construction site);

• Third party liability insurance; and

• Possibly: "Delay in start up" (DSU) insurance (loss of revenue or profit due to a delay in project completion).

□ During the operation phase:

• "All risks" property insurance;

• Third party liability insurance; and

• Business interruption insurance (similar to DSU insurance).

Special environmental insurance could also be required, depending on the type of project.

For each kind of insurance coverage, requirements should be set out in the PPP contract regarding the basic features, minimum level of coverage, principal exclusions and maximum deductible (i.e. the amount for each event below which the insurance company will not pay).

There will be other issues that will have to be considered. For example, for certain types of coverage, it may be in the public authority's interest to agree to indemnify the PPP company if a risk becomes "uninsurable" (including being insurable only at a prohibitive cost).