Name of Agreement:

Power Purchase Agreement for emergency power generation complex - thermal power generation plant

Type of Agreement:

Power Purchase Agreement - for emergency power - short-term arrangement for mobile plant (on skids) prepared, together with an Implementation/Government Support Agreement

Africa

Civil law/ common law:

Suitable for both, subject to modification to take into account local laws and regulations and subject to local law advice

Year of Agreement/ Draft:

2007

Annotation by:

Victoria Delmon (LEGPS), Mark Moseley (LEGPS)

Purpose and Context:

Agreement sets out terms on which Company is to sell electricity from an electric generating station (mobile plant) it is installing and the state owned utility/ grid (Utility) undertakes to purchase capacity and delivered energy.

The Supplier is being provided with assistance and other protection by the Government in relation to the project under a separate Implementation/Government Support Agreement.

Circumstances where this contract may be appropriate:

This is a simplified power purchase agreement for use in situations requiring emergency powere or in rural electrification projects, where a short-term arrangement is envisaged.

Main Features:

Company undertakes to make available and to sell to the Utility and Utility undertakes to purchase Declared Available Capacity and Net Energy Output at the Complex after the Commercial Operations Date (2.1)

Company may not without the express prior written authority of the Utility sell/ deliver energy to another party for duration of contract (2.2)

Company to design, finance, construct, operate and maintain Complex in accordance with minimal functional specifications and prudent utility practice and relevant laws and regulations etc (5.6)

Company to pay liquidated damages to extent that Ongoing Dependable Net Capacity Shortfall, delays on commissioning etc (10.5 & schedule 7)

Term – initial term ends [  ] months after Commercial Operations Date – and can be extended on the same terms for an additional [  ] months [provision to extend term may be limited by local public procurement issues and/ or terms of procurement documents] (3)

Parties to jointly develop written operating procedures for Complex, grid, interconnection facilities etc (5.3) in initial phase of agreement.

Utility with right to inspect progress of installation etc. (5.5) Utility personnel to respect Supplier safety and health regulations and not unreasonably to cause interference or disruption.

Utility has granted company a license to use the site for the purposes of the Agreement (4.1)

Company to give advance notice of Declared Available Capacity (7.1)

Company to obtain reliable supply of fuel (7.8)

Operating committee with representatives of each party to develop operating procedures, procedures for commissioning, other procedures, and where appropriate, for proposing solutions to other issues and attempting to resolve Disputes resolving operation, maintenance and testing of Complex (7.10)

Interconnection – provisions requiring information to be shared between parties to enable interconnection facilities to be installed (8.1 and 8.2)

Supplier to provide protective devises for interconnection facilities (8.4)

Testing of interconnection facilities (each party bears own costs) (8.5)

Meters (9) – company owns and operates meters, whereas, unusually, Utility responsible for testing. Very low margin for error permitted (0.2%) [international practice is 0.5%] – need to be sure that margin of error is realistic

Billing – Utility to pay advance payment for mobilization and commissioning of plant. Payment is then based on hourly calculations of Declared Available Capacity and Net Energy Output – need to check that this is technically possible (10.1)

Prior to Commercial Operations Date Supplier is to be paid Energy Payment for output (rather than the more usual approach of being compensated for its fuel) (10.3)

Liquidated Damages - 10.5

Seller provides a Performance Security for installation and then a separate operations performance security, both in form of irrevocable direct pay letter of credit issued by an international bank (11.2.1 and 11.2.2) 

Commissioning and testing provisions clearly set out (12)

Insurance provisions clearly set out (13)

Force majeure (15) – consequences of FM – parties are relieved of obligations and Utility is relieved of payment obligations other than in a Local Political FM event. Clear and well drafted provision – contemplates also FM that only affects part of the Complex and part of the capacity.

Termination for extended FM – party not claiming FM can terminate if FM delays other party’s performance for more than 15 days prior to Commercial Operations Date or two consecutive months thereafter (15.3.1)

Taxes applicable to Company to be paid by Company – no provision for changes in taxes and any relief to be granted to Company (16)

There is an extensive list of breaches giving rise to right of other party to terminate (17). 

Dispute resolution (18) – process of referral to expert determination before going to arbitration – but unusually expert determination is binding – may discourage parties from going this route, even though simple and quick process.
 

Arbitration is under ICSID rules (thought should be given as to whether ICSID rules allow parties to a project use the ICSID process)
 

Waiver of sovereign immunity (18.5)

Disputed amounts are not required to be paid during the process (18.7 – not clear if then those amounts are found to be payable, whether interest would be payable)

Assignment (19) – no assignment by either party without consent. Company may assign for purpose of financing the project.

Neither party to be liable for indirect or consequential loss (21.8)

Possible additional provisions that it might be appropriate to include:

It might be appropriate to include a provision dealing with changes of law in the PPA.
 

In this arrangement, the change of law risk is borne by the Government and is set out in the Implementation/Government Support Agreement between the Company and the Government.

Provisions that may not be advisable to replicate/ may need further thought:

Expert determination is final and binding – unusual
 

A number of provisions such as allowable variance of meters, cure periods etc that differ from market practice re. permanent plant but may not make sense in the context of emergency/ mobile plant

Provisions of wider general use:

Force majeure provision, insurance, commissioning provisions very clear

Waiver of sovereign immunity, double jeopardy clause

Experience Since Coming Into Force (including any amendments)/ if draft form, whether it has been applied:

N/A

Tracking Number:

PPA Emergency Power Mobile Plant_Undated_English