CLDP's Power Africa Program: Streamlining Power Purchase Agreements

Power Africa Newsletter - June 2014: CLDP

By Mohamed Rali Badissy from the Commerce Department and and Shalini Soopramanien from the African Development Bank

As an integral part of President Obama's Power Africa Initiative, the US Department of Commerce's Commercial Law Development Program (CLDP) was asked by the US Agency for International Development (USAID) to lead the development of sample annotated core agreements for power generation projects within the Power Africa focus countries of Ethiopia, Ghana, Kenya, Liberia, Nigeria, and Tanzania. Through technical assistance capacity building programs and consultations, CLDP will use this document library to streamline power project negotiations and shorten project development cycles.

CLDP is developing the guidance documents in cooperation with a variety of partners, including the World Bank, the African Development Bank, the African Legal Support Facility (ALSF), the Overseas Private Investment Corporation (OPIC), the Initiative for Global Development (IGD), international law firms and the Power Africa governments. In order to kickstart the library development process, CLDP hosted a workshop on the Annotation of Power Purchase Agreements (PPAs) from March 26-28 in Washington, DC. The workshop brought together approximately 25 international energy lawyers from leading international law firms as well as lawyers from ALSF, OPIC and IGD, and government officials from Ghana, Nigeria, and Tanzania.

Building upon previous work done by OPIC and other development agencies to identify the most important elements for PPA "bankability," the workshop agenda delineated nine discussion sessions including power payments, to insurance and sovereign guarantees. In each of these discussions, the workshop participants identified the considerations and consequences that should inform the drafting of a PPA. Participants were able to identify where the interests of all contract parties (developer, offtaker, lender, regulator) are aligned and what strategies could be applied to reach a compromise when the contract parties may differ on a particular contract term.

The March workshop was viewed by the participants as a unique and productive gathering of perspectives from legal practitioners who have themselves negotiated many PPAs in Africa. CLDP is currently leading the second phase of the PPA Annotation program, which focuses on consultations with government stakeholders in West and East Africa tied to gathering their perspectives on what qualities are needed in order to obtain successful PPAs. These regional workshops will bring together the utilities, transmitters, distributors, and regulators from the six Power Africa countries. In addition to gathering insights from government representatives, the workshops will also allow government stakeholders to hear perspectives from lenders, law firms and other experts. Leading regional Power Africa partners, including the ALSF, which recently approved support for the Ethiopia Corbetti Geothermal project, are also expected to apply the lessons learned from their projects to these workshops.

When combined, the perspectives gathered during these consultative phases will enable CLDP to develop a document library that accounts for and addresses the concerns of all the parties that will have a role in negotiating PPAs as part of the Power Africa initiative. This comprehensive resource will build the capacity within Power Africa countries to streamline the negotiation of PPAs and move more quickly towards building the critical energy infrastructure that will be the cornerstone of economic growth for future generations.