The Importance of Protection in the Energy Transition Era
Amid the rapid transition to green energy, diesel-powered Engineering, Procurement, and Construction (EPC) projects continue to play a crucial role, particularly in off-grid areas with unconnected electricity infrastructure. These projects serve as the backbone of temporary energy supply for the industrial and construction sectors, and even remote areas experiencing accelerated development.
Despite its “temporary” status, diesel EPC projects are not without significant risks. Large-scale machinery operations, high fuel consumption, and tight project completion time pressures increase the potential for losses if operational disruptions occur. Fires, explosions, fuel spills, and even engine failure are real risks that can have significant financial impacts on both contractors and project owners.
Therefore, proper insurance coverage is not just a contractual formality, but a vital component of diesel project risk management. With the support of policies tailored to project characteristics—from installation and commissioning to operations—companies can maintain stable cash flow even in the event of unforeseen incidents.
To ensure optimal protection, L&G Insurance Broker is ready to be your partner.Your strategic approach to preparing an EPC diesel project insurance program, from risk analysis to claims assistance. Contact us at0811-8507-773 or visitlngrisk.co.id for further consultation.
Characteristics of Diesel-Based EPC Projects
Diesel-fueled EPC projects have unique characteristics compared to other energy projects such as coal-fired power plants (PLTU), gas-fired power plants (PLTG), or solar-powered plants (PLTS). Generally, these projects are designed to provide fast-track power generation solutions that can…installedand operated in a relatively short time. However, its technology-intensive nature and the involvement of many high-risk components make the need for insurance increasingly important.
Here are some of the main characteristics of diesel-based EPC projects that need to be understood:
- Relying on Modular Systems and High Mobility
Diesel generating units are generally modular and easily transported between project sites. This allows for reuse on different projects. However, high mobility also increases the risk of equipment movement, such as damage during transportation, collisions, or loss. Marine Cargo and Contractor’s Plant and Machinery (CPM) insurance are essential protections at this stage. - High Risk Fuel
The use of High-Speed Diesel (HSD) or other fuels carries a significant risk of fire and explosion. Furthermore, the potential for oil spills can cause environmental pollution, which has legal and financial implications. Policies such as Industrial All Risks (IAR) or Public Liability Insurance are necessary to address these risks. - Time Pressure and Tight Contracts
EPC projects typically have tight deadlines, where even the slightest delay can result in significant penalties or financial losses. In this case, Delay in Start Up (DSU) or Advance Loss of Profit (ALOP) protection is a crucial tool for maintaining project cash flow in the event of delays due to policy-covered risks. - Multi-Party Involvement
EPC projects involve multiple parties: the main contractor, subcontractors, equipment vendors, and even the project owner. This complexity creates the potential for cross-liability in the event of accidents, damage, or third-party claims. Policies such as Contractor’s All Risks (CAR) or Erection All Risks (EAR) are generally the primary solution to safeguard the interests of all parties. - Operations in Locations with Limited Infrastructure
Many diesel projects are located in remote areas or new industrial areas lacking adequate infrastructure. Logistical risks, supply delays, and limited emergency facilities make insurance coverage even more vital. In many cases, having an experienced insurance broker can help ensure policy coverage reflects the actual conditions on the ground.
Key Risks in Diesel-Based EPC Projects
Every diesel-powered EPC project faces a number of complex risks that can significantly impact project sustainability and the contractor’s financial stability. These risks arise from the procurement and delivery of materials, through field installation, to commissioning and initial operation. Without a well-developed mitigation strategy and appropriate insurance coverage, a small incident can escalate into billions of rupiah in losses.
Here are somemain risksWhat needs to be anticipated in diesel EPC projects:
- Fire and Explosion
Diesel engines and fuel storage tanks pose a high risk of fire. Fuel drips, excess pressure, or technical errors in the installation can ignite. Such incidents not only damage the physical assets of a project but can also delay completion by months. - Equipment Damage (Mechanical & Electrical Breakdown)
Diesel generators, transformers, and automatic control systems are high-tech equipment with significant potential for failure. Overloads, installation errors, or voltage fluctuations can cause costly repairs. Policies such as Contractor’s All Risks (CAR) and Machinery Breakdown Insurance provide primary protection against these risks. - Design & Erection Error
EPC projects involve many technical aspects—from electrical system design and engine capacity selection to fuel pipe installation. A small planning error can lead to total system failure. In cases like these, Professional Indemnity Insurance (PI) provides essential protection for contractors and engineering consultants. - Transportation and Logistics Risks
Because diesel projects often take place in remote areas, shipping large equipment like generators, switchboards, and fuel tanks faces high risks, including collisions, falls, or even sinking at sea. Marine Cargo Insurance is necessary to cover the entire logistics journey, both domestically and internationally. - Project Disruptions and Delays (Delay in Start Up)
If an incident such as a fire or machinery failure occurs before commissioning, the project can be significantly delayed. Consequently, operating income is delayed and project cash flow is disrupted. With Advance Loss of Profit (ALOP) protection, project owners can still cover potential financial losses due to delays. - Pollution and Environmental Liability
Fuel leaks or spills can contaminate the soil and water around the project site. In addition to the environmental impact, these incidents can lead to lawsuits and fines. This is where pollution liability insurance becomes crucial, especially for contractors working in sensitive areas or near residential areas. - Workplace Accidents and Personnel Risks (Personal Injury & Fatality)
Work on diesel projects often involves large numbers of workers and heavy equipment, potentially leading to accidents. Insurance such as Workers’ Compensation and Employers’ Liability are mandatory to protect workers and avoid potential third-party lawsuits.
Recommended Insurance Types for Diesel EPC Projects
In diesel power plant-based EPC projects, selecting the right insurance type is a strategic step to maintain financial stability and ensure the project continues without major disruptions due to unforeseen incidents. Each project stage—from engineering and procurement to construction and commissioning—has different risk characteristics, requiring specific types of coverage.
Following are the main types of insurance recommended for diesel EPC projects:
1. Contractor’s All Risks (CAR) / Erection All Risks (EAR) Insurance
This is a basic policy required for all EPC projects, including diesel projects. CAR/EAR insurance provides comprehensive protection against the risks of physical damage, fire, explosion, natural disasters, and human error during the construction and installation phases. This policy also covers Third Party Liability (TPL) in the event of loss or injury to a third party within the project area.
2. Machinery Breakdown Insurance (MBI)
Once installation is complete and the project enters the operational phase, the primary risk shifts to machine breakdown. MBI provides coverage for sudden and unexpected breakdowns of equipment such as diesel generators, turbines, cooling systems, and electrical panels. This policy is crucial because the cost of repairing or replacing machine components can reach billions of rupiah.
3. Marine Cargo Insurance
Most diesel projects involve shipping heavy machinery and equipment from overseas or between islands. This insurance covers risks during the transportation process, such as sinking, ship fire, collision, theft, or damage due to extreme weather. With such high asset values, cargo protection is essential for safeguarding project investments from the outset.
4. Public Liability Insurance (PLI)
Diesel projects are often carried out in open areas, potentially posing risks to surrounding communities—for example, fires caused by fuel spills or noise pollution. PLI provides protection against third-party lawsuits, whether for personal injury, property damage, or environmental impacts.
5. Pollution & Environmental Liability Insurance
Diesel fuel and lubricants have a high pollution potential. If a leak or spill contaminates land, rivers, or residential areas, the company could face significant remediation costs and legal action. With this policy, EPC contractors can protect themselves from financial and reputational losses caused by pollution incidents.
6. Advance Loss of Profit (ALOP) / Delay in Start Up (DSU) Insurance
Delays in project completion due to incidents covered by a CAR/EAR policy can hinder planned revenue potential. An ALOP/DSU policy provides compensation for lost revenue or additional costs resulting from delayed project commissioning. This is particularly crucial for diesel projects under tight commercial contracts.
7. Workmen’s Compensation & Employers’ Liability Insurance
The health and safety of field workers is a top priority. These two policies provide coverage for workplace accidents, injuries, or deaths that occur during the project. In addition to fulfilling legal obligations, these policies also protect the company from potential claims for damages.
8. Professional Indemnity Insurance (PI)
In EPC projects, planning or design errors can be fatal. PI Insurance protects engineering consultants, contractors, and subcontractors against lawsuits resulting from professional misconduct, including legal costs and compensation to clients.
With this combination of policies, diesel EPC contractors can have a comprehensive protection system that covers all phases of the project — from delivery, installation, to operation.
To ensure the full coverage and coverage value meet your project needs, you can consult with L&G Insurance Broker, a trusted partner with experience handling large-scale EPC insurance programs in Indonesia.
The Role of Insurance Brokers in Diesel EPC Projects
In complex Engineering, Procurement, and Construction (EPC) projects like diesel power plants, selecting the right insurance policy is no simple matter. Each project has a unique contract structure, location, investment value, and technical risks. This is where the role of a professional insurance broker becomes crucial, ensuring every aspect of the project is optimally and efficiently protected.
Here’s how experienced insurance brokers like L&G Insurance Broker play a role in supporting the success of diesel EPC projects:
1. Comprehensive Risk Analysis (Risk Assessment)
Insurance brokers don’t just sell policies; they also conduct in-depth project risk assessments. They assess potential hazards such as fire, engine failure, fuel contamination, and logistical risks during equipment transportation. With this analysis, companies can find insurance solutions tailored to the project’s characteristics—not too expensive, but also not underinsured.
2. Designing the Right Insurance Program (Tailor-Made Insurance Program)
Each diesel project has a different contract structure—some are full turnkey EPCs, others are split contracts for civil, electrical, and mechanical. Brokers help develop an integrated insurance program that includes CAR/EAR, MBI, DSU, and Public Liability in one package that aligns with the main contract provisions. This is crucial to avoid coverage gaps between policies.
3. Negotiating Premiums and Clauses with Insurance Companies
Brokers act as a bridge between clients and insurance companies. They have the ability to negotiate competitive premiums and add important clauses such as a 72-Hour Clause, Waiver of Subrogation, or Automatic Reinstatement of Sum Insured. This provides stronger protection without incurring excessive premium costs.
4. Claims Management
One of the biggest advantages of using an insurance broker is support during the claims process. When an incident occurs in the field, the broker helps prepare documents, coordinates with loss adjusters, and ensures claims are paid according to the policy. Without this support, many companies experience delayed or even rejected claims due to administrative errors or miscommunication with the insurance company.
5. Ongoing Consultation Throughout the Project
Risks in diesel projects can change over time—for example, when generating capacity increases, the work area is expanded, or the project is extended. Brokers ensure any such changes are incorporated into active policies, ensuring coverage remains up-to-date.
With the support of an experienced insurance broker in the EPC sector, companies not only receive optimal protection but also financial efficiency and claim certainty. L&G Insurance Broker, as one of Indonesia’s leading brokers with experience handling major energy sector projects, is ready to help you design the right coverage for your diesel project—from inception to completion.
Conclusion and Recommendations
Diesel-fueled EPC projects play a strategic role in supporting national energy security, especially in areas not yet connected to the main electricity grid. Their primary advantages lie in operational flexibility and installation speed, but beyond that, there are…riskThese risks are often overlooked by project stakeholders. These risks include mechanical failure, construction delays, damage to high-value equipment, and potential operational disruptions due to extreme environmental conditions.
Without proper insurance coverage, a single minor incident can trigger significant financial losses and disrupt project schedules. Therefore, it’s crucial for EPC companies to view insurance not simply as a formality, but as an integral part of their project risk management strategy.
Well-designed insurance not only provides financial security in the event of a loss but also ensures the project continues as planned. An ideal insurance program includes comprehensive coverage, from the construction phase through the operational phase. A combination of policies such as Construction All Risks (CAR), Machinery Breakdown (MB), and Delay in Start-Up (DSU) provides comprehensive coverage for key site risks.
However, the successful implementation of this program depends heavily on the support of an experienced broker. Brokers act not only as intermediaries but also as risk consultants, ensuring that each clause and coverage limit aligns with the requirements of the EPC contract. This is where L&G Insurance Broker offers added value, with extensive experience in handling energy and infrastructure projects in Indonesia, including diesel and gas power plants, and other strategic projects.
Involving a broker from the planning stage helps companies comprehensively assess risks, tailor insurance coverage to the project’s technical specifications, and ensure compliance with contractual requirements from both the project owner and the financial institution. This integrated approach has proven effective in avoiding coverage gaps and optimizing premium cost efficiency.
Ultimately, proper insurance coverage isn’t just about meeting administrative obligations, but a strategic step toward maintaining project sustainability and a company’s reputation among stakeholders. With the support of a competent broker and a deep understanding of the risks in the EPC sector, companies can execute projects with complete security and confidence, even amidst the increasingly complex dynamics of the energy industry.
For professional guidance on protecting your diesel-fueled EPC project, contact L&G Insurance Broker at0811-8507-773 or visitlngrisk.co.id
Our team of experts is ready to help design an insurance solution that suits your project needs.
