International Construction Law Review
OFFTAKE AND CONSTRUCTION ARRANGEMENTS IN POWER PROJECTS—SOME ISSUES
DAMIAN McNAIR AND ADAM NEWGREEN
Mallesons Stephen Jaques *
1. INTRODUCTION
In reviewing the bankability of any power project, lenders tend to focus on the offtake agreement to ensure the project company will be able to meet its repayment obligations under the financing arrangements. However, the suite of construction-related documents and, in particular, the construction contract supporting the project (referred to in this article as the “EPC contract”) have a significant ability to impact on the viability and long term success of an infrastructure project.
This article focuses on the following specific issues relating to power projects which must be considered by lenders and projects sponsors in a review of the offtake agreement and the EPC contract:
- access to the grid to allow timely completion of construction and testing (“grid access”);
- interface between the testing regimes under the offtake agreement and the EPC contract; and
- interface issues between the offtaker, system operator and the EPC contractor.
These issues will be considered in the context of a power project. However, these issues are also relevant, albeit in a different context, to other types of projects including oil and gas, LNG and desalination projects.
2. GRID ACCESS
The handover of the facility to the project company and the commencement of commercial operation under the offtake agreement (normally referred to as a power purchase agreement (“PPA”) in a power project) will take place after all performance guarantees have been met or, if the EPC contractor fails to meet the performance guarantees, the payment of performance liquidated damages, and all other conditions necessary to achieve
* Damian McNair is a partner, Projects and Construction Group, Malleson Stephen Jaques (damian.mcnair@mallesons.com). Adam Newgreen is a solicitor, Projects and Construction Group, Malleson Stephen Jaques (adam.newgreen@mallesons.com).
Pt 2]
Offtake and Construction Arrangements in Power Projects
251