Energy poverty fight finds new foe in confusing contracts

Power lines in South Africa. U.S. President Barack Obama’s “Power Africa” initiative is gradually transforming from a slogan into a real strategy for rapid and expansive energy production in Africa. Photo by: Gavin Fordham / CC BY-NC

The power purchasing agreement is central to energy generation and distribution deals — which are the heart of U.S. President Barack Obama's “Power Africa” initiative.

Obama's push to double access to energy in sub-Saharan Africa by 2020 includes a $7 billion U.S. government commitment and a “transactional approach” to power development. A wide variety of U.S. government agencies are supposed to mobilize whatever tools are at their disposal to help move African power deals — preferably involving U.S. businesses — through the pipeline to completion.

The power purchasing agreement — or PPA — includes a “complex set” of terms for issues such as up-front financing, fuel purchasing agreements, the guarantee that an off-taker will actually buy the power generated, the details of power transmission, and a wide array of other roles and responsibilities parties must agree to before the deal can move forward.

Without a PPA firmly in place, power developers and off-takers have nothing to take to financiers — the commercial banks, funds, or development institutions that can lend money and insure risk — to convince them the project under discussion is bankable.

Most of what a PPA contains is mundane and uncontroversial. But a relatively small number of agreements dealt with under different kinds of PPAs can include provisions with the potential to roadblock negotiations, confuse government officials, and drastically increase the time it takes to get from identifying a potential power project to locking down financing for it.

That time lag between project scoping and financing — as well as the overall uncertainty that misunderstood or misinformed PPAs can create — are some of the key obstacles to private investment in Africa's energy infrastructure. Time and uncertainty cost power producers money and shroud energy deals in a layer of risk that can be unappetizing for power companies, host governments, and international financiers alike.

For that reason, these PPA problem provisions — dubbed “provisions in contention” — are the subject of a two-day workshop in Washington, D.C. convened by the U.S. Department of Commerce's Commercial Law Development Program, with funding from the U.S. Agency for International Development.

The workshop began Wednesday — bringing together U.S. government lawyers, African electric company counsels, partners from law firms representing power companies and U.S. policymakers — to try to make sense of the trouble spots that delay PPAs. For example, these include a “force majeure clause” that frees parties from liability in the event of extraordinary circumstances like war.

Participants will also begin building an online “document library” that lays out annotated versions of the contentious provisions to clarify for dealmakers and signatories what considerations and consequences different choices carry within those specific provisions.

From slogan to strategy

While seemingly technical and riddled in legalese, the workshop — and the products and future collaborations its organizers hope it will prompt — could suggest that 9 months after its launch, Power Africa is gradually transforming from what some have described as more of a general slogan into a real strategy for rapid and expansive energy production in Africa.

Following this week’s event, two follow-up gatherings — one in East Africa and one in West Africa — will allow African-based lawyers and officials to discuss and contribute to the PPA annotations to ensure they reflect regional contexts and considerations.

Ultimately, organizers hope they will have several annotated PPAs, each of them helpful in clarifying the provisions for different kinds of power deals, whether geothermal, natural gas, wind, solar, or hydroelectric. Each of these deals is different, with different considerations and consequences embedded in their legal language.

With that document library in place, technical experts will be able to assist power deal negotiators to come to terms more quickly — with greater assurance that they know what they're agreeing to. Negotiators can in turn relay those messages, costs, and benefits to the government officials that have sent them to the bargaining table.

According to Nnamdi Ezera, senior counsel at the U.S. Department of Commerce's Commercial Law Development Program, the workshop and document library will have two goals: legal capacity building for negotiators and buy-in to Power Africa from African officials, who often find themselves at the less-informed end of a complicated set of long-term, technical agreements.

"There is a lack of understanding, a lack of capacity about the terms that are being utilized and negotiated — what the principles are behind these things,” said Ezera, noting that when an unfamiliar professional language — like that used by high-powered international law firms who represent energy companies — holds sway over negotiations, typically one side of the table is at a disadvantage.

He added: “Quite frankly, if I were in the position of a government official who didn't know much about what the heck was going on, and I was told, ‘look, you have to sign off on this thing which is going to commit your country to 25 years of an agreement,’ I would be hard pressed to sign anything.”

Read more:

'Managing expectations' on Power Africa
Lee Zak on Power Africa: 'The phone is ringing off the hook'
Nuclear energy to 'power Africa?'

About the author

  • Michael Igoe

    Michael Igoe is a Senior Reporter with Devex, based in Washington, D.C. He covers U.S. foreign aid, global health, climate change, and development finance. Prior to joining Devex, Michael researched water management and climate change adaptation in post-Soviet Central Asia, where he also wrote for EurasiaNet. Michael earned his bachelor's degree from Bowdoin College, where he majored in Russian, and his master’s degree from the University of Montana, where he studied international conservation and development.

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