Power purchase agreements: Who will pay the 

generator and who will pay for transmission and

generator and who will pay for transmission and 
distribution?
Dr. Adeoye Adefulu
Odujinrin & Adefulu
Barristers  Solicitors & Notaries Public
Barristers, Solicitors & Notaries Public
Lagos – Abuja – Port‐Harcourt
 Outline 
Outline
• Background
– Pre EPSRA structures
– Post EPSRA structures
• Power Purchase Agreements
g
• Appropriate Offtaker
• Cashflows
• EPSRA transitional trading arrangements
• Paying for Transmission

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 Pre‐EPSRA power provision
p p

• NEPA operated as a vertically GENERATION

integrated monopoly
• In
I 1998,
1998 amendments
d t were maded
to the Electricity Act & NEPA Act
TRANSMISSION
which removed the utility utility’ss
monopoly, whilst it remained a
vertically integrated monopoly
• This reform allowed for IPPs and DISTRIBUTION
for power to be sold through PPAS
primarily to NEPA
CUSTOMER

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 EPSRA reform initiatives

• the Electric Power Sector Reform Act, 2005 introduced extensive reforms 
h l f d d f
and created a pathway to the establishment of an electricity market
• Provides for:
– establishment of an initial holding company to hold the assets & liabilities of 
NEPA (PHCN)
– unbundling of the entity along functional lines
unbundling of the entity along functional lines
• 6 generation companies
• 11 distribution companies
• 1 transmission company
– the establishment  the Nigerian Electricity Regulatory 
Commission
– evolution of the electricity market

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 EPSRA reform initiatives & PPAs

• the unbundling of PHCN as well as the introduction 
of new IPPs requires a new method of securing the 
provision of generated power
– At least 24 new generation licenses have been issued
– AGIP & AES are already producing under pre‐EPSR Act PPAs 
G & S l d d i d S
• NERC currently considering the introduction of 
vesting contracts & model PPAs
i & d l PPA
– Vesting contracts – Successor Gencos, New IPPs & NIPP
– PPAs for existing IPPs (AES, AGIP & Shell)
PPAs for existing IPPs (AES AGIP & Shell)

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 Power Offtake Agreements
Power Offtake Agreements

• “a legal contract between an electricity 
g
generator and a purchaser of energy or 
p gy
capacity (power or ancillary services).” 
– Serves
Serves to allocate risks between the parties
to allocate risks between the parties
– defines the rights and obligations between the buyer and 
seller
– sets the price for energy
– Defines the output and associated revenue stream of the 
Defines the output and associated revenue stream of the
plant
• Provides basis for non‐recourse financing

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 Classic IPP Structure
Classic IPP Structure
Shareholders O&M Contractor
Shareholders Agreement O&M Agreement

Government
C
Concession
i A Agreementt

EPC Contractor
Power Off-taker EPC Contract

Power Purchase
Agreement
IPP Project
Company
Fuel Supplier Regulator
Li
Licence
Fuel Supply Agreement

Insurance Co.
Water Supplier Insurance Agreements
Water Supply Agreement Lenders
Loan Agreement
Globeleq 2007
q

21/09/2009 Odujinrin & Adefuluestd. 1972 7
 Who pays the generator?
Who pays the generator?

• PPA 
PPA – who is the proper offtaker?
who is the proper offtaker?
– Credit worthy
• Financial statements
Fi i l t t t
• Assets 
• Where is the cash coming from?

21/09/2009 Odujinrin & Adefuluestd. 1972 8
 Proper Offtaker
Proper Offtaker

Bulk Cash
P r h r
Purchaser from
Distribution
consumers

Transmission

Generation

Generation Transmission Distribution

• Manage fuel • Transmit power • Step-down voltage,
delivery over long distance distribute and sell Consumer
• Produce electric in high voltage power to
power systems end-consumers

Globeleq 2007
q

21/09/2009 Odujinrin & Adefuluestd. 1972 9
 What does the law say?
What does the law say? 
• Section 25 of EPSRA provides for the trading 
arrangements during the transition or pre‐
privatisation stage
– anticipates the establishment and licensing of a trading 
licensee holding a bulk purchase and resale license
• Shall purchase and resell power from IPPs & successor Gencos

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 What does the law say? (contd)
What does the law say? (contd)
– Successor Gencos shall sell power to:
• the Trading Licensee; 
• successor Discos; and
• Eligible customers
– IPPs shall sell power to:
• The Trading Licensee; and
g ;
• Successor Discos

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EPSRA – Transitional trading arrangements
EPSRA  Transitional trading arrangements

IPP IPP GENCO GENCO

TRADING ELIGIBLE
DISTCO DISTCO
LICENSEE CUSTOMER

CUSTOMER CUSTOMER CUSTOMER CUTOMER

21/09/2009 Odujinrin & Adefuluestd. 1972 12
 Cashflow

Bulk Cash
Subsidies Purchaser from
Distribution
consumers

Transmission

Generation

Generation Transmission Distribution

• Manage fuel • Transmit power • Step-down voltage,
delivery over long distance distribute and sell Consumer
• Produce electric in high voltage power to
power systems end-consumers

21/09/2009 Odujinrin & Adefuluestd. 1972 13
 Cashflow (contd.)
Cashflow (contd.)

• Subsidy
– Who pays?
p y
• FG, States, FG +States?
– Where is it coming from?
Where is it coming from?
• Budgetary allocation
– What is the mechanism for disbursing?
What is the mechanism for disb rsing?

21/09/2009 Odujinrin & Adefuluestd. 1972 14
 Transmission – who pays?
Transmission  who pays?

• Transmission provides the hub
• Payments must be made for:
Payments must be made for:
– Connection of generators
• Should generators pay for transmission 
Sh ld t f t i i
– Continuous use of system 
• Generator, distributor or both
• Balancing risk

21/09/2009 Odujinrin & Adefuluestd. 1972 15
Odujinrin & Adefulu has acquired significant experience in the Nigerian
power industry. We have advised government entities and private sector
entities in a range of areas,
areas which include:
– Advising the Nigerian Government on the drafting of the Electric Power Sector
Reform Act;
– Advising NEPA on Power Purchase Agreements;
– Principal counsel in energy litigation;
– Advising
g a private
p equity
q y firm on acquiring
q g a significant
g interest in a Nigerian
g IPP
project;
– Advising NERC on aspects of the Electric Power Sector Reform Act;
– Advising a major manufacturer on aspects of captive power generation projects
in two locations in South-west Nigeria.

Odujinrin & Adefulu

1st Floor,
Fl Ch h H
Church House
29, Marina, Lagos
enquiries@odujinrinadefulu.com
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