COVID-19 – The Global ViewPublished:
The COVID-19 pandemic is a crisis which is impacting all of us. We appreciate many of you are under some sort of ‘lock-down’ of differing degrees and it may be that some of you may have been more personally affected by the virus. Certainly all of us at Trinity wish you well at this difficult time.
It is not yet clear how the virus can be contained in many of the economies in which we all work in Africa. It remains a concern that if it does take hold then the healthcare systems in many countries will find it very difficult to cope. So far many news reports seem to suggest that quick actions by many Governments in the continent do appear to have limited the outbreak but it is early days, and caution will be necessary for a while before there is too much optimism.
In terms of the infrastructure sector in Africa, again, it is early days to determine the impact of COVID-19. What is though immediately apparent is that the concept of ‘force majuere’ in contracts has never been more of a real life and relevant issue to be considered and both the private and public sectors in the continent are now starting to consider what the impact is on any given project and how such impact should then be dealt with.
Owners of power projects and other infrastructure concessions have had to consider whether it is necessary to put in a notice of force majeure which typically allows relief from contractual obligations to deliver power or other services but such a notification of force majeure itself does not produce cashflow for the owner of the asset. Typically the owner would also not have recourse to any insurance policies to recover lost cashflow as, without actual physical impact to the facilities, most insurance policies do not provide cover. To allow costs and cashflow to be recovered, one context which has been considered in certain projects is the fact that very often it has been the impact of legislation or directives imposed by host Governments on restricting the movement of people or goods which has created the delays and/or costs and, although such measures are clearly understandable and reasonable, it does not take away from the fact that such could constitute a ‘change of law’ or a ‘political event’ under what is in a typical agreement put in place with a host Government or offtaker.
As well as the private sector considering whether a ‘force majeure’ has happened due to the impact of COVID-19, it is also now the case that a number of Governments and state owned offtakers are also considering the same issues. In a few countries, a notice of force majeure has been received from offtakers which suggests that due to the decline in demand for electricity resulting from COVID-19 that a force majeure has arisen and, as a result, it is possible for the offtaker to have the discretion to reduce the amount of energy it is obligated to pay for. Of course the actual terms of the given Power Purchase Agreement and any related document would need to be considered for the specific project but we would certainly suggest that the assumption of ‘demand risk’ by any IPP or a concession holder would be very unusual in the context of a typical project financing.