We also take a look in this edition of FOCUS at the recent Supreme Court decision in the UK relating to insurance clauses in construction contracts. Simon Holloway summarises the latest position of the UK courts.

It has been a busy time at Trinity, with a number of high-profile deals closed in the past six months, including the $552m Amandi Energy power plant in Ghana where Trinity advised the project company and its original sponsors.  We also advised on the US$350m Hakan peat-fired power plant in Rwanda, where we acted for the lenders, Africa Finance Corporation, which arranged senior debt of US$225 million and FinnFund, the Finnish development agency, that arranged the mezzanine debt tranche.  Other lenders we advised included the Eastern and Southern African Trade and Development Bank (now TDB Bank), the African Export-Import Bank, the Development Bank of Rwanda and the Export-Import Bank of India.

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Trinity was recently recognised by the Financial Times as the fastest-growing commercial law firm in the whole of Europe.  We are proud of the achievement and the Trinity team agrees with the FT1000 that innovative and fast-growing companies are the driving force of the economy in the 21st century. 

Trinity’s Francophone practice continues to grow, with our Paris office opening in late 2016 and with active power and infrastructure transactions in Mali, Guinea, DRC, Senegal, Côte d’Ivoire, Benin, Burkina Faso and Liberia.  The team also has acted on transactions in Cameroon, Chad, Djibouti, Mauritania and Madagascar, as well as across the North African region.

We look forward to seeing many of you in Copenhagen at the Africa Energy Forum in early June.  Trinity is hosting an evening reception at the world-famous Tivoli gardens (including tickets to the evening fireworks show).  If you haven’t received a ticket by the end of May and would like to attend, please get in touch with your usual Trinity contact.

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UEMOA Laws

The West African Economic and Monetary Union (WAEMU or UEMOA) directive 044/2005/CM/UEMOA of 2005 sets out the tendering requirements for public procurement contracts. State electricity or public tendering laws have applied this UEMOA directive to public procurement contracts in the field of power production in each state of the union. As a result, developers wishing to produce solar power in the UEMOA region must either respond to requests for proposals issued by states or may, under exceptional circumstances, be exempted from tendering requirements in limited cases such as under an “emergency” situation.  However, stringent conditions must be met for an exemption to apply, and these are usually difficult for power producers to comply with.  Power producers may face an increasing payment default risk from state-owned offtakers in pursuing this route.

The fact that these countries require public tender processes could be seen as an impediment to the ability of power developers to implement much-needed IPPs in these jurisdictions, although these processes are aimed to guarantee a level playing field.  There are however, limited circumstances in which a public tender process is not required and, therefore, these circumstances offer potentially interesting opportunities to the developers.

In this context, in order to sell power to consumers directly without the need for public tendering, and to reduce state-owned offtaker payment default risk, solar developers have been looking into the options offered by West-African states to: (i) develop captive solar power plants, allowing production for a mine or industrial complex’s own consumption; and (ii) sell power to consumers directly using the public grid.  We have focused our attention on a few West African states and have set out below the current legal framework in these countries in respect of both captive power plants and direct access to consumers through the public grid.

Senegal

In Senegal, self-generation (consommation propre) through captive solar power plants is possible subject to the requirements that (i) the power is being produced for the producer’s own use, or that of its affiliates and (ii) the solar power plant and network is not situated on public land and does not use the public grid.  Prior notification to the Ministry of Energy is required to set up a captive solar plant (art. 29 of the Senegalese Electricity Law (Loi n˚98-29 du 14 avril 1998 relative au secteur de l’électricité)) and any excess power produced by the captive solar power may be sold exclusively to the public offtaker SENELEC (art. 15 of the SENELEC concession contract dated 31 March 1999).

Theoretically since 31 March 2009, independent producers have been able to sell electricity to “Large Consumers”, subject to obtaining the relevant licence (art. 9 of the SENELEC concession contract and art. 18 of the Senegalese Electricity Law). Article 29 of SENELEC’s concession contract defines Large Consumers as those subscribing to an annual contract of:

–           5MW or more as of 31 March 2009;

–           a number of MW between 1 and 5MW set by SENELEC and the regulatory authority between 31 March 2009 and 31 March 2019; and

–           1MW after 31 March 2019.

Mali

In Mali, no licence or authorisation is required for captive solar power plants with a capacity lower than or equal to 50kW where power is being produced exclusively for the producer’s own use (art. 13 and 35 of the Mali Electricity Order (Ordonnance n˚00-019/P-RM du 15 mars 2000 portant organisation du secteur de l’électricité)). However, prior notification is required for captive solar plants with a capacity between 50kW and 250kW and an authorisation from the Minister of Energy must also be obtained for captive solar plants with a capacity over 250kW (art. 13, 36 and 37 of the Mali Electricity Order). As long as at least 50% of the captive power produced is for personal use, any excess power produced may be sold to an authorised power producer. Furthermore, in areas where the grid is not available, captive power plants may even sell excess power produced by the plant to local consumers directly, provided that at least 70% of the power produced annually is for own use and that a licence or concession has been granted (art. 38 of the Mali Electricity Order).

As of 15 March 2010, the Mali Electricity Order recognises that a Regulatory Committee may authorise some power producers to enter into power supply contracts directly with consumers (art. 23 of the Mali Electricity Order). Unfortunately, the decree implementing specific rules for direct access to the grid and sale to consumers has not been published yet.

Burkina Faso

Subject to providing prior notification, captive solar power plants are also authorised in Burkina Faso (art. 27 of the Burkina Faso Electricity Law (Loi n˚053-2012/ AN portant réglementation générale du sous-secteur de l’électricité au Burkina Faso)).  Any excess power produced may be sold, provided that the required licence or authorisation is obtained (art. 27 of the Burkina Faso Electricity Law).

Burkina Faso recognises the principle of a transition from a system with a sole state-owned offtaker to a system where power producers would have direct access to the grid and could sell power to consumers directly (art. 29 of the Burkina Faso Electricity Law).  However, as in Mali, the decree implementing that change has not been published to date.

Côte d’Ivoire

Côte d’Ivoire also authorises captive solar power plants, but requires either prior notification or an authorisation depending on the capacity of the plant (art. 8 of the Côte d’Ivoire Electricity Law (Loi n˚2014-132 du 24 mars 2014 portant Code de l’Electricité)).  Any captive solar power plant holding a licence may also be authorised to sell any excess power produced but, again, the decree including the conditions for such sale has not been issued as yet.

Unlike other West African countries, the Côte d’Ivoire Electricity Law, which is more recent than many others in the region, explicitly authorises the direct sale of power to the State or to consumers, and confirms that the concession agreement between the power producer and the State will set out the terms and conditions of that sale (art. 10 of the Cote d’Ivoire Electricity Law).   However, the decree setting out the framework for power production concession agreements has not been issued by the relevant authorities.

Our view is that whilst there is imperfect legislation in the countries mentioned, it is not impossible to create structures that allow for captive plants to be successfully delivered.  The Trinity team is currently working on a number of these transactions in a number of jurisdictions and is available to discuss prospects in further detail.

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The charter between the OLH and OVH obliged OVH to take out joint insurance for the benefit of OLH and OVH. The insurance clause in the charter did not contain an express waiver of rights of subrogation.

The Supreme Court decided by a 3:2 majority that Gard, the insurer of the vessel, did not have a right of subrogation against the OVH (the co-insured), Sinochart or Daiichi.  

Lord Mance, who was in the majority, stated “It is well established…that, where it is agreed that insurance shall inure to the benefit of both parties to a venture, the parties cannot claim against each other in respect of an insured loss. This principle is now best viewed as resting on the natural interpretation of or implication from the contractual arrangements giving rise to such co-insurance.”

Lord Toulon, who was also in the majority, stated “The critical question is whether the contractual scheme between [OLM] and [OVM] precluded any claim by the former against the latter for the insured loss of the vessel. This is a matter of construction. It has become a common practice in various industries for the parties to provide for specified loss or damage to be covered by insurance for their mutual benefit, whether caused by one party’s fault or not, thus avoiding potential litigation between them. The question in each case is whether the parties are to be taken to have intended to create an insurance fund which would be the sole avenue for making good the relevant loss or damage, or whether the existence of the fund co-exists with an independent right of action for breach of a term of the contract which has caused that loss. Like all questions of construction, it depends on the provisions of the particular contract.

….the risk existed that the vessel might be directed to an unsafe port, not necessarily by negligence on anyone’s part, so causing peril to the vessel, but the risk of consequential damage to the vessel was catered for by the insurance required to be maintained by [OVM] in the joint names of itself and [OLH]. The commercial purpose of maintaining joint insurance in such circumstances is not only to provide a fund to make good the loss but to avoid litigation between them, or the bringing of a subrogation claim in the name of one against the other….The insurance arrangements under clause 12 provided not only a fund but the avoidance of commercially unnecessary and undesirable disputes between the co-insured.”

Despite being a shipping case the decision in this case is of application to construction contracts. The better view now is that co-insurance clauses are likely to be interpreted as having the effect of relieving a party from liability for loss or damage that falls within the scope of the insurance policy, thereby limiting the recovery of the injured party to the proceeds paid under the insurance policy. If this is not the intention of the parties, clear wording must be included in the contract to preserve the right of the injured party to recover damages from the guilty party. This may be especially relevant where a party fails to place insurance, or in the event of insurer insolvency.

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