Awards

We are pleased to announce that we have recently won the following awards:

• PFI African Power Deal of the Year 2014 for the Cenpower Power Project in Ghana where we advised the project company, whose shareholders include AFC Equity Investments Limited (a wholly-owned subsidiary of the Africa Finance Corporation), Cenpower Holdings Limited (a consortium of Ghanaian investors), Sumitomo Corporation, Mercury Power and FMO. InfraCo, the principal project co-developer since inception, exited the shareholding shortly prior to financial close.
• PFI African Renewables Deal of the Year 2014 and IJGlobal Europe & Africa Renewables Deal of the Year 2014 for the Lake Turkana Wind Project in Kenya where we advised African Development Bank as Mandated Lead Arranger, The Standard Bank of South Africa Limited and Nedbank Limited as co-lead arrangers and the European Investment Bank, FMO, Proparco, DEG, PTA Bank, East African Development Bank as lenders, Eksport Kredit Fonden (the Danish export credit agency) and OPIC as incoming lender on the 623m project.

Articles

Kaushik Ray has written a case study on the Lake Turkana project in the Project Finance International Energy Yearbook that was published in late December 2014. It can be found here.

In our main article this edition, we take a detailed look at the International Energy Agencys Africa Energy Outlook Special Report, published in October 2014.

In our Case Study, Senior Associate Harvinder Deol considers the recent case Willmott Dixon Partnership Ltd v London Borough of Hammersmith and Fulham [2014] EWHC 3191 (TCC) in which the Technology and Construction Court considered clauses for termination for convenience clauses.

In addition, associate Rob Currall takes a look at the West African Ebola crisis and its effect on force majeure provisions in project contracts.

New Joiners

Late in 2014, we welcomed Harvinder Deol and Jo Sykes to the Trinity team.

Harvinder joined us from CMS Cameron McKenna. His background is in PFI/PPP projects in a variety of sectors acting for all relevant stakeholders including governments/procuring authorities, sponsors, employers, sub-contractors and finance parties. His particular area of expertise is in relation to energy related infrastructure projects, with a particular focus on the energy from waste sector. He has an LLB (hons) from Brunel University, and LLM Commercial & Corporate Law and an LPC from College of Law, London.

Jo (née Knights) trained and qualified as a solicitor at Clifford Chance LLP, gaining experience in the financing and operational aspects of Projects in the energy and infrastructure sector prior to joining Trinity in October 2014. She graduated from the University of Oxford with a BA in Jurisprudence in 2008 and qualified as a solicitor of England & Wales in 2012.

We welcome the new joiners to the Trinity team and are pleased to be growing the practice.

Closings

In the past few months, as well as the Cenpower and Turkana transactions, we have closed or signed documentation for the financing of mining equipment into Zambia and Sierra Leone as well as on a corporate refinancing for a Zambian energy company.

New instructions

We have been instructed on several new matters in the past few months including:

• Advising a leading developer on a wind project in Ghana;

• Advising a fund in relation to the acquisition of an agricultural business;

• Advising a sponsor of a solar project in Ethiopia;

• Advising a leading development bank on the drafting of template loan documentation for loans to small and medium enterprises;

• Advising a leading European development finance institution on a micro finance institution in Namibia;

• Advising a leading European development finance institution on an agricultural project in the Democratic Republic of Congo;

• Advising a leading African power developer on a series of IPPs in Ghana;

• Advising a private equity fund on the purchase of a hotel and leisure asset in Kenya;

• Advising a leading development finance institution on the financing of a Bangladeshi agricultural company;

• Advising a power developer on a wind project in Ghana;

• Advising a development finance institution on the possible equity investment into a power plant in Nepal; and

• Advising the lenders in respect of the financing of a power plant in Zimababwe.

Speaking Engagements: 

• Simon Norris will be speaking at an ESKOM workshop on transmission lines in Johannesburg in March 2015.

• Kaushik Ray spoke at the World Bank’s Law Justice and Development Week in October 2014 on financing sustainable development in Africa whilst addressing the post-2015 development agenda.

• Simon Norris and Kaushik Ray spoke to the International Lawyers for Africa (ILFA) candidates on Power Purchase Agreements in autumn 2014.

• Hugh Naylor spoke to the ILFA candidates about shareholders agreements and equity structuring relating to project finance in autumn 2014.

Getting in touch

As ever, if you have any comments or questions about Trinity, about Focus, or generally, please get in touch.

The post Focus – January 2015 appeared first on Trinity International LLP.

This issue of Focus looks at the message of the International Energy Agency’s (IEA) Africa Energy Outlook Special Report. The report is written as part of the IEA’s strategy to promote energy security through encouraging cross border cooperation and producing authoritative research and analysis. It was prepared by the Directorate of Global Energy Economics of the IEA in co-operation with other directorates and offices of the Agency. We summarise the report’s findings here.

Energy potential

The IEA’s report, while nominally covering the whole of the African continent, focusses primarily on the problems and opportunities of the energy situation of Sub-Saharan Africa. North Africa’s people and businesses do not suffer from the same problems in respect of access to electricity, with 99% of people having use of electrical power in North Africa.

Africa has more than enough natural resources to provide electricity to every home in the continent. It has fossil fuels in the form of oil, gas, coal and uranium and enormous potential for solar, wind, hydro and other renewables. Sub-Saharan Africa accounted for nearly 30% of global oil and gas discoveries made in the last five years. Exploration and production is underway across the Niger Delta Basin, the East African Rift Valley, the East African Coast, the West African Transform Margin and the West Coast Pre-Salt. Oil production in sub-Saharan Africa has doubled since 1990, with Nigeria and Angola accounting for three quarters of total production. Chad, Cameroon and Ghana are also significant producers.

Proven gas reserves in sub-Saharan Africa have increased by 80% since 2000. Nigeria has enormous resources of natural gas though gas development has only recently become a priority. Mozambique and Tanzania have recently established themselves as gas producing countries.

Renewables

Renewable Energy plays a major role in Africa and is a rapidly growing sector. We look at the main growth areas below.

Hydropower

Hydropower has the potential to produce three times Africa’s current electricity demand but only 10% of this potential has been tapped. Barriers to development include high up-front costs, low levels of interconnections, a lack of technical expertise and enormous seasonal variations. Environmental concerns, social considerations and competition for water resources also require very careful consideration.

Wind

Potential wind energy across Africa stands at 1300 GW, several times the current level of total electricity consumed in the whole continent. Most of the best sites are in North rather than Sub-Saharan Africa, but there are good sites in the Horn of Africa, east Kenya, the borders of the Sahara and in Southern Africa. South Africa and parts of East Africa are leading the way in increasing their wind capacity. Recently, Trinity International LLP advised the Lenders to the Lake Turkana Wind Project in Northern Kenya. When fully operational, this 310 MW project will be Africa’s largest wind farm. The remote locations and often undeveloped local civil and power infrastructure continue to make wind farms a challenge in Africa, but governments can help bring projects to fruition.

Solar

Africa is particularly rich in solar energy potential, with most of the continent enjoying an average of more than 320 days per year of bright sunlight and experiencing irradiance levels of almost 2,000 kWh per square metre annually twice that of Germany. Solar power is gaining traction across the continent, with projects currently under construction in Ghana, Mozambique, Sudan, Nigeria and Ethiopia. In February 2014 the first solar project in East Africa, which was located in Rwanda, achieved financial close. In Morocco, the Moroccan Agency for Solar Energy continues its development of a combined CSP and PV complex at Ouarzazate which, when completed in 2020, is projected to meet 18% of the country’s energy needs.

Other

Other renewables opportunities include Geothermal from the East African Rift Valley.

Despite all these opportunities, more than 620 million people in Africa (two thirds of the continent’s people) have no access to electricity – nearly half of the global total. In sub-Sarahan Africa, 80% of those without access to electricity are in rural areas. This poses its own set of challenges, with the need to provide electricity to people spread out over wider areas. Access to electricity across the region varies significantly, from as low as 4% in Chad to 70% in Ghana, where the National Electrification Scheme was first launched in 1989. Other countries have shown marked improvement over a short period of time: from 6% in 2008, 17% of Rwandans now enjoy access to electricity, and Rwanda has ambitions to become a net exporter of electricity through the innovative lake bed methane extraction project at Lake Kivu being developed by ContourGlobal.

The Sub-Saharan economy

The sub-Saharan economy has more than doubled in size since 2000 to reach $2.7 trillion in 2013. Over the same period, sub-Saharan Africa’s population increased by 270 million to 940 million, and will top a billion before 2020. GDP per capita has increased by 45% between 2000 and 2013, the lower rate reflecting the increasing population. Nigeria and South Africa are by far the regions’ largest economies, with a combined population of 226.5 million. That annual year on year economic growth of 6% has been achieved against the challenging background in respect of constrained energy supply is impressive, but also makes it clear what could be achieved with reliable energy.

National Politics

Much of the answer to Africa’s current problems in unlocking its energy and economic potential lies in the political sphere. Most Sub-Saharan African countries score poorly in transparency and ease of doing business, with some notable exceptions: Botswana ranks above South Korea, Spain, Israel, Italy and Poland in Transparency International’s Corruption Perception Index 2014, with Mauritius, South Africa and Namibia also scoring comparatively well. Sub-Saharan African economies continue to score poorly in ease of doing business surveys, with only 7 countries in the global top 100 (Mauritius coming out 28^th).

Corruption, a difficult business climate, political instability and uncertain legal systems (in particular the enforcement of contracts and protection of property rights) present significant barriers to investment in the Energy industry. This is not only because of the capital-intensive nature of developing energy projects, but also because of the need to develop strong relationships with the relevant national political and regulatory authorities. Studies have shown a strong relationship between weak governance and low levels of investment, though this trend has been bucked somewhat by countries with significant oil and gas reserves, such as Nigeria and Angola, which have and continue to experience significant geopolitical difficulties.

Botswana provides a useful example of the effects of good governance: from being one of the poorest countries on earth at the time of independence with a GDP per capita of US$ 70, Botswana’s use of its ample natural resources, stable democratic political environment and lack of military unrest has led to Botswana now occupying a middling global position for GDP per capita.

Solutions

According to the Africa Energy Outlook Special Report successfully reforming the sector must start with a sustained effort to train and recruit people able to formulate and implement energy policies, to strategically plan energy infrastructure and to manage and operate the power system efficiently.

In terms of policies, there are a number of broad themes that work across the diverse jurisdictions in Africa: integrated and realistic strategic planning is needed including cross-border cooperation – particularly in respect of electrifying rural populations.

Potential investors need to have confidence that projects will get off the ground and that they will be paid for their work. South Africa’s Renewable Energy Independent Power Producer Procurement Programme provides a good illustration of a transparent and well-run process. In respect of pricing, it is necessary to have a tariff structure that provides confidence to investors.

Encouraging private investment involves creating the economic conditions to facilitate projects that will, in the first instance, be relatively small in scale. Funding sources for such projects normally involve foreign direct investment and multilateral and bilateral development assistance rather than local finance. The Cenpower project which has largely been financed by African banks a deal Trinity International LLP advised on is a notable exception to this.

The ‘bottlenecks’ to such financial investment are usually caused by an inadequate policy regime. The growth of renewable energy in South Africa since 2011 is a good example of how policy barriers can be overcome.

Conclusion

Africa’s future lies in the hands of its policymakers. The solutions are not the same in every jurisdiction but national government intervention is essential in many places. Governments are tackling the barriers that have held back investment, both domestic and foreign, from meeting African consumers’ needs: if these issues are effectively tackled then there is hope that the people of Africa can prosper from their abundant natural resources.

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In our case study in this edition, we consider the recent case Willmott Dixon Partnership Ltd v London Borough of Hammersmith and Fulham [2014] EWHC 3191 (TCC) in which the Technology and Construction Court considered clauses for termination for convenience clauses.

Willmott Dixon Partnership Ltd v London Borough of Hammersmith and Fulham [2014] EWHC 3191 (TCC)

We recently commented on a Technology and Construction Court decision that shed some light on Termination for Convenience clauses. We reported that the decision in Comau UK Limited v Lotus Lightweight Structures Limited [2014] EWHC 2122 (Comm) held that a limitation of liability clause served to reduce damages which might otherwise have been recoverable under the contract by Comau. This was essentially on the basis that Lotus could have terminated for convenience at any time and in such event, Comau would not have been entitled to loss of profit. This was irrespective of whether there was any evidence of causation to suggest that Lotus would have actually exercised its right. This issue has been subject to a recent Technology and Construction Court decision.

The decision relates to a claim brought by a repair and maintenance contractor, Willmott Dixon Partnerships Limited (‘WDP’), against the London Borough of Hammersmith and Fulham Borough Council (‘LBHF’). WDP was the incumbent provider of services to LBHF and lost out in a bidding process to secure a new contract for the same services to a competitor company, Mitie Property Services (UK) Limited.

WDP launched a challenge under the Public Contracts Regulations 2006 against LBHF’s procurement. The failure by LBHF not to award was the central issue in the case but WDP also sought to recover loss of profit it asserted that it would have legitimately expected to earn had WDP been successful. On this basis, the Court was asked to look at the question of the period over which it was to be taken that any hypothetical contract would have been performed by WDP had they been successful.

The contract put out for tender was for a 10 year initial term with an option for LBHF to terminate for convenience upon the provision of six-month’s notice after the end of the first year of the initial term. LBHF submitted that WDP’s claim to damages (if any) should be limited to around 18 months accordingly. It was further argued that WDP would not as a matter of course have been entitled to any further work beyond that period because LBHF may have re-procured the contract at the end of 18 months. WDP asserted that had they been successful in securing the contract, they were entitled to loss of profit for the 10 year initial term.

The court rejected WDP’€™s claim on the central issues in the case, but ruled in its favour on this specific point.

This ruling would appear to contradict with the recent Technology and Construction Court decision in Comau. In Comau it was held that damages ought to be assessed on the basis that the defaulting party would in all likelihood have exercised its right to terminate for convenience at the earliest possible stage. This would substantially reduce the level of damages payable.

Despite many authorities being cited in the WDP case, it was notable that the Comau decision was not cited.

The differing conclusion in Comau and WDP means that the judicial position on the issue of ‘termination for convenience’ clauses is unclear. Ideally, further clarity will be provided by a superior court. However, in the interim, commercial parties should be alive to the fact that such clauses may (in specific certain circumstances) result in a limitation of liability for future loss of profit in the event of breaches of contract. The underlying commercial intent and the drafting of such clauses should be visited with this point in mind.

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Since its outbreak in Guinea in December 2013, the Ebola crisis in West Africa has rarely been out of the headlines. Some 5,000 deaths have been reported as at the date of this article, with Guinea, Liberia and Sierra Leone having been worst affected, as well as a smaller number of cases being reported in Nigeria, Mali and Senegal.

The economic repercussions of the pandemic have already made themselves felt and are likely to continue for some time, with many airlines having suspended flights to West Africa and the World Bank predicting a hit of around 3.3 % on the region’s economy in a report published in October 2014. The development of energy and infrastructure projects has also been affected, with some contractors having taken precautionary measures, including the installation of screening stations and medical facilities on site, in order to reduce the likelihood of further contamination amongst their workers. In August 2014 ArcelorMittal, the major global steel producer, announced that it would curtail some of its iron ore mining operations in Liberia as a result of contractors declaring ‘€œforce majeure’€.

The concept of Force Majeure

Force majeure is a civil law concept which has worked its way into many commercial contracts governed by the laws of common law jurisdictions. The difficulty of terminating a contract governed by English law (which is commonly used as the governing law in commercial contracts worldwide) using the remedy of frustration has led to reliance on force majeure as a useful way to avoid liability for contractual obligations on a ‘€œno-fault’€ basis where these have been rendered impossible by extenuating circumstances. As force majeure does not have a clear definition under common law, its meaning in a contractual context will depend entirely on the position agreed between the parties, making it an important point of negotiation.

During negotiation of construction contracts, force majeure can be a particularly contentious issue, with most disagreements relating to what qualifies as force majeure. In general, contractors will seek to broaden the scope of force majeure as much as possible, as contractors are more likely to rely on force majeure given their more extensive obligations to deliver goods and services.

In energy and infrastructure projects, both sponsors and lenders will be concerned with avoiding any holes in the ‘€œback to backing’ of the project documents. The aim is to avoid situations whereby a project company is liable to grant relief for force majeure to contractor but, because of a disparity in force majeure provisions across the suite of project documents, is unable to obtain the equivalent relief for force majeure. The relief in question may take the form of an extension of time or additional costs or both. The cost consequences would then need to be absorbed by contingency of some sort, and the timing mismatch will delay expected project revenues and have a detrimental effect on a project sponsor’€™s ability to repay its debt financing.

Ebola and Force Majeure in construction contracts

While construction contracts for individual projects will be negotiated toward differing positions, the FIDIC family of contracts (which are frequently used for projects in African markets) are a very useful guide to a typical set of force majeure provisions. FIDIC provides a general definition of force majeure as follows:

(i) the event or circumstance must be one for which neither party is responsible;

(ii) the event was not something that the affected party could have provided against at the time of entering into the contract;

(iii) the event is beyond the reasonable control of the affected party; and

(iv) the event was not substantially attributable to the other party.

The FIDIC suite of contracts then supplements the definition with an indicative list of events that may be counted as force majeure, which includes war, industrial action and extreme weather events. While epidemics and outbreaks of infectious diseases are not specifically listed, it should be noted that this is not an exhaustive list.

Applying the above limbs of the FIDIC definition to the current Ebola crisis, limbs (i), (iii) and (iv) would be easily satisfied, however, for projects that are currently under negotiation in the region, it might be difficult to argue that the Ebola pandemic was something that could not reasonably have been provided against, given its extent and its coverage in media across the world.

Contrary to common perceptions, foreseeability is not a component of the FIDIC definition of Force Majeure, and this is something to which parties should be alive. The aim of the FIDIC provisions is to ensure that parties cannot declare Force Majeure for issues which are within their control. Furthermore, most contractual Force Majeure provisions require the party affected by it to take reasonable steps to mitigate the effects on the performance of its obligations. Calling Force Majeure is a sensitive process and from a commercial perspective contractors will be wary of gaining a reputation for suspending work unnecessarily. The likelihood of contractors simply downing tools is remote.

Conclusion ‘ increased attention to force majeure?

Parties negotiating contracts for projects in the West Africa region would be well-advised to pay particular attention to force majeure clauses. We can expect to see a tension between contractors focussing on getting protection in contractors for the Ebola pandemic (and other epidemics in general) and employers seeking to ensure that contractors who commit to the region are not easily let ‘off the hook’€. In the absence of any recent case law on the subject to provide useful guidance as to judicial interpretations, force majeure clauses are likely to occupy greater attention of parties negotiating the contractual framework of projects in West Africa and more widely.

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