Even as force majeure often relieves parties from liability during unforeseeable events, the government bears the entire cost of disaster response and recovery. The Coalition for Disaster Resilient Infrastructure (CDRI) suggested that the private sector should also share some of the government’s burden.
In a recent policy brief on developing the power sector’s resilience to extreme weather events in coastal areas, the international agency pointed out that extreme weather events severely affect critical infrastructure, including power systems, transportation networks, healthcare facilities, and water supply systems.
Power infrastructure in coastal regions is particularly vulnerable. More than 75 per cent of India’s coastline is susceptible to extreme weather events like cyclones and tsunamis, the most vulnerable being the eastern coastal states of Tamil Nadu, Andhra Pradesh, Odisha and West Bengal, it said.
Force majeure typically refers to unforeseeable circumstances that prevent parties from fulfilling contractual obligations. In the context of disasters, force majeure clauses often relieve parties from liability when events beyond their control, such as natural hazards and disasters, occur, CDRI said.
“However, these clauses can disproportionately burden the government, as it frequently bears the costs and liabilities associated with disaster response and recovery. To address this imbalance and promote public-private partnerships, contracts are recommended to be revised to ensure that the private sector also shares the burden in such circumstances,” it suggested.
CDRI is a partnership of governments, UN agencies, multilateral development banks, private sector, and knowledge institutions that aims to promote the resilience of new and existing infrastructure systems to climate and disaster risks in support of sustainable development.
Disaster preparedness
The damaging impact of extreme weather events on power plants, substations and transmission lines can lead to prolonged power outages, crippling the delivery of electricity to homes, businesses, and essential services such as hospitals and emergency response units, the global agency said.
This hampers disaster response efforts and slows down recovery and rehabilitation, exacerbating the impact on lives and livelihoods, it added.
CDRI emphasised that to enhance reliance, innovative financing solutions for adaptive preparedness must be integrated. Risk assessment should be a part of financial planning
Introducing a grant component into the existing financial landscape would address emerging needs and bolster financial readiness for extreme weather events at the state level, it advocated.
Partnerships with the private sector could establish grant components focusing on disaster risk financing and reduction. These collaborations, including insurance, reinsurance, and catastrophe (CAT) bonds, offer innovative funding mechanisms, ensuring community recovery and supporting critical infrastructure development, CDRI said.
Insurance firms have introduced a wide array of life and non-life insurance services and products to the market in India. With rising household income, the Indian insurance sector is poised for robust expansion fueled by product innovation, competitive premiums, improved claims management and enhanced regulatory oversight.
“To capitalize on this potential, thorough due diligence can be conducted and insurance mechanisms that serve as a social safety net and complement existing financial mechanisms are suggested to be introduced in collaboration with insurance companies/ private sector stakeholders,” it added.
Financing disaster preparedness
CDRI suggested devising a robust strategy at the state level, including a grant component to address emergent needs and augment financial preparedness for extreme weather events.
For instance, akin to the Department of Energy grants in the US, a grant component focusing on non-structural measures related to disaster risk financing or risk reduction financing for transmission and distribution (T&D) utilities could be established, it added.
“Implementing power utility-focused funds is essential to address the risks and vulnerabilities of T&D infrastructure in the face of extreme weather events,” it suggested.