National Strategic Projects Full of Risks
The Indonesian government is accelerating nickel downstreaming through the construction of smelters and processing plants in various regions, such as Morowali, Halmahera, Pomalaa, and Obi Island. These projects, valued at hundreds of millions to billions of US dollars, involve international-scale EPC (Engineering, Procurement, and Construction) contractors, and include the construction of electricity, water, port, and logistics infrastructure.
However, behind the grandeur of this project lies a complex set of construction risks. These include structural failure, on-site fires, heavy equipment damage, and project delays due to extreme weather or logistical disruptions.
Without strong risk management and insurance planning, financial losses, schedule delays, and even legal disputes can occur — harming investors, contractors, and the government.
This is where the role of a professional insurance broker like PT Liberty and General Insurance Broker (L&G) becomes crucial: helping to design comprehensive coverage for smelter projects from the design stage through to commissioning.
Understanding Construction Risks in Nickel Smelter Projects
Nickel smelter construction involves high-risk engineering activities: welding, casting, furnace installation, and high-voltage electrical system integration. Here are some of the key risks often encountered:
- Physical Risks and Accidents in the Field
- Fire caused by welding sparks or electrical short circuits
- Collapse of scaffolding or steel structure during installation
- Fuel and chemical tank explosion
- Risk of Damage to Materials and Equipment
- Damage to cranes, generators, or excavators during installation
- Losses due to operator negligence or installation errors
- Loss of imported materials due to bad weather or logistical errors
- Weather and Natural Risks
- Flooding in the project area caused foundation damage
- Earthquakes or strong winds that damage temporary structures
- Work delays due to extreme weather conditions
- Risk of Project Delay (Delay in Start Up / DSU)
Delays in project completion can result in lost potential operating revenue. For example, if a furnace commissioning is delayed by three months, a company could lose tens of millions of dollars in lost revenue.
- Risk of Legal Liability
- Injuries to workers or third parties resulting from project activities
- Damage to property of local residents
- Dispute with subcontractor due to work error
These risks can threaten project continuity and the company’s reputation. Therefore, insurance coverage must be prepared from the outset, alongside technical and financial planning.
Risk Management Steps in Smelter Construction Projects
Risk management is not just about buying an insurance policy, but rather a systematic process of identifying, analyzing, and controlling potential losses.
The following is the approach typically applied by L&G Insurance Broker for nickel smelter projects:
- Risk Identification
L&G conducted a site visit and analysis of project documents to identify potential technical, contractual and environmental risks.
For example: project locations near the coast can increase the risk of corrosion, hurricanes, and tidal flooding.
- Risk Evaluation (Analysis and Assessment)
Each risk is evaluated based on its likelihood of occurrence and its potential impact on project cost, schedule, and quality.
The results are stated in the Risk Assessment Matrix which is the basis for designing insurance policies.
- Risk Control
- Periodic work safety audits
- Heavy equipment operator certification
- Implementation of permit to work and hot work management systems
- Supervision of electrical and chemical installations
- Risk Transfer (Risk Transfer to Insurance)
L&G develops insurance programs that cover all major risks, including third-party risks. Policies are tailored to meet EPC contracts, lender requirements, and international regulations such as FIDIC.
Types of Insurance Required for Nickel Smelter Projects
- Construction/Erection All Risks (CAR/EAR) Insurance
- This policy is the backbone of project protection.
- Covers the risk of physical damage or loss during the construction period due to:
- Fire, explosion, lightning strike
- Earthquakes, floods, hurricanes
- Worker error or heavy equipment accident
- Theft of materials in the project area
L&G typically recommends adding Third Party Liability (TPL) to a CAR/EAR policy to protect claims from communities surrounding the project.
- Delay in Start-Up (DSU) / Advanced Loss of Profit (ALOP)
If a delay occurs due to an event covered by CAR/EAR, this policy covers the financial loss resulting from the delayed operation.
Example: 2 months delay in commissioning of furnace due to major flooding.
- Contractors’ Plant and Machinery (CPM) Insurance
Protecting contractors’ heavy equipment from the risk of accidents, fires and mechanical damage at the project site.
- Workmen’s Compensation / Personal Accident Insurance
Provide compensation to workers who are injured or die due to work accidents.
- Marine Cargo Insurance
Covers risks during transportation of imported equipment and materials from abroad to the project site, including damage at the port or during unloading.
- Professional Indemnity Insurance (PI)
For EPC consultants and contractors, this policy protects against lawsuits resulting from design errors or professional negligence.
Case Study – Fire at a Smelter Project in Sulawesi
In 2023, a nickel smelter construction project in Sulawesi experienced a major fire in the furnace installation area due to a temporary electrical fault.
Physical losses are estimated to reach IDR 65 billion, not including the potential schedule delay of 45 days.
However, because the project already has a CAR + DSU policy prepared with the support of an experienced insurance broker, claims can be submitted quickly and paid by the insurance company within 3 months.
Brokers play a role:
- Coordinate the investigation with the loss adjuster
- Prepare complete technical reports and documentation evidence
- Negotiate to ensure all repair costs and lost time of the insured are paid in full.
This is concrete evidence that insurance brokers do not only sell policies, but also guarantee the sustainability of projects.
L&G Insurance Broker’s Strategic Role in the Smelter Project
As one of the leading national insurance brokers, PT Liberty and General Insurance Broker (L&G) has handled various large-scale construction projects — including power plants, energy infrastructure, and heavy industrial plants.
In the nickel downstream project, L&G’s role is vital at each of the following stages:
- Pre-Construction Stage
- Providing consultation on insurance structure and contract terms
- Assist in preparing insurance requirements according to lender (bank/financier) provisions
- Assessing project value and risk exposure
- Construction Phase
- Place CAR/EAR and CPM policies with highly rated insurance companies
- Monitoring and updating project progress values
- Help manage endorsements when there are changes to the schedule or scope of work
- Claim Stage
- Accompanying clients in the claim reporting process
- Negotiating with loss adjusters and insurers
- Ensure claim payments are made according to fair calculations
With a risk-based advisory approach, L&G focuses not only on financial protection but also on increasing risk resilience to ensure projects run smoothly and without any obstacles.
Synergy of Insurance, Lenders, and Contractors
In large-scale smelter projects, financing companies and lenders (such as international banks) usually require certain insurance policies before disbursing project funds.
L&G plays a key role in ensuring that all lender insurance requirements are compliant with international regulations, including:
- Designation of insured parties according to the EPC contract
- Proper placement of limits and deductibles
- FIDIC compliant policy wording
- Arrangement of joint loss payee clause between project owner, contractor and lender
Thus, investor confidence increases and the financial risks of the project can be minimized.
Financial and Operational Benefits of Construction Insurance
Proper implementation of construction project insurance provides many benefits for all parties involved:
- Financial certainty for project owners and contractors
- Rapid post-incident recovery without disrupting project cash flow
- Compliance with contracts and OJK regulations
- Positive reputation in the eyes of lenders and international partners
With a broker like L&G who is experienced in handling complex projects, companies can obtain competitive premiums, optimal wording, and maximum claims support.
Challenges and Trends in Project Insurance in the Downstream Era
Some of the new trends that are now affecting nickel project risks and protections include:
- Modular construction and AI/IoT integration bring new cyber risks
- Implementation of ESG standards that require stricter environmental protection and occupational safety
- The involvement of foreign investors demanding compliance with global insurance standards
L&G is following this trend by upgrading its risk analysis capacity and international reinsurance network to be ready for the needs of future nickel projects.
L&G, Security Partner for Indonesian Smelter Development
The construction of the nickel smelter is a symbol of Indonesia’s progress toward a high-tech and sustainable industry. However, such large investment projects always carry significant risks.
With expertise, integrity, and long experience, PT Liberty and General Insurance Broker (L&G) is present as a strategic partner to protect every stage of nickel smelter construction, from the first foundation to commercial production.
L&G does not simply place policies, but provides security guarantees, business certainty, and peace of mind for all parties involved in the national downstreaming project.
Does your smelter project have adequate risk protection?
Consult your needs with PT Liberty and General Insurance Broker (L&G) — an independent insurance broker with over 30 years of experience in the construction and energy sectors.
HOTLINE L&G 24 JAM: 0811-8507-773 (PHONE – WHATSAPP – SMS)
Website: lngrisk.co.id
Email: halo@lngrisk.co.id
