A handbook titled Understanding Power Purchase Agreements in Africa, which provides a comprehensive guide to Power Purchase Agreements in energy deals on the continent, has been launched in South Africa at Cliffe Dekker Hofmeyr business law firm. The handbook was created when the US Department of Commerce's Commercial Law Development Programme (CLDP), through Power Africa ) (in partnership with the African Legal Support Facility) brought together a group of international experts (including Jay Govender of Cliffe Dekker Hofmeyr and President Obama’s Power Africa coordinator Andrew Herscowitz) to draft and publish a PPA handbook. The handbook is intended to provide an overview of PPAs and the obligations, risks and remedies that are found within them. 

At the event at Cliffe Dekker Hofmeyr in Johannesburg, US Consul General Christopher Rowan explained that most successful power projects needed good Power Purchase Agreements (PPAs) to secure the deal.

“The handbook came about after Power Africa began looking at ways to remove obstacles to developing power projects in Africa, and initially looked at developing a comprehensive standardised PPA document for use in power deals. After a brainstorming session in Washington DC attended by power experts from around the world, it became clear that a standardised agreement would not work across multiple jurisdictions and so instead a handbook intended to be a guide to PPAs was compiled,” noted Rowan.

Andrew Herscowitz, Coordinator for Power Africa and Trade Africa, said at the event that Power Africa aimed to increase access to electrical power throughout all of sub-Saharan Africa by bringing together resources from both the private sector and public sector. As part of the initiative, CLDP works to improve the legal and regulatory environment for power projects in Power Africa countries.  CLDP works with a variety of Power Africa stakeholders 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) and law firms from around the world (including Cliffe Dekker Hofmeyr).

“In its first year, Power Africa played a role in helping over 3000 MW of energy projects reach financial close. Some of these projects have been in the pipeline for years and our job is to look at the project and identify obstacles – whether they be a regulatory, technical or a capacity issue, and then work out how these obstacles can be overcome.

“This PPA handbook, compiled with the aid of top energy experts from various jurisdictions in Africa and the rest of the world, is intended to help all stakeholders to overcome obstacles and move energy deals forward,” said Herscowitz.

Mohamed Badissy, Attorney-Advisor at Commercial Law Development Program, U.S. Department of Commerce noted, “We realised that essentially, the real value in understanding PPAs is the perspectives and thinking and positioning that occurs along the way. We moved away from trying to establish perfect a PPA document to trying to explain what makes a PPA perfect.

The handbook contains a chapter on the PPA in context, which includes a definition of a PPA. There are also chapters on the financial provisions as well as risk allocation and mitigation in the drafting of PPAs. Chapters of the handbook also cover PPA provisions and default and termination.

“This sharing of knowledge at brainstorming workshops in the US and Africa allowed us to collect all the various perspectives of global stakeholders and experts and include these in a handbook,” Badissy said.

Toyin Ojo, Senior Advisor at the African Legal Support Facility, said at the event that African governments needed technical assistance when dealing with PPAs in their jurisdictions. This handbook provided guidance on how PPAs could be expertly negotiated to ensure that contracts and projects are sustainable.

“The purpose of the book was to break down the mystery of this highly complex document, the Power Purchase Agreement. The handbook has been well received by those Government stakeholders in Africa who have already seen it, as it significantly aids in the understanding of these complex documents,” she said.

Jay Govender, the Head of Projects and Infrastructure at Cliffe Dekker Hofmeyr explained that the PPA is generally a carefully crafted document, which works as a core against a matrix of other interrelated documents. The foundation of its success is the equitable balance of risk allocation.

“Risk needs to be housed where it can be best managed. The balance between risk and reward is paramount and the astute stakeholder needs to understand the ultimate consequences of shifting or taking on risk. 

“In this regard, the handbook outlines how stakeholders can be reasonable during the risk allocation process. There are chapters in the handbook that outline the different risks of developing a power deal in terms of construction, operation, maintenance, financing, tariffs, and political risks, etc. The handbook explains how risk can be mitigated and the tools that can be used in this regard, such as appropriate insurance and, back- to-back contractual arrangements.

“There is no hard and fast rule with risk, there are so many different risks and permutations influenced by different variables like the regulatory framework, jurisdiction, and political environment, and these are all discussed in the handbook,” explained Govender.

Brent Williams, CEO of Cliffe Dekker Hofmeyr said at the launch of the handbook that Cliffe Dekker Hofmeyr has been involved with President Obama’s Power Africa initiative on a pro bono basis for some time.

The handbook is available for download here

Written by Jay Govender, Director, National Practice Head: Projects and Infrastructure, Cliffe Dekker Hofmeyr