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Political risk insurance (PRI) can protect an eligible energy investor or lender against specified losses caused by defined political events or government actions. Depending on the policy or guarantee, that may include expropriation, currency-transfer restrictions, political violence, breach of contract, or a government’s failure to honor a qualifying financial obligation. It is not blanket protection against currency losses, regulatory change, ordinary commercial problems, or every failure to pay under a power purchase agreement (PPA). The issued wording, eligibility rules, and claims conditions determine what is actually covered.
What does political risk insurance cover for an energy project?
PRI transfers specified political risks under a contract. It may be issued as insurance or as a public guarantee; the form, covered party, eligible investment, and claim process vary by provider. For example, the Multilateral Investment Guarantee Agency (MIGA) lists breach of contract, currency inconvertibility and transfer restriction, expropriation, war and civil disturbance, and non-honoring of certain financial obligations among its coverages. These risks may be insured separately or in combination, subject to provider eligibility and the contract issued.
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The U.S. Export-Import Bank (EXIM) also describes political-only cover for qualifying transactions. “Political-only” matters: it addresses defined political perils, not broad commercial risk. The exact protections available to a project depend on the provider, the parties and investment involved, the host country, and the policy or guarantee terms.
Does political risk insurance cover currency devaluation?
Not under the currency-transfer coverage described by MIGA. That coverage addresses an investor’s inability to legally convert local currency into hard currency or transfer currency out of the host country when the problem results from government action or failure to act. MIGA states: “Currency depreciation is not covered.” A fall in the local currency’s value is different from being blocked from converting or moving it.
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The distinction is important when an energy project collects tariffs in local currency but has hard-currency debt or needs to remit returns abroad. A project could face exchange-rate losses even when it can convert and transfer funds; transfer-risk cover does not make the exchange rate stable.
Does it cover a government breaking a power purchase agreement?
It may, under breach-of-contract coverage, but a government or other covered public counterparty’s failure to perform does not automatically produce an insured claim. MIGA describes cover for breach or repudiation of an investor contract, potentially including certain state-owned enterprises. Concessions and PPAs are examples of contracts relevant to energy investments.
The investor generally has to invoke the contract’s dispute-resolution process. Depending on the policy, compensation may become available after the investor is denied recourse or an award remains unpaid for a specified period. The contract trigger and required steps control: an ordinary payment default by a PPA counterparty is not automatically covered merely because the project has PRI.
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What other political risks can be covered?
Expropriation
Expropriation cover may respond when qualifying government action reduces or eliminates an investor’s ownership, control, or rights in an insured investment. MIGA describes both outright and creeping expropriation and says partial cover is available in limited circumstances.
This is not general insurance against adverse regulation. In its power-sector brochure, MIGA says that “Bona fide, nondiscriminatory measures taken by the host government in the exercise of its legitimate regulatory authority are not considered expropriatory.” That is MIGA’s product description, not a universal rule for every PRI contract. A new law, tariff decision, permit action, or other regulatory measure is not covered just because it harms a project; the policy’s definition and trigger must apply.
War and civil disturbance
MIGA describes cover for loss, damage, destruction, or disappearance of tangible assets, and for total business interruption, caused by politically motivated war or civil disturbance. Examples in its description include revolution, insurrection, coups, sabotage, and terrorism. Its power-sector brochure also describes temporary-interruption cover as available. The insured peril definition and interruption threshold in the project’s own wording determine whether a particular event and loss qualify.
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Non-honoring of certain financial obligations
MIGA’s power-sector material describes cover when a government fails to pay an unconditional financial obligation or guarantee when due. This coverage does not require an arbitral award, but the obligation must meet the provider’s requirements, including being unconditional. It is distinct from breach-of-contract cover, for which dispute procedures and other policy conditions may be central.
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What does political risk insurance exclude or leave with the project?
There is no single exclusion list that applies to every provider or contract. Terms and definitions differ, but the coverage descriptions above establish several important boundaries:
- Currency depreciation or devaluation: MIGA’s currency-transfer coverage does not cover a decline in the currency’s value.
- Legitimate regulatory measures: MIGA’s power-sector material does not treat bona fide, nondiscriminatory measures taken under legitimate regulatory authority as expropriation.
- Uncovered commercial risks: Political-only cover does not absorb broad commercial risks, such as a borrower’s ability to withstand market disruption.
- Losses outside the named trigger: A setback involving a government, public utility, contract, or permit is not covered solely because it is political in character; the insured event and claim conditions must match the wording.
PRI can also leave a financing gap even when political risks are insured. The OECD’s 2025 clean-energy report cautions that PRI alone may be insufficient to attract purely commercial capital to fragile or conflict-affected markets; donor support and risk sharing may still be needed.
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Why does PRI matter for energy projects?
Energy investments can depend on several public and local stakeholders, long-lived assets, and revenue streams collected in local currency. That combination can expose a project to government action, restrictions on moving money, and disruption to physical infrastructure—risks that differ from construction, operating, or market risks.
The OECD’s 2025 report describes a MIGA PRI example involving solar mini- and metro-grids in the Democratic Republic of the Congo. The project supported electricity service to 23,000 households. MIGA offered partial expropriation cover so that expropriation of an individual mini-grid could trigger compensation even if the wider company remained viable. The example illustrates how partial cover can be structured around a specific investment exposure; it does not establish current availability or terms for another project.
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1Repair Windows errors before they cause bigger problems2Scan for outdated or missing drivers - takes under a minute3Clear out junk files and repair common Windows errorsMIGA’s April 2013 power-sector brochure also described historical guarantees for a Kenya geothermal project involving an 84 MW plant and a $99 million guarantee, a Nicaragua wind farm with a 44 MW project and $16.3 million in guarantees, and up to 20 years of cover for a Rwanda methane-to-power project. These are historical illustrations, not current pricing, capacity benchmarks, or evidence that the same cover is available today.
What should an energy project check before relying on PRI?
Review the proposed policy or guarantee against the project’s actual structure and risk scenarios. MIGA’s project-selection factors include location, project viability, sector, financial viability, foreign-currency proceeds, environmental impact, and local participation. For any provider, clarify these contract points:
- Which investor, lender, or other party is insured, and which investments or financing are eligible?
- Do the host-country, investor-nationality, and transaction requirements fit the project?
- Which political peril is named, what event triggers it, and which counterparties are covered?
- Are there waiting periods, dispute-resolution steps, or arbitration prerequisites?
- Does the cover address asset loss, business interruption, or both, and what threshold applies?
- How are loss valuation and compensation determined, and what are the limit and tenor?
- What exclusions, exceptions, cancellation terms, transfer rights, and claims procedures apply?
For a live project, compare the proposed wording with its key exposures and ask a specialist PRI broker, insurer, or public guarantee agency about eligibility and triggers. Do not infer coverage from a product summary alone: the issued wording and its conditions govern.
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