International Construction Law Review
NEGOTIATING INTERNATIONAL POWER CONTRACTS—THE MAJOR ISSUES
NICK HENCHIE1
Construction & Engineering Solicitor at Rowe & Maw, London
The European power market has been subject to enormous change over the last few years. The pace of change continues unabated as more countries accelerate liberalisation of their national markets and as a new power market infrastructure starts to take shape. Wholesale markets for power have emerged in the last 10 years in the United Kingdom and Scandinavia and more recently the trend has continued in countries such as Spain, Germany and Italy. As former state-owned monopolies divest generating assets and as truly competitive markets for the supply and production of power evolve, power sectors have been opened up to Independent Power Producer (IPPs).
With power markets in Europe becoming increasingly competitive, there are major opportunities for investment in both the construction and purchase of generating assets. For suppliers of the major components of power stations, such as gas and steam turbines and generators, and for contractors (commonly referred to throughout Europe as EPC Contractors) which do business in Europe, the opportunities for maximising revenues have perhaps never been better, as the demand for power reaches unprecedented levels. A similar situation exists in North America and the problems in California, where the demand for power outstretches the supply, have been widely reported. In Asia the demand for power has also grown throughout the 1990s. Between 1991 and 1997, 103 IPP projects worth US$54 billion were financed.2
It is perhaps not surprising to learn, therefore, that the manufacturing facilities of the suppliers of the major components of power plants are booked up for years ahead and that sales being negotiated currently will often be in respect of components that will not be available for delivery for some considerable time.
In such a market place one will not be surprised to find that suppliers of the major components and EPC contractors which will design and build the power station itself (often, a consortium consisting of the major supplier and a local civil works contractor) have a strong bargaining position in contract negotiations. In Europe and, indeed, in North America, model forms of contract for the supply and erection of power plants are not used as often as
1 The author can be contacted at nick.henchie@roweandmaw.com
2 Source: 19 Journal of Energy and Natural Resources Law
, No 1, February 2001, p. 73.
[2002
The International Construction Law Review
98