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HIGH VOLTAGE
A Development Guide to the 459MW Azura-Edo IPP
Michael Lakota, Laurie Lander, Gert Landmann, Jahn Lang, Michael Larbie, Erik Lathouwers, Fatima Lawan, Sola Lawson, Oyewole Lawuyi, Diana Layfield, Charles Le Quesne, James Lea-Fox,
Norman Lee, Colin Lewin, Rod Linnett, Elizabeth Littlefield, Tom Longmuir, Detlev Lubasch, Peer Lubasch, Mia Ludlam, Paul Lytle, Vicky Ma, Sean MacDonald, Roderick MacLeod, Paul Maddock,
Muravha Mafela, Katie Magee, Aisha Mahmud, Kwabena Malgas, Wandile Mamba, Sean Manley, Marie Francoise Marie-Nelly, Marie Marketis, Uwe Markmann, Darren Marshall, Scott Masfen,
Susan Maslen, Yetti Mathias, Emmanuelle Matz, Ifeoma Mba, Okey Mba, Gugulethu Mbatha, Caireen McCluskey, Will McDowall, Angela Mega, Pelayo Menendez, John Mesko, Thomas Meurer,
Rudi Meyenburg, Chidi Mike-Eneh, Ben Milam, Sameh Mobarek, Muhammed Modibbo, Darren Moens, A.B. Mohammed, Haruna Mohammed, Saidu Mohammed, Nick Mokha, Ada MokoloOladunke, Anthony Molle, Chidi Momah, Jade Montenegro, Danielle Montgomery, Diveshan Moodley, Tunde Morakinyo, Rachel More, Thabang Moroa, Jo Morrison, Rosie Morrison, Hoda
Moustafa, Luke Muchamore, Jana Muchyova, Isa Muhammad, Kamal Muhammed, Alan Muir, Aart Mulder, Tony Muoneke, Joseph Musa, Dario Musso, Andrew Mustoe, Emlen Myers, Tamila
Nakazwe, Hugh Naylor, Ntuase Ndoma-Egba, Ikeli Ndubusi, Chinedu Nebo, Kene Nebo, Marcus Nelle, Greg Ness, Elisabeth Nguyen, Marc Nickelsen, Gunilla Nilsson, Barth Nnaji, Adaobi Nnorukah,
Simon Norris, Nana Nosayaba, Patrizia Nowakowski, Vuyo Ntoi, Ifelunwa Nwabogor, S.N. Nwankwo, Obi Nwasike, Stanley Nweke-Eze, Maeve O'Shea, Kyran O'Sullivan, Godwin Obaseki, Chike
Obianwu, Azu Obiaya, Nonye Obibuaku, Emenike Obiorah, Talatu Ocheja, Isaiah Odeleye, Thomas Odewo, Toyin Odewole, Bola Odugbesan, Shakirudeen Odunuga, Kehinde Odusanya, Segun
Odusanya, Omobolaji Oduwole, Opuiyo Oforiokuma, Desmond Ogba, Godwin Ogbahor, Sunny Ogbodo, Toyin Ogunade, Damilola Ogunbiyi, Ibi Ogunbiyi, Solanke Ogunlana, Leke Ogunlewe, Lekan
Ogunleye, Taiwo Ogunleye, Vincent Ohenzuwa, Alfred Ohiani, Callistus Ojeabo, Anslem Ojezua, Abimbola Ojo, Happiness Okafor, Clement Oke, Ephraim Okejiri, Edu Okeke, Awele Okigbo, Patrick
Okigbo, Bright Okogu, Mike Okojie, Imeh Okon, Ngozi Okonjo-Iweala, Paulinus Okoronkwo, Dozie Okpalaobieri, Paul Okpere, Oyin Oladeji, Kemi Oladipo, Blessing Oladosu, Olamide Oladosu,
Mudashiru Olaitan, Ayodele Olajiga, Atanda Olaogun, Rasheed Olaoluwa, Olalekan Olaribigbe, Abdusalam Olatunji, Janice Olawoye, Ajibola Olomola, Akin Olorunfemi, Abolaji Olorunkoya, Supo
Olusi, Weyinmi Omagbemi, Oluwatosin Omidiji, Soji Omisore, Basorun Omolola, Vuoke Omonigho, Abiodun Oni, Samuel Oniha, Cynthia Onwo, Chinedu Onyegbula, Chidiebere Onyia, Henk
Oosterdijk, Karen Opitz, Kavodel Oredugba, Giancarlo Ortega, Mario Ortwein, George Osahon, Jobalo Oshikanlu, Adams Oshiomhole, Caroline Osiagwu, Lanre Osibona, Donald Osikhena-Boih,
Robinson Osikorobie, Yemi Osinbajo, Funlola Osinupebi, Chris Osoba-Ebare, Olaniran Osotuyi, Emmanuel Osuagwu, Faith Otoikhila, Nath Oyatogun, Olutokunbo Oyesola, Elena Palei, Doug Park,
Nicholas Parkinson, Justin Pavry, Dave Peacock, Dele Petrie, Mike Pickin, Lisa Pinsley, Ken Pollack, Lachlan Poustie, Stephen Priestley, Razvan Purcaru, Peter Purkl, Solomon Quaynor, Edith
Quintrell, Tinesh Ramprusad, Kaushik Ray, Maia Renchon, Basil Rennias, Torsten Richter, Chris Rinaldi, Jorge Rivas, Elleanor Robins, Joseph Rodriguez, Carsten Roeth, Vicki Rosslee, Dirk
Rountree, Sandra Rozenbrand, Christina Ruebesamen, Lothar Rueck, Aman Sachdeva, Linda Saitta, Johnson Salako, Ibrahim Salau, Diana Saldarriaga Farfan, Mohammed Sambo, Suresh Samuel,
Sam Sandiford, Sanjiv Sangar, Mohammed Sani, Ranjani Sankaran, Richard Santoroski, Emir Muhammadu Sanusi II, Helena Sathekge, Tim Scales, Mark Schmaman, Jim Schmidt, Roland SchmittBargenda, Christian Scholz, Rene-Alexander Schwab, Dafe Sejebor, Oludare Senbore, Ahmed Shafiie, Bernie Sheahan, Mary Sheridan, Abdulkadir Shettima, Tom Shiel, Norman Shields, Christian
Sievers, Delphine Siino Courtin, Dev Singh, Brad Smith, Maurice Smith, Carine Smith-Ihenacho, Adetutu Soetan, Lanre Sogbesan, Olumide Sokoya, Fela Somoye, Frank Soree, Nicole Soulanille,
Cliff Stanley, Tim Steadman, Paul Stefiszyn, Clarine Stenfert, Maria Stratonova, Abbas Suleiman, Ravi Suri, Jurie Swart, Jo Sykes, Gerard Tague, Mariya Tariq, Helen Tarnoy, Nick Tasker, Olayinka
Tejuosho, Bryony Theaker, Catherine Thomas, Megan Thomas, Paul Thompson, Steve Tierney, Onyeche Tifase, Pauline Tilemann, Shola Tinubu, Akihisa Tomioka, Ernst Trumpfheller, Demvihin
Tsumba, Myrthe Tudoux, Hassan Tukur, Keita Uematsu, Chiedu Ugbo, Kalu Ukoha, Patrick Umeh, Arnold Ushiadi, Deborah Usman, Emmanuel Usoh, Fatweena Uteene, Agbuza Uyigue, Peter Van
den Dool, Barbara van Helden, Bernhard van Meeteren, Neil VanNiekerk, Karine Verriere Billard, Samson Vese, Juan Villarreal, Bhavin Vyas, Mohammed Wakil, Muhammad Wakil, Philip Walsh,
Tom Walton, Ugochi Wamuo, Annabel Ward, Takeshi Watanabe, Peter Watson, Markus Weber, Heinz Weidt, Russell Wells, Alwyn Wessels, Joachim Wieder, Barry Williams, Kunle Williams, Goetz
Willmann, Eve Wilson, Christoph Wittmann, Joerg Wittwer, Olaf Woeller, Ellen Wolchek, Steve Wolf, Rumundaka Wonodi, Geoff Wormell, Nuhu Wya, Zoe Wyatt, Lai Yahaya, Danuta Yarygina,
Akinkunmi Yejide, Abdullahi Yola, Bashir Yuguda, Ibrahim Yusuf, Michael Zeitlmann, Daniel Zinman, Ahmadu Zubairu, Binaebi Zuofa
Copyright © 2016 by Amaya Capital Limited (including its subsidiaries and affiliates)
All rights reserved
i
CONTENTS
1
Introduction
3
2
The Development Dashboard
5
3
Choosing the Right Co-Sponsors & Advisers
9
4
Negotiating the Key Project Agreements
13
5
Obtaining Key Permits & Approvals
35
6
Attracting & Securing the Equity Capital
38
7
Attracting & Arranging the Debt Capital
42
8
Negotiating the Direct Agreements
48
9
Credit Enhancement: Obtaining World Bank PRG & MIGA Cover
51
10
Developing Key Operational Policies & Manuals
54
11
Escaping the Matrix of Conditions Precedent
57
12
The Full Tally
60
13
Lessons Learned
68
Glossary
71
ii
1
INTRODUCTION
The Azura-Edo IPP is at the forefront of a new wave of large scale, project-financed, greenfield
independent power plants (IPPs) currently being developed in Nigeria. Financed with debt and
equity sourced from a consortium of local and international financiers, Phase 1 of the project
comprises: a 459MW open cycle gas turbine power station; a short transmission line connecting
the power plant to a local substation; and a short underground gas pipeline connecting the power
plant to the country’s main gas-supply. The power that it generates will be consumed in millions
of homes and businesses across the country and it will create over 1,000 jobs during its
3
construction and operation. Phases 2 and 3 of the project will then take the total capacity up to
1,500MW.
As a summary of the project, the bland paragraph above is factually correct; but it offers no
backstory. It teleports the reader to the final destination instead of ferrying her through the twists
and turns of the development journey. For, as we shall see in the chapters that follow, piloting an
IPP development project requires a good deal of patience and perseverance. Clearly the team
propelling and managing the craft is critical; but it’s also important to have a good set of
navigational instruments on board and sufficient funds to keep the whole enterprise above water.
Yet when Azura embarked on its own journey back in 2010, its navigational aids were extremely
rudimentary. We set off with the right intentions but with little visibility of the river ahead and
often not the right equipment to hand; our boat careened down certain sections of the river at
breakneck speed; and there were a number of occasions where we nearly capsized. Needless to
say, we would like the journey for other explorers to be a little easier.
To that end, this short development guide has been prepared to help other prospective IPP
developers understand the bends in the river. More specifically, we illustrate: the scope of the
activities they may have to engage in; the time intensity of these activities; and the effort that will
need to be expended during the course of the development period.
It is a trite but true observation that the most important input into the production of electrical
energy is human energy. The Azura-Edo IPP is a classic example of this. This guide is dedicated to
the many hundreds of people who were actively involved in its incubation and development,
whether as a sponsor, employee, lender, adviser, contractor, sub-contractor, regulator, insurer,
legislator, or policy maker. And as we move further into the construction phase of the project,
many hundreds more will join these ranks.
Please forgive us, therefore, if you can’t find your name on the book jacket (and let us know so
that we can include it in the next edition). There were far too many of you to fit on just one page,
even though we shrunk the font to the smallest we could. We have merely taken a sample drawn
from each of the key participating organisations with a view to providing a partial illustration of
the scale of the collective action that has been poured into this project.
As at the time of writing, we are 6 months into the 30 month construction cycle; there are 450
workers on site; we have suffered no lost time injuries; and progress is ahead of schedule.
Although we still have a steep mountain to climb before the turbines generate their first kilowatt
hours of electricity, we look forward to publishing the second volume of “High Voltage” in mid
2018 under the subtitle: “A Construction Guide to the Azura-Edo IPP”.
4
2
THE DEVELOPMENT DASHBOARD
As shown on the following page, the development dashboard created by Azura’s Management
Team consists of a set of 9 “dials” representing the universe of “essential elements” that had to be
assembled before the full Notice to Proceed could be issued to the Contractor. The significance of
the dials is important to recognise. The circle represents the "Azura Wheel" denoting continuous
forward motion and the inter-dependence of each spoke of the wheel.
From the very outset, one of the key mantras that we adopted was: “work hard; work smart; and
work in parallel”. So the wheel was a great way for us to visualise the need to keep juggling all the
5
balls in the air whilst continuing to press forward towards our goal. In the chapters that follow, we
examine each of these 9 dials in greater detail.
“The Nine Development Dials”: Azura’s Navigational Dashboard
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For some of our readers, the data contained in this guide may, at first sight, appear rather dry and
devoid of the salt of life (the blood, the sweat, the tears) that always seasons a good narrative. It is
important, therefore, that we start off with a brief summation of the years of toil that were spent
on this project even before the contractor began to work on the site.
To gauge the full extent of this endeavour, we took a cumulative reading at the end of Dec 2015 of
the billable hours logged by the sponsors, the lenders and their respective advisers. As shown in
the chart below, the total came to circa 145,000 hours for the sponsors/lenders and an additional
76,000 hours for their advisers.
But what about the hours of work expended by our project counterparties (i.e. our gas supplier,
our off-taker, our EPC Contractor, etc)? We didn’t have the heart to ask them to furnish us with
detailed estimates of the thousands of man-hours they had expended on the project. Instead, we
conservatively assumed that the total number of hours expended by the sponsor/lender side of
the negotiating table would be equal to the aggregate of the hours spent by all the parties sitting
on the other side.
Hence, the total amount of time devoted to the Azura-Project as at Dec 2015 was approximately
442,000 hours. If we use the OECD average for the number of hours per worker per year (of 1,765
hours), we deduce that more than 250 person-years of work were spent developing the AzuraEdo IPP before the construction crew mobilised to site. That’s a whole quarry full of human salt.
Cumulative hours expended on the Azura-Edo IPP as at Dec 2015 (est.)
Sponsors/Lenders
145,000
Project Counterparties
221,000
S/L Advisers
76,000
7
Moreover, as shown in the timeline below, the hundreds of individuals who committed their time
to this project did so over a six year stretch of time during which the Nigerian electricity supply
industry underwent a complete change of ownership and control. There was never a dull day.
Conception to Birth: Overall Project Timeline of the Azura-Edo IPP
Execution of GSPA
Apr 2014
Execution of EPC & OMA
Apr 2014
1st Draft of ESIA Scoping Study Submitted to FMEnv
Dec 2010
Final Approval of Gas Tariff
Nov 2014
Kick-Off meeting with TCN
Feb 2011
Execution of Shareholder Agreement
Nov 2014
1st Sesssion with NBET on PPA
Nov 2011
CTA and Loan Agreements Signed
Nov 2014
SCB Hired as Global MLA
Feb 2012
Contractor Starts Work at Site
Jan 2015
JDA Signed with Co-Equity Sponsor
Apr 2012
Execution of MSA/TSA
Jan 2015
Kick-Off Meeting on GTA
May 2012
ITB for EPC Contractors
Nov 2011
Appointment of ESIA Adviser
Dec 2010
FEED Studies
Dec 2010-Jul 2011
Start of Project
2009
MOU with EDSG
Nov 2010
2010
2011
Waiting for FGN Legal Opinion
Feb-July 2015
11th Session with NBET on PPA
Apr 2013
Execution of GCA
Jun 2014
Registration of C of O
Jun 2012
Execution of PPA
Apr 2013
2013
2014
8
Satisfaction of CPs
Aug-Dec 2015
Execution of GTA
Jul 2014
First Draf of LOS (PCOA)
Jul 2012
RAP Approval by WB
Feb 2012
2012
Demobilisation Pending FGN Legal Opinion
Feb 2015
Final FMEnv Approval of ESIA
Feb 2013
1st Draft of ESIA to WB
Nov 2011
Execution of PCOA
Oct 2014
2015
Financial Close
29 Dec 2015
Contractor Remobilises to Site
5 Jan 2016
2016
2017
3
CHOOSING THE RIGHT CO-SPONSORS & ADVISERS
The success of any project-financed IPP is critically dependent on the quality of the co-sponsors
and advisers selected by the project’s lead sponsor. In Azura’s case, the lead sponsor (Amaya
Capital) sought, from the very beginning, to find a group of like minded co-sponsors and advisers.
But what does “like minded” actually mean in this context? It is a multivalent word that captures
a range of attributes including: sharing the same vision as the founders; understanding the
entrepreneurial nature of the development process; a capacity to burn the midnight oil; tried and
tested experience on other projects coupled with an open mind to innovative solutions; and a
good sense of humour (particularly helpful in the most testing periods).
9
The circular chart below shows the entire array of co-sponsors and advisers that were
instrumental to the development of the Azura Project.
su
on
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The timeline chart below shows the dates when each of these co-sponsors and advisers first
started working on the Azura project.
Grant Thornton (Tax)
Jan 2012
Adamu Kasimu (Land Valuation)
Feb 2012
Aldwych (Co-Sponsor)
Jun 2010
ERM (ESIA)
Nov 2010
PB Power (Technical)
Sep 2011
EDSG (Co-Sponsor)
Nov 2010
DeRisk (PRI)
Apr 2010
Envaccord (ESIA)
Nov 2010
UUBO (Legal)
Jun 2010
1 May 2010
1 Sep 2010
Trinity (Legal)
Sep 2011
1 May 2011
ARM (Co-Sponsor)
May 2012
Pedabo (Audit)
Oct 2011
KPMG (Audit & Tax)
Feb 2011
1 Jan 2011
Fieldstone (Financial)
Mar 2012
Templars (Legal)
May 2012
AIIM (Co-Sponsor)
Dec 2011
1 Sep 2011
1 Jan 2012
1 May 2012
Jiyoda (Technical)
Nov 2012
AON & SCIB (Insurance)
Jun 2012
1 Sep 2012
1 Jan 2013
ACEI (Co-Sponsor)
>> Late 2013
1 May 2013
1 Sep 2013
In the preceding chapter, we noted that the sponsors and lenders’ advisers had clocked up a total
of 76,000 man-hours of work (as at Dec 2015). As shown in the chart below, over 80% of this time
was spent on legal and financial advice. This statistic, in turn, points to the fact that the key
challenge in the construction of a privately financed power plant is not the engineering and
construction challenge. It is the financing challenge.
Breakdown of the total time spent by the sponsor/lender advisers
Technical/Other
10%
Environmental
8%
Legal
34%
Financial
48%
11
More specifically, this chart illustrates the unique set of challenges inherent in a limited-recourse
project-financing. A limited recourse project-financed transaction is very different to a corporate
financed deal. In a corporate financed transaction you borrow money against a balance sheet. You
have real assets which you can post as security for your borrowing. By contrast, in the case of a
project-financed IPP, like Azura, the banks are lending to a special purpose vehicle whose only
assets comprise the web of contractual agreements between the project company, its supplier and
its offtaker. The Azura project is made up of dozens of different contracts. And each and every
clause, in each and every contract, must be scrutinized ad nauseam by the banks because these
contracts are the sum total of their security.
12
4
NEGOTIATING THE KEY PROJECT AGREEMENTS
This chapter summarises the development history of the key project agreements that underpin
the Azura-Edo IPP. These agreements define the universe of risks faced by the project; and they
also allocate - between the various project stakeholders - the responsibility for bearing and
mitigating these risks.
13
The chart below depicts the full suite of contractual agreements that underpin the Azura-Edo IPP.
It should be noted, however, that the financing agreements (depicted by the little green circle at
the bottom of the wheel) are so numerous that they have their own dedicated chapters (Chapters
6 & 7).
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On the previous page, we illustrated the wheel of contractual agreements with the acronyms of the
individual contracts. In the chart below, we take this same wheel and reveal the identities of each
of the counterparties to these agreements. Our public sector counterparties are highlighted in
green; our private sector counterparties are highlighted in blue; and the piebald Gas Supply
Agreement reflects the fact that Azura has two counterparties on this agreement: (Seplat, private
sector) and NPDC (public sector).
NBET%
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The timeline chart below shows the (first) date of execution of each of these project agreements
with the exception of the Certificate of Occupancy (registered on 9 June 2012) and the Power
Purchase Agreement (first signed on 22 April 2013). These first two documents can be thought of
as the “parent” documents for everything else that followed. For without the land on which to
build the power plant and an off-take agreement from a credible customer, it is nigh impossible
for a developer to conclude any of the other project agreements.
In the sections that follow, we will take a closer look at the various steps (and volume of work)
involved in negotiating each individual agreement.
After the C of O and the PPA: The Execution Dates of the other Project Documents
Ancillary Services Agreement
24 Jun 2014
Grid Connection Agreement
24 Jun 2014
GSPA Addendum Agreement
1 Dec 2014
Long Term Service Agreement
2 Jul 2014
Gas Supply Agreement
14 Apr 2014
Owner’s Engineer Agreement
4 July 2014
EPC Contract
30 Apr 2014
Loan Agreements
25 Nov 2014
GTA Supplemental Agreement
22 July 2014
1 Jul 2014
1 Sep 2014
Management Services Agreement
23 Jan 2015
Put Call Option Agreement
22 Oct 2014
Gas Transportation Agreement
22 July 2014
O&M Agreement
5 May 2014
1 May 2014
PPA Addendum Agreement
1 Dec 2014
Technical Services Agreement
29 Jan 2015
Substation Extension Agreement
3 Dec 2014
1 Nov 2014
16
1 Jan 2015
Construction Insurance Cover
26 Feb 2015
1 Mar 2015
1 May 2015
SECTION 1
LAND ACQUISITION
The Azura-Edo IPP is recognised to be of public interest and therefore the project’s land
acquisition process was led by the Edo State Government (“EDSG”). However, in tandem with
the EDSG-led land acquisition process, Azura implemented an integrated stakeholder
engagement process to understand and adequately reflect upon the potential impacts (in terms of
the environmental and social issues) associated with land acquisition and resettlement. Under the
guidance of the World Bank, Azura’s daily interaction with the local communities was then used
to develop a Compensation Plan and a Resettlement Action Plan (“RAP”).
The land acquired by the Azura facility was previously owned by the inhabitants of three different
communities (Orior-Osemwende, Ihovbor-Evboeka and Idunmwowina-Urho-Nisen) and the
number of individuals with a purported claim to compensation was just over 1,000 persons. Not
surprisingly, the process of enumerating and assessing the value of each individual claim proved
to be extremely time consuming and labour intensive.
The importance and sensitivity of the exercise (and the need to insure that it was carried out to
World Bank and IFC standards) necessitated the employment of three different sets of
environmental experts, namely: the ERM Group; Environmental Accord; and Adamu Kasimu &
Associates.
It is worth noting that we had to commence the land acquisition process (in late 2010) before we
had agreed any of the key project documents including the Power Purchase Agreement (“PPA”).
In the conventional development cycle (at least in mature markets) this approach would be seen
as “the wrong way round” since the developer would normally seek to execute the PPA and other
key project documents before the land was acquired or at least have an option on acquiring the
land subject to the execution of other project documents. However, in Azura’s case, we had to take
that risk up front in order to “get a seat at the negotiating table” with key counterparties such as
our off-taker and our gas supplier.
17
Land Acquisition & Compensation - the Key Protagonists
PURCHASER
VENDOR
LENDERS
Azura
Edo State Government
The 5 Lead Arrangers
World Bank Group (RAP Adviser)
Local Communities
Clifford Chance (Lenders’s Counsel)
Trinity & Templars (Legal Counsel)
Individual Land Owners
Olaniwun Ajayi (Lenders’ Counsel)
ERM (E&S Adviser)
Royal Haskoning (Lenders’ E&S Adviser)
Environmental Accord (E&S Adviser)
A. Kasimu & Associates (Land Valuer)
Land Acquisition Timeline - Charting the Major Milestones
1st Draft of EIA Scoping Study Submitted to FMEnv
Dec 2010
EDSG Notice of Revocation
Jun 2011
Initial World Bank Feedback
Jul 2011
Census and Asset Inventory
8-20 Sep 2011
Application for C of O
Feb 2012
Disclosure of RAP in World Bank's Info Shop
Mar 2012
World Bank Approval of RAP
Feb 2012
MOU with EDSG
Nov 2010
2011
Enumeration Survey
22-29 Aug 2011
2012
Sign Off by Each Claimant
Mar-Apr 2013
C of O Awarded
Jun 2012
Second Set of Payments by Azura
26-30 May 2014
First Set of Payments by Azura
11-21 Nov 2013
2013
2014
18
First Set of Payments by EDSG
Nov 2014 - Feb 2015
2015
2016
SECTION 2
THE POWER PURCHASE AGREEMENT
The first formal engagement between NBET and Azura began on 29 November 2011 when NBET
sent to Azura (along with several other prospective IPPs) a draft Power Purchase Agreement
(“PPA”) for New Build Independent Power Projects. Subsequent to Azura’s initial review of this
draft PPA, the first meeting between the parties was held in Abuja a day later (on 30 November
2011). Present at this initial meeting were NBET’s counsel (Hunton & Williams and G. Elias &
Co).
Over the course of the subsequent three years, the parties held successive rounds of negotiations.
These took place via: face-t0-face “round table” sessions; conference calls; and the iterative
exchange of (literally) hundreds of red-lined drafts of each successive draft of the Power Purchase.
On 22 April 2013, a landmark day in the history of Nigeria’s power sector, the parties signed the
country’s first PPA between NBET and a project-financed IPP. But it wasn’t until 1 December
2014 before the final set of schedules to the PPA were concluded and the PPA Addendum
Agreement was signed.
PPA Timeline - Charting the Dates of the Major Face-to-Face Negotiation Sessions
Session 3 Abuja
28 Feb - 1 Mar 2012
Session 7 Abuja
10 Sep - 12 Sep 2012
Session 1 Abuja
29 Nov 2011
Session 13 Abuja
22 Apr - 2 May 2014
Session 8 Abuja
19 Sep 2012
Session 4 Abuja
21 Mar 2012
Session 5 Abuja
20 May 2012
Session 6 Abuja
2 Jul 2012
Session 2 Abuja
27 Feb 2012
1 Jul 2012
Session 14 Abuja
30 Jun - 31 July 2014
Session 10 Abuja
19 Feb - 21 Feb 2013
Session 11 Washington DC
3 Apr - 14 Apr 2013
Session 15 Abuja
10 Jul - 11 July 2014
Session 16 Abuja
12 Nov - 14 Nov 2014
Execution of PPA
22 Apr 2013
Session 9 Abuja
14 Nov - 15 Nov 2012
1 Apr 2013
Session 12 Washington DC
12 Nov - 16 Nov 2013
1 Jan 2014
19
1 Oct 2014
Execution of PPA Addendum
1 Dec 2014
1 Jul 2015
PPA Negotiations - the Key Protagonists
POWER PURCHASER
POWER PRODUCER
LENDERS
NBET
Azura
The 5 Lead Arrangers
Hunton & Williams (Legal
Counsel)
Trinity (Legal Counsel)
Clifford Chance (Lenders’ Counsel)
G. Elias & Co (Local Counsel)
Templars (Legal Counsel)
Olaniwun Ajayi (Lenders’ Counsel)
Nexant (Financial & Legal
Advisers)
Fieldstone (Financial Advisors)
Lummus (Lenders’ Technical
Adviser)
World Bank Group (Adviser to all
Parties)
World Bank Group (Adviser to all
Parties)
World Bank Group (Adviser to all
Parties)
The chart below provides a partial measure of the flow of email traffic between Azura and NBET
between 2011 and 2014.
No. of emails to/from NBET and Azura’s Senior Management
1,500
No. of emails
1,200
900
600
300
0
2011
2012
2013
2014
2015
What is particularly interesting about this chart is that it shows how the engagement between
NBET and Azura more than doubled in 2014 (the year after the PPA was first executed).
At first sight, this might seem counterintuitive. Indeed, the natural presumption for an outside
observer would be to assume that most of the hard work was over by the time the first draft of the
PPA was signed in April 2013. The reality, however, was very different and it is instructive to
examine the reasons why.
The first reason has already been alluded to, viz. the fact that the schedules to the PPA still needed
to be negotiated. And the process for so doing was highly time-consuming, not least because the
20
negotiations over the tariff schedule and the various technical schedules required both sides of the
negotiating table to undertake a tremendous amount of detailed (and iterative) data analysis.
The second reason derives from the close intersection between the PPA and the PCOA and the
fact that NBET took the lead (from the Government’s side) in negotiating the PCOA. As will be
illustrated in the next chapter, the negotiation of the PCOA - which was finally signed in October
2014 - proved to be just as challenging as the negotiation of the PPA.
21
SECTION 3
THE PUT CALL OPTION AGREEMENT
The need for credit enhancement by the Sovereign Government (to backstop the payment
obligations of NBET) was linked to the recognition that it might take several years before NBET
could demonstrate, by reference to a track record of sufficient longevity, that it had the capacity
to meet its payment obligations in a timely and reliable fashion. Without such credit
enhancement, it is simply not possible to raise the capital required to finance a project of this
kind.
The initial round of discussions suggested that this backstop was likely to take the form of a
Federal Government Letter of Support (“LoS”) akin to the instruments used by a number of other
Sub-Saharan countries to help catalyse project-finance IPPs. However, by the time the first draft
of the PPA was executed in April 2013, the Federal Government counterparties had opted for a
different structure which became known as the Put Call Option Agreement (“PCOA”).
As for the parties responsible for the negotiation of the PCOA, they comprised all the institutions
responsible for the negotiation of the PPA. But the universe of protagonists whose views and
interests were factored into the PCOA was expanded to include the Ministry of Finance
(representing the FGN); the Office of the Attorney General (Legal Counsel to the Ministry of
Finance); the Ministry of Power; and the Nigerian National Petroleum Corporation (which
provided a Parent Company Guarantee to the Ministry of Finance and NBET to help mitigate
their exposure under the PCOA in the event of a failure by the Nigerian Gas Company to transport
gas to the project).
PCOA Negotiations - the Key Protagonists
POWER PURCHASER
FGN GUARANTOR
POWER PRODUCER
LENDERS
NBET
Ministry of Finance
Azura
The 5 Lead Arrangers
Hunton & Williams
Ministry of Power
Trinity
Clifford Chance
G. Elias & Co
Office of the Attorney General
Templars
Olaniwun Ajayi
Nexant
NNPC
Fieldstone
Lummus
World Bank Group
World Bank Group
World Bank Group
World Bank Group
22
No. of emails to/from Azura’s Senior Management with an LoS or PCOA Heading
500
No. of emails
400
300
200
100
0
2012
2013
2014
LoS
2015
PCOA
PCOA Timeline - Charting the Major Milestones
First Draft of LoS
30 July 2012
Second Draft of LoS
9 Oct 2013
Signed PCOA Term Sheet
23 Apr 2013
1 Jan 2013
Final Draft of PCOA Agreed
10 Oct 2014
Initial Draft of Full Form PCOA
17 Jun 2013
Third Draft of LoS
13 Nov 2012
1 Jul 2012
First Agreed Draft of PCOA
2 May 2014
Multiple Iterations of PCOA
Jul 2013 to Apr 2014
1 Jul 2013
1 Jan 2014
23
1 Jul 2014
PCOA Executed
22 Oct 2014
1 Jan 2015
1 Jul 2015
SECTION 4
THE GAS SALES & PURCHASE AGREEMENT
The bankability of any project-financed gas-fired IPP is critically dependent on the negotiation of
a long-term Gas Sales & Purchase Agreement (“GSPA”) with a credit-worthy gas supplier on
terms that are acceptable (and recognisable) to the providers of non-recourse debt.
In Azura’s case, the journey towards a bankable GSPA required the expenditure of an
extraordinary amount of time, capital and patience. Indeed, it is fair to say that the smooth linear
path depicted below bears little correlation to the sturm und drang involved in: the multiple
rounds of face-to-face negotiations; the iterative exchange of redlined documents; and the receipt
of the necessary approvals from NBET; NERC; NPDC; and Azura’s lenders.
By the time the GSPA between Azura and Seplat Petroleum Development Company PLC
(“Seplat”) was finally executed in April 2014, most of the key protagonists felt as if they had just
completed an ironman triathlon.
GSPA Timeline - Charting the Major Milestones
Draft GSPA disclosed to NBET, NERC and World Bank
Jan 2013
Full Form GSPA submitted to Seplat
15 May 2013
Multiple Iterations of GSPA
May 2013 to Feb 2013
Letter of Intent secured
Dec 2010
Gas Suppy Due Diligence
Jan 2011 to Jun 2012
2011
GSPA Initialed
Feb 2013
GSPA Term Sheet agreed
Jun 2012
2012
Seplat Due Diligence on Azura
Feb 2013
2013
GSPA Executed
Apr 2014
2014
24
Final Approval of Gas Tariff by NERC
Nov 2014
GSPA Addendun Executed
Dec 2014
2015
2016
GSPA Negotiations - the Key Protagonists
GAS PURCHASER
GAS SUPPLIER
LENDERS
Azura
Seplat
The 5 Lead Arrangers
NBET (Approval i.r.o. Risk Allocation)
NPDC (Field Partner)
Clifford Chance (Lenders’s Counsel)
NERC (Approval i.r.o. Gas Pricing)
Seven Energy (NPDC’s Service Partner)
Olaniwun Ajayi (Lenders’ Counsel)
Trinity & Templars (Legal Counsel)
G. Elias & Co (Legal Counsel)
Lummus (Lenders’ Technical Adviser)
No. of GSPA related emails to/from Azura’s Senior Management
700
No. of emails
560
420
280
140
0
2010
2011
2012
2013
Seven Energy
2014
2015
Seplat
25
SECTION 5
THE GAS TRANSPORTATION AGREEMENT
The site of the Azura-Edo IPP is located about 50km northwest of the Oben Gas Plant (the source
of the gas that will be used to fire Azura’s turbines) and the pipeline that connects the Oben Gas
Plant to the Azura-Edo IPP is owned and operated by the Nigerian Gas Company (“NGC”). Hence
on 20 May 2012, NGC supplied Azura with a draft Gas Transportation Agreement (“GTA”) and
began the two years of negotiations that culminated in the execution of the GTA on 22 July 2014.
An ancillary document called the GTA Supplemental Agreement (that governs the construction of
the 800m spur line between the ELPS and the Azura facility and the gas metering facility) was
also signed on 22 July 2014.
GTA Timeline - Charting the Dates of the Major Face-to-Face Negotiation Sessions
Session 4
30-31 Jan 2014
Session 5
12 Mar 2014
Session 6
27 Mar 2014
Session 7
14-15 Apr 2014
Session 8
16 May 2014
Session 9
30 May 2014
Session 10
12-13 Jun 2014
Session 11
26 Jun 2014
Session 2
14 Aug 2013
Session 1
21 May 2012
1 Oct 2012
Session 12
9 Jul 2014
Session 3
4-5 Nov 2013
1 Jul 2013
1 Apr 2014
26
Execution of GTA & Supplemental Agreement
22 Jul 2014
1 Jan 2015
1 Oct 2015
GTA Negotiations - the Key Protagonists
GAS SHIPPER
GAS TRANSPORTER
LENDERS
Azura
Nigerian Gas Company
The 5 Lead Arrangers
NBET (Approval i.r.o. Risk
Allocation)
NNPC (Parent Company)
Clifford Chance (Lenders’s
Counsel)
NERC (Approval i.r.o. GTA Pricing
& Risk)
Department of Petroleum
Resources
Olaniwun Ajayi (Lenders’ Counsel)
Lummus (Lenders’ Technical
Adviser)
Trinity & Templars (Legal Counsel)
Siemens (EPC Contractor)
As can be seen from the Timeline Chart on the preceding page, after the first meeting between
NGC and Azura in May 2012, the parties agreed that any further face-to-face discussions on the
GTA should take place after Azura had made further progress in its GSPA negotiations such that
NGC could be supplied with precise details of the upstream gas supplier(s) and the likely
interconnection points with the Escravos Lagos Pipeline System. This watershed was reached in
August 2013 whereupon the parties commenced a series of intensive negotiations that involved
monthly meetings, numerous conference calls and the iterative exchange of multiple redlined
drafts of the GTA and the Supplemental Agreement.
No. of GTA related emails to/from Azura’s Senior Management
300
No. of emails
240
180
120
60
0
2012
2013
2014
27
2015
SECTION 6
THE GRID CONNECTION AGREEMENT
The site of the Azura-Edo IPP is located directly adjacent to the Benin North Sub-Station which
makes the physical evacuation of power on to the Grid far easier than is the case with projects that
are remote from the nearest high voltage interconnection point. However, the contractual
arrangements governing the relationship between Azura and the Transmission Company of
Nigeria (“TCN”) still required extensive negotiations (not least because these documents were
being negotiated de novo and all parties were conscious that they would form the template for
other IPPs).
As shown in the chart below, the entire process took nearly 4 years from start to finish. Will this
be the same for other IPPs in Nigeria? Certainly not. The contracts between Azura and TCN are
highly replicable. Nevertheless, it would still be prudent for other IPPs to plan on a 24 month
end-to-end cycle (i.e. from the point where they commence their evacuation studies to the point
where they have agreed all the design drawings with their EPC Contractor and have executed the
Grid Documents with TCN).
Grid Connection Timeline - Charting the Major Milestones
Multiple Iterations of GCA
May 2013 - Jun 2014
Kick off meeting with TCN
17 Feb 2011
Design Drawings
Jul 2011 - May 2013
Evacuation Study
Feb-July 2011
Cooperation Agreement
18 Mar 2013
Provisional Connection Approval
12 Jul 2011
2011
2012
ASA Executed
24 Jun 2014
Application for GCA
3 May 2013
2013
2014
28
GCA Executed
24 Jun 2014
TLSEA Executed
3 Dec 2014
2015
Grid Connection Negotiations - the Key Protagonists
POWER PRODUCER
POWER TRANSMITTER
LENDERS
Azura
Transmission Company of
Nigeria
The 5 Lead Arrangers
NBET (Approval i.r.o. Risk
Allocation)
NIAF (Legal Counsel)
Clifford Chance (Lenders’s
Counsel)
NERC (Approval i.r.o. Risk
Allocation)
Olaniwun Ajayi (Lenders’ Counsel)
Trinity & Templars (Legal Counsel)
Lummus (Lenders’ Technical
Adviser)
Jiyoda Engineering (Technical
Adviser)
Parsons Brinckerhoff (Technical
Adviser)
Siemens (EPC Contractor)
No. of GCA related emails to/from Azura’s Senior Management
600
No. of emails
480
360
240
120
0
2011
2012
2013
29
2014
2015
SECTION 7
THE EPC CONTRACT & THE LONG TERM SERVICE AGREEMENT
The engineering, procurement and construction (“EPC”) of the Azura-Edo IPP is being carried
out by a consortium composed of Siemens AG, Siemens Nigeria Ltd and Julius Berger Nigeria
PLC. Siemens is also the manufacturer of the heavy equipment used in the plant and has
contracted to service this equipment under a Long Term Service Agreement (“LTSA”).
Ex post, that all sounds very neat, simple and effortless. In reality, however, both the tendering
process and the subsequent contract negotiations proved to be long and grueling affairs. Indeed,
it is fair to say that, ex ante, neither Azura not its counterparties could have anticipated the full
extent of the rigors that would be imposed upon them by the interlocking constraints of:
international competitive bidding; World Bank requirements; NBET requirements; and lender
requirements.
After the initial front end engineering design (“FEED”) studies had been completed, the general
procurement notice was issued in October 2011 and in late November of the same year, 21 prequalified bidders received the formal invitation to bid (together with all the supporting
documentation). A total of 17 firms pre-qualified to receive the invitation to bid, from countries
including the following: USA, France, Germany, Italy, Greece, South Africa, Egypt, Israel, Saudi
Arabia, Kuwait, India, China, Korea, and Japan. These firms were required to tender for the
provision of fully wrapped turnkey EPC and long term maintenance services for the Project.
More than a year later (after the completion of multiple bidding rounds), a preferred bidder was
finally appointed for both the EPC Contract and the LTSA. And the workload increased still
further from this point as the parties settled down for the long haul of contract negotiations which
lasted for 18 months before concluding with the execution, respectively, of the EPC Contract in
April 2014 and the LTSA in July 2014.
EPC & LTSA Negotiations - the Key Protagonists
EMPLOYER
CONTRACTOR
LENDERS
Azura
Siemens/JBN Consortium
The 5 Lead Arrangers
Parsons Brinckerhoff (Technical
Adviser)
Siemens AG
Clifford Chance (Lenders’s
Counsel)
Trinity & Templars (Legal Counsel)
Siemens Nigeria Ltd
Olaniwun Ajayi (Lenders’ Counsel)
ERM (E&S Adviser)
Julius Berger Nigeria PLC
Royal Haskoning (Lenders’ E&S
Adviser)
NBET (influencing Risk Allocation)
30
EPC & LTSA Timeline - Charting the Major Milestones
Receipt of 1st Round EPC & LTSA Bids
23 Mar 2012
Preparation of Bid Documents
Jul-Nov 2011
Receipt of 3rd Round EPC Bids
2 Nov 2012
General Procurement Notice
14 Oct 2011
Receipt of 3rd Round LTSA Bids
16 Nov 2012
Bidder Prequalification
Oct-Nov 2011
FEED studies
Dec 2010 - Jul 2011
1 Jul 2011
Invitation to Bid
21 Nov 2011
1 Jan 2012
Execution of EPC Contract
30 Apr 2014
Appointment of Preferred Bidder
24 Dec 2012
Receipt of 2nd Round EPC & LTSA Bids
8 Jun 2012
1 Jul 2012
1 Jan 2013
Contract Negotiations
Jan 2013 - Jul 2014
1 Jul 2013
1 Jan 2014
Execution of LTSA Contract
2 Jul 2014
1 Jul 2014
No. of emails to/from Siemens and Azura’s Senior Management
900
No. of emails
720
540
360
180
0
2011
2012
2013
31
2014
2015
1 Jan 2015
SECTION 8
THE CONSTRUCTION MANAGEMENT AGREEMENTS
Whilst the timely and cost-efficient construction of the Azura-Edo IPP are most visibly affected by
the performance of the EPC Contractor, the oversight and interface functions performed by the
project owners (and their nominated “Owner’s Engineer”) are equally “mission-critical”.
Accordingly, the lead equity sponsor (Azura Power Holdings) and the sponsor with the greatest
technical input into the project (Aldwych International) were selected by the other co-sponsors as
the parties responsible for the construction management function. Their respective contractual
obligations are set out in the Management Services Agreement and the Technical Services
Agreement. Their broad oversight functions are complemented by the narrower (but more
specialised) functions performed by Parsons Brinckerhoff (the Owner’s Engineer).
Construction Management - the Key Protagonists
OWNER
CONSTRUCTION MANAGER
LENDERS
Azura
APHL / Aldwych / PB Power
The 5 Lead Arrangers
Trinity & Templars (Legal Counsel)
Trinity & Templars (Legal
Counsel)
Clifford Chance (Lenders’s
Counsel)
Olaniwun Ajayi (Lenders’ Counsel)
Lummus (Lenders’ Technical
Adviser)
Construction Management Agreements - Charting the Major Milestones
Receipt of Bids for Owner's Engineer
15 April 2014
Negotiation of Owner's Engineer Agreement
Jun-Jul 2014
Selection of PB as Preferred Bidder for Owner's Engineer
Jun 2014
RFP for Owner's Engineer
20 March 2014
1 May 2014
Negotiation of MSA
Apr-Dec 2014
Execution of Owner's Engineer Agreement
4 Jul 2014
1 Jul 2014
1 Sep 2014
32
Execution of MSA
23 Jan 2015
Negotiation of TSA
Apr-Dec 2014
1 Nov 2014
1 Jan 2015
Execution of TSA
29 Jan 2015
1 Mar 2015
SECTION 9
INSURANCE COVER
The Project’s insurances are placed and maintained with onshore and offshore insurers and
reinsurers in accordance with the requirements under local law and regulation. For example, the
Nigerian insurance regulator, the National Insurance Commission (“NAICOM”) requires that the
total amount of insurance is offered first to Nigerian insurers and only when the Nigerian
market’s capacity has been exhausted is it permissible to reinsure off-shore. Hence a key
milestone for the project was the date, in late November 2014, when NAICOM issued its
“Approval in Principle” pursuant to which Azura proceeded to bind cover at the end of February
2015.
Insurance Cover - the Key Protagonists
OWNER
INSURANCE BROKER
LENDERS
Azura
AON & SCIB (Brokers)
The 5 Lead Arrangers
Trinity & Templars (Legal Counsel)
NAICOM (Regulator)
Clifford Chance (Lenders’s Counsel)
Olaniwun Ajayi (Lenders’ Counsel)
Indecs (Lenders’ Insurance Adviser)
Insurance Cover - Charting the Major Milestones
RFP to Insurance Brokers
May 2012
Full Market Testing
Nov 2014
Receipt of Bids from Insurance Brokers
Jun 2012
Application for NAICOM Dispensation
14 Nov 2014
Appointment of AON as Lead Insurance Broker
Jun 2012
Appointment of Indecs as Lenders' Insurance Adviser
13 Sep 2013
Engagement of SCIB as AON's Local Insurance Partner
Jul 2012
May 2012
Sep 2012
Jan 2013
May 2013
Receipt of NAICOM Approval in Principle
24 Nov 2014
Local Market Soundings
Nov 2013
Sep 2013
Jan 2014
33
May 2014
Purchase of Insurance Cover
26 Feb 2015
Sep 2014
Jan 2015
May 2015
Sep 2015
S E C T I O N 10
THE OPERATIONS & MAINTENANCE AGREEMENT
For the appointment of its Operations & Maintenance (“O&M”) Contractor, Azura replicated the
international competitive bidding process that it used for the selection of its EPC and LTSA
provider. However, the number of bidding rounds was a little less punishing (just two rounds
instead of three). Nevertheless, the whole process still took just over two years from the issuance
of the call for Expressions of Interest in March 2012 to the eventual execution of the O&M
Agreement with the PIC Group (Marubeni) in May 2014.
O&M Negotiations - the Key Protagonists
EMPLOYER
CONTRACTOR
LENDERS
Azura
PIC Group (Marubeni)
The 5 Lead Arrangers
Trinity & Templars (Legal Counsel)
Clifford Chance (Lenders’s Counsel)
NBET (influencing Risk Allocation)
Olaniwun Ajayi (Lenders’ Counsel)
Lummus (Lenders’ Technical Adviser)
O&M Timeline - Charting the Major Milestones
Call for EOIs from O&M Providers
22 Mar 2012
Prequalification of O&M Providers
Mar-Apr 2012
Revised Invitation to Bid Sent Out
May 2013
Analysis of Final O&M Bids
Jun-Oct 2013
Receipt of O&M Bids
29 Jun 2012
Invitation to Bid Sent Out
24 Apr 2012
Apr 2012
Jul 2012
O&M Shortlist Selected
Oct 2012
Oct 2012
Jan 2013
Appointment of PIC Group as Preferred Bidder
Aug 2013
Apr 2013
Jul 2013
34
Oct 2013
Jan 2014
Apr 2014
Execution of O&M Agreement
5 May 2014
Jul 2014
Oct 2014
5
OBTAINING KEY PERMITS & APPROVALS
The construction of any large scale power plant necessitates the receipt of a wide array of
regulatory permits and approvals. These include: business permits and licences (of which the
most important is, of course, a generation license); environmental permits; building permits;
certificates of due process and compliance; reinsurance dispensations; foreign exchange
approvals & dispensations; importation permits & duty waivers; tax registrations; and stamp duty
receipts.
35
The chart below summarises the key “Project Permits and Approvals” that had to be obtained by
the Azura-Edo IPP. Each of the acronyms shown below represents a different Nigerian
Government Ministry or Agency.
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36
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Previous experience has taught us that the provision of a set of timelines showing the milestone
dates for each key permit/approval can produce dangerously soporific effects on the audience.
Nevertheless, to give our readership a flavour of the work involved, the chart below illustrates the
steps that had to be undertaken in respect of a single permit (viz. the Environmental & Social
Impact Assessment and the corresponding approval and certification by the World Bank and the
the Nigerian Federal Ministry of the Environment).
Environmental & Social Impact Assessment: Charting the Major Milestone
Submission of First Draft of RAP to World Bank
16 Dec 2011
Submission of Second Draft of ESIA to World Bank
25 Dec 2011
World Bank Approval of ESIA and Submission to ASPEN
5 Feb 2012
Submission of Second Draft of RAP to World Bank
8 Feb 2012
World Bank Approval of RAP and Submission to ASPEN
10 Feb 2012
Disclosure of ESIA to the Nigerian FMEnv
20 Feb 2012
Disclosure of ESIA in World Bank’s Information Shop
5 Mar 2012
Disclosure of RAP in World Bank’s Information Shop
6 Mar 2012
Newspaper Notice of ESIA Disclosure by the Nigerian FMEnv
16 Mar 2012
Nigerian FMEnv Panel Hearing (Attended by the World Bank)
3 Jul 2012
Submission of First Draft of ESIA to World Bank
10 Nov 2011
First World Bank Site Visit
17 June 2011
1 Jul 2011
1 Oct 2011
Second World Bank Site Visit
2 Feb 2012
1 Jan 2012
1 Apr 2012
End of 120 day World Bank ESIA Disclosure Period
13 July 2012
Panel Approval of ESIA by the Nigerian FMEnv
4 July 2012
1 Jul 2012
37
1 Oct 2012
1 Jan 2013
Formal FMEnv Approval of ESIA
27 Feb 2013
1 Apr 2013
1 Jul 2013
6
ATTRACTING & SECURING THE EQUITY CAPITAL
Funding the development, construction and on-going operations of an IPP requires a substantial
amount of capital. This is especially true in emerging markets where costs can be substantially
higher than in more mature markets. The reasons for this include: the early stage of development
of the sector (which means that things are often done for the first time leading to additional
costs); the higher cost of doing business (driven in turn by the higher costs of logistics, security,
skill sourcing, and the time required for the attainment of governmental permits and regulatory
approvals); and higher funding costs (capital providers want higher returns for higher risk).
38
Moreover, it is very easy to underestimate the costs of developing a large scale power project
because - as this guide hopefully shows - time is money. With the development cycle lasting
longer than expected, costs quickly escalate. As shown in the graphs below, the original forecast
date for financial close (March 2013) was overly optimistic (to put it mildly). In turn, this delay
resulted in a five fold increase in the initial development budget.
Index of Budgeted Development Costs for the Azura-Edo IPP
500
Index of Costs (Jul 12 = 100)
450
400
350
300
250
200
150
100
50
0
Jul 12
Dec 12
Jul 13
Dec 13
Jul 14
Dec 14
Dec 15
Forecast Date for Financial Close
Days Delayed
1,000
750
500
250
0
Mar 13 Jun 13 Dec 13 Mar 14 Sep 14 Jan 15 May 15 Dec 15
For all these reasons and many more, it is critical that the developer attracts the right type of codevelopers and co-equity sponsors. Every investment institution has its own investment
philosophy, its own (perceived and actual) “value-add”, its own perception of risk/reward, its own
hold/exit strategy; and its own view of investment returns. As a result, developers must choose
their equity partners very carefully.
39
For the Azura-Edo IPP, Amaya Capital (“Amaya”), the lead developer and sponsor, selected the
following equity partners:
• American Capital Energy and Infrastructure (“ACEI”) as its co-lead investor, with ACEI
providing both financial and industry expertise to the transaction;
• Aldwych International (“Aldwych”) as a co-developer and co-equity investor, with
Aldwych’s primary value-add being its technical capabilities;
• African Infrastructure Investment Managers (“AIIM”) as a co-developer and co-equity
investor, with AIIM being the largest financial investor in the project; and
• Asset & Resource Management (“ARM”) as a co-developer and co-equity investor, with
ARM, a Nigerian-resident investment firm, providing additional value through its extensive
local knowledge and experience.
Finally, the Azura-Edo IPP would not have been possible without the strong and close
cooperation of the Edo State Government (“EDSG”) which became a minority equity shareholder
in APWAL in exchange for the land and support that was provided by the state government.
As displayed in the timeline graph shown overleaf, each of these partners came into the project at
different times.
In contrast to the arrangement of the debt capital (see Chapter 7), the actual number of key
contracts that had to be agreed to secure the equity capital were relatively few. The significant
contracts were:
• A Joint Development Agreement (“JDA”) that outlined the roles and responsibilities of the
development partners;
• A Development Cost Loan Agreement (“DCLA”) that outlined the financial terms of the
JDA; and
• The Shareholder Agreement and Subscription Agreement between the equity partners.
However, the length of time it took to negotiate these contracts was not short. For example, there
were 32 versions or mark-ups of the first JDA before it was signed, followed by a further 30
versions of the amended contract, taking it to a total of 62 versions from beginning to end. There
were 24 versions of the original DCLA and another 18 versions of the final agreement, i.e. a total
of 42 versions. Thus, over 100 versions of two documents (with a combined length of over 100
pages) were negotiated over a period of 16 months i.e. 10,000 pages of review and proof reading
were required just to structure the development contract between the sponsors.
40
Raising the Equity Capital - the Key Protagonists
LEAD SPONSORS
CO-SPONSORS
ADVISORS
Amaya
Aldwych
Fieldstone
ACEI
AIIM
Trinity
ARM
Dentons
EDSG
Norton Rose
Chadbourne & Parke
Equity Timeline - Charting the Major Milestones
Project Implementation Agreement signed between APWAL and
EDSG
28 Oct 2011
DCLA signed between APHL, AEL, APWAL & AIIM
24 Apr 2012
Letter of Extension re JDA between APHL, AEL, APWAL, AIIM &
Aldwych
28 Jun 2012
NDA signed between APHL and ACEI
29 Jun 2013
Amended DCLA signed between APWAL, AIIM, Aldwych & ARM
21 Aug 2013
NDA signed between Amaya and Aldwych
11 Jun 2010
NDA signed between APWAL and AIIM
4 Jul 2011
NDA signed between APWAL and ARM
18 Nov 2011
MOU signed between Amaya and Aldwych
29 Jun 2010
2012
Shareholder Agreement signed between Amaya Capital, ACEI &
APHL
6 Nov 2013
JDA signed between APHL, AEL, APWAL & AIIM
24 Apr 2012
MOU signed between APWAL and Aldwych
21 Jul 2011
2011
Amended JDA signed between APWAL, AIIM, Aldwych & ARM
21 Aug 2013
2013
Subscription Agreement signed between AEL, APWAL & EDSG
18 Jun 2014
Letter of Services from Aldwych
24 May 2013
2014
41
Subscription and Shareholder Agreement between AEL, APHL,
AIIM, Aldwych & ARM
25 Nov 2014
2015
2016
2017
7
ATTRACTING & ARRANGING THE DEBT CAPITAL
Throughout the course of the development of the Azura-Edo IPP, the single most over-used word
(other than “deadline”, “redline”, “we’ll get there” and “no wahallah”) was “bankability”. Every
project agreement had to be negotiated with one eye on the requirements of the lending banks.
With more than 70% of the total capital costs being funded by debt rather than equity, the equity
sponsors could never escape the age-old adage that “he who pays the piper calls the tune”.
42
The chart below shows the identities of the 15 banks that provided the debt financing (both senior
and mezzanine) for the Azura-Edo IPP.
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43
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The chart below depicts the full range of loan agreements and the associated ancillary finance
agreements and security agreements. These agreements comprise those entered into between
Azura and the Lenders and those which are of a solely (or largely) inter-lender nature.
y%
urit
c
e
S
nts
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44
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ent
s
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Local%Loan%Agre
nt
ry
%A
gr
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m
en
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u
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Ac
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cil
la
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s%Agree
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SRA%
9%
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zz%L
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ts
en
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IBRD%Covered%Loan%Agreement%%
SCTY%
ACTS%
MZLA%
SECTION 1
APPOINTING THE LEAD DEBT ARRANGERS & ADVISERS
As shown below, there were five lead debt arrangers for the Azura-Edo IPP: Standard Chartered
Bank (Global Lead Arranger); Rand Merchant Bank (Co-Lead Arranger for the commercial debt
trance); IFC and FMO (Joint Lead Arrangers for the DFI debt tranche); and FCMB (Lead
Arranger for the PAIF debt tranche). These five banks constituted what became known as the
“Core Lender Group”.
The banks, in turn, were advised by the following six advisory institutions: Clifford Chance and
Olaniwun Ajayi (Lenders’ Legal Counsel); Lummus (Lenders’ Technical & Gas Adviser); Royal
Haskoning (Lenders’ E&S Adviser); Indecs (Lenders’ Insurance Adviser); and Allen & Overy
(Counsel to the subset of banks providing Mezzanine debt financing).
The timeline chart below shows the dates when each of the above was formally mandated to start
work on the Azura project.
Clifford Chance: Appointed Lenders' Counsel
Jan 2013
FMO: Mandated Joint DFI Lead Arranger
Apr 2013
IFC: Mandated Joint DFI Lead Arranger
Apr 2013
FCMB: Mandated PAIF Lead Arranger
Apr 2013
Lummus: Appointed Lenders' Technical Adviser
Jun 2013
RMB: Mandated Co-Lead Arranger
Jun 2013
Olaniwun Ajayi: Appointed Lenders' Counsel
July 2013
Indecs: Appointed Lenders' Insurance Advisers
Sep 2013
SCB: Mandated Global Lead Arranger
Feb 2012
SCB: Receipt of Letter of Intent
Dec 2010
Development of PIM & Financial Model
Jul 2012
SCB: Ongoing Discussions
Jul 2011
2011
2012
Royal Haskoning: Appointed Lenders' ESIA Adviser
Sep 2013
Release of Debt PIM & RFP
Dec 2012
2013
Allen & Overy: Appointed Counsel to Mezz Lenders
Feb 2014
2014
45
2015
SECTION 2
NEGOTIATING LOAN AGREEMENTS & ANCILLARY DOCUMENTS
The timeline chart below shows the execution dates of all the loan agreements (coloured black)
and the bulk of the security documents (coloured blue) as at May 2015.
Borrower Share Charge
25 Nov 2014
CDC Loan Agreement
25 Nov 2014
DEG Loan Agreement
25 Nov 2014
EAIF Mezzanine Loan Agreement
25 Nov 2014
EAIF Senior Loan Agreement
25 Nov 2014
FMO Loan Agreement
25 Nov 2014
IBRD Covered Loan Agreement
25 Nov 2014
ICF Loan Agreement
25 Nov 2014
IFC Mezzanine Loan Agreement
25 Nov 2014
IFC Senior Loan Agreement
25 Nov 2014
Local Loan Agreement
25 Nov 2014
MIGA Covered Loan Agreement
25 Nov 2014
OPIC Mezzanine Loan Agreement
25 Nov 2014
OPIC Senior Loan Agreement
25 Nov 2014
Onshore Deed of PCOA Assignment
25 Nov 2014
Onshore Security Deed
25 Nov 2014
Onshore Trust Deed
25 Nov 2014
Proparco Mezzanine Loan Agreement
25 Nov 2014
Proparco Senior Loan Agreement
25 Nov 2014
Swedfund Loan Agreement
25 Nov 2014
Borrower Offshore Assignment Agreement
3 Mar 2015
Common Terms Agreement
27 Nov 2014
Offshore Security Trust Deed
26 Jan 2015
46
Offshore Bank Account Security Agreement
3 Mar 2015
However, as we entered the second half of 2015, there were still a number of outstanding security
documents that needed to be executed, together with a clutch of ancillary finance documents.
These documents are shown in the table below.
ANCILLARY DOCS EXECUTED IN LATE 2015
SECURITY DOCS EXECUTED IN LATE 2015
Onshore Accounts Agreement
Offshore Share Pledge Agreement
Offshore Accounts Agreement
Offshore Subordinated Loan Assignment
Subordination Agreement
Share Retention Agreement
Claims Co-Operation Agreement
IFC, RMB & SCB ISDAS
In the run-up to Financial Close, we also had to revivify all the loan agreements (which we had
previously signed in November 2014) through the execution of an Omnibus Amendment and
Restatement Agreement and an Amended and Restated Common Terms Agreement.
47
8
NEGOTIATING THE DIRECT AGREEMENTS
“You cannot be serious?!” The tennis aficionados amongst you will recognise this as John
McEnroe’s signature catchphrase. It also neatly captures the expressions on the faces of some of
Azura’s counterparts when they were informed of the need to enter into a separate agreement,
not with Azura itself but with Azura’s lenders. Why, for example, should NGC (the gas
transporter) having spent thousands of hours negotiating the Gas Transportation Agreement have
to enter into a new agreement with Azura’s finance parties. Surely these finance parties should sit
“behind the veil” of the project company?
48
The question above is not an unreasonable one. It is important to remember, however, that the
key words in the phrase “non recourse project finance” are the first two. For when the banks have
no recourse to the balance sheets of the equity sponsors, it is critically important that they have
the right (in respect of all the key project agreements) to “step into” the shoes of the sponsors. Or,
to put it another way, the banks need to know that the project agreements are not going to fall
away at short notice just because of the non-performance of the project sponsors (much as all the
parties sincerely wish that such an event never transpires) and that whenever an agreement is
jeopardised, they (the banks) will have sufficient time to attempt a cure.
Hence the key elements in most of the direct agreements signed between the banks and Azura’s
project counterparties are as follows:
Suspension of Rights: The counterparty agrees not to terminate or suspend performance for a
certain period of time from the date of the notice.
Step-In: The security agent may nominate a third party to “step into the shoes of” Azura under
the project agreement to perform the obligations of Azura and cure the relevant default . If the
default is cured, Azura steps back in.
Transfer to Third party: Alternatively, the security agent may transfer the project agreement
to a third party (to be approved by the counterparty) who will take on the obligations of Azura
permanently.
Step Out: The security agent and the step-in party may step-out during an agreed period if the
default is not cured or if no transfer to a third party can be completed. It will also step out if the
default is cured.
No Amendments and Payment Direct to the Security Agent: The counterparty agrees not
to amend the project agreement without the security agent’s consent and to make any payments
due under the project agreement (including termination compensation) to the security agent
directly.
49
The chart below shows the full suite of Direct Agreements that had to be negotiated between
Azura’s lenders and its key project counterparties.
PPA#Direct#Agreement#
PPA#DA#
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ire
ct#
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em
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50
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ire
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ire
O&M#Direct#Agreement#
GCA#DA#
PCOA#DA#
PC
O
GTA#DA#
LTSA#DA#
EPC#DA#
9
OBTAINING WORLD BANK MIGA & PRG COVER
The establishment of a bulk purchaser (NBET) was a huge step forward for large-scale private
sector investment in new power generating capacity in Nigeria and the government has been at
pains to put in place a variety of measures to help strengthen NBET’s creditworthiness. It has
done this in three different ways. It has allocated a substantial sum towards the capitalisation of
NBET’s balance sheet. It has required each electricity distribution company to post a letter of
credit worth three months’ of payments. And, in the case of the “front-runner” projects like the
Azura-Edo IPP, the government has also worked with the World Bank to ensure that the standby
letter of credit provided by NBET (to the power producer) is backed by a series of World Bank
51
Partial Risk Guarantees (“PRGs”) to be provided by the International Bank for Reconstruction
and Development (“IBRD”).
In Azura’s case, the political risk insurance cover provided by the IBRD is also complemented by
the insurance cover provided by the Mulitlateral Investment Guarantee Agency (“MIGA”).
A detailed description of the credit enhancement facilities provided to Azura by the IBRD can be
found in the Project Appraisal Document published by the World Bank (Report Number 82664NG) which is available on the World Bank’s website. The MIGA website also provides detailed
descriptions of the standard insurance products that it offers to prospective IPP developers.
Nevertheless, while we are content to leave the interested reader to consult these publicly
available documents, we have produced a simple “overview” slide that depicts the contractual
nexus that binds all the parties viz. Azura; IBRD; MIGA; the Lenders; the Federal Government;
NBET; and the bank (JP Morgan Chase) that issues the standby letter of credit. The same
information is repeated, albeit in a less colourful form, in the table below.
ro
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LC%Inde
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ara
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it
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IBRD%
%
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MI
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AZURA%
L C%
AZURA%
MIGA%
DM
LeCer%of%Credit%
JPM%
NBET%
%
%Agmt
p
o
#
o
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t%
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C %A
FGN%
FGN%
52
%H
GA
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r
nt
al%
v
o
pr
AGREEMENT
COUNTERPARTY A
COUNTERPARTY B
Project Agreement (Debt
Mobilisation)
IBRD*
Azura
Partial Risk Guarantee (Debt
Mobilisation)
IBRD
Standard Chartered (as Lenders’
Agent)
Indemnity Agreement (Debt
Mobilisation)
IBRD
Federal Government of Nigeria
Project Agreement (Letter of
Credit)
IBRD
Azura
Partial Risk Guarantee (Letter of
Credit)
IBRD
JPMorgan (LC Issuing Bank)
Indemnity Agreement (Letter of
Credit)
IBRD
Federal Government of Nigeria
Cooperation Agreement
IBRD
NBET
Letter of Credit
JPMorgan (LC Issuing Bank)
Azura
Reimbursement & Credit
Agreement
JPMorgan (LC Issuing Bank)
NBET
MIGA Equity Guarantee
MIGA
Azura
MIGA Loan Guarantee
MIGA
Standard Chartered (as Lenders’
Agent)
MIGA Host Country Approval
Federal Government of Nigeria
MIGA
* The World Bank’s legal counsel on all these agreements was Chadbourne & Parke.
As for the level of engagement between the World Bank and Azura’s senior management, the
chart below shows how this escalated between 2011 and 2014.
No. of emails to/from the World Bank and Azura’s Senior Management
900
No. of emails
720
540
360
180
0
2011
2012
2013
53
2014
10
DEVELOPING KEY OPERATIONAL POLICIES & MANUALS
Picture the scene: the project developers have spent five years working to put together all the
elements that are required to finance the construction of their power plant; they are on the brink
of issuing the Notice to Proceed to the EPC Contractor; and their attention begins to switch from
“development” mode to “operational” mode. The shift in perspective is both refreshing and
unsettling, in roughly equal measure. It’s refreshing and exciting because the project finally feels
like it’s coming alive (in a “boots on ground” sense of the word). But this excitement is
accompanied by a sobering dose of anxiety in the face of the multitude of operational policies and
practices that need to be defined and and activated prior to the start of the construction works.
54
To take but one example, the various legal and compliance officers in Azura’s Lagos office were
charged with the task of combing through each and every project agreement and finance
document with a view to identifying (and dating) all of the project’s compliance and reporting
obligations. And because many of these obligations are iterative (every month or every quarter or
every year), the Compliance Calendar stretches twenty years into the future and contains
thousands of different data entry points. Peer into the year 2021 and you can already see the
different dates on which interest payments are due to various lenders and the dates on which we
have to submit reports to the tax authorities, to NERC, to NBET, to the Inter Creditor Agent, to
the World Bank and a whole suite of other project stakeholders.
GOV)
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Azura’s Compliance Reporting Obligations
Reports
Plans, Manuals & Budgets
Lender Payments: Confirmations
Contractor Payments: Confirmations
Other Certifications and Attestations
0
150
300
450
600
No. of Deadlines between 2015 and 2038
56
11
ESCAPING THE MATRIX OF CONDITIONS PRECEDENT
This chapter illustrates the numerous other boxes that needed to be ticked prior to the
disbursement of the debt capital. The overwhelming majority of these “conditions
precedent” (“CPs)” were of a strictly “tick box” nature i.e. they didn’t involve any commercial or
political negotiations. But the sheer weight of paper that needed to be compiled chewed up an
inordinate amount of back-office man hours (shared between the sponsors, the lenders, and their
respective law firms) and the time and cost of this activity should not be underestimated!
The chart below (where each small blue circle represents an individual CP) is intended to
represent the nauseous mix of panic and despair that one first experiences upon wading through
57
the 214 page “CP Checklist” produced by the Lenders’ Counsel. Held hostage by the requirement
to satisfy an endless stream of conditions precedent, how did the project developers ever manage
to work their way free of this matrix?
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CP#
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CP#
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CP#
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C
P#
C
P#
C
P#
C
P#
C
P#
C
P#
C
P#
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P#
C
P#
C
P#
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P#
C
P#
C
P#
C
P#
C
P#
CP#
CP#
To understand how and why this escape was possible, the chart overleaf shows how this large
mass of CPs was disaggregated into a less frightening (and more manageable) set of tick box
aggregates.
58
Needless to say, all the contracts and permits that have been examined in the preceding chapters
were in themselves “conditions precedent” to the project’s “full financial close”.
However, on top of these “core CPs” (which we have already examined), there were numerous
other “tick box CPs” that had to be satisfied. The largest individual category of “tick box CPs”
comprised actions that had to be taken (or information that had to be provided) before the
various Project Agreements could become fully effective. But the bulk of the“tick box CPs”
comprised certifications, reports, and other forms of documentary evidence that needed to be
provided to the Inter-Creditor Agent prior to the first disbursement of debt.
Number of “Tick Box” CPs
Project Agreement CPs
Sponsors’ Constitutional Documents
Bank Accounts to be Opened
Legal Opinions from Counterparties
Sponsors’ Financial Statements
Reports by Lenders’ Advisers
Additional MIGA CPs
Additional IBRD CPs
Disbursement Certifications
Other CPs Prior to Debt Disbursement
0
15
59
30
45
60
12
THE FULL TALLY
Over the course of the past six years, more than 600 people have worked on the Azura-Edo IPP.
Some have worked longer and harder than others. But, in aggregate (as we saw in Chapter 2),
more than 250 person years of work had already been expended on the project before the
construction crew had even mobilised to site. As for where all this time was spent, the chart below
illustrates the universe of documentation (by page weight) and helps explain why roughly 50% of
the total time expended on the project was devoted to the financing negotiations.
60
Azura Agreements (Sized Relative to Total Page Length)
Total Page Length of All Agreements: 6,927 Pages
61
The table below provides a comprehensive list of the key agreements that underpin the Azura
transaction. For each agreement, it specifies the page length and the number of “red-lined”
iterations (or, at least, those that we were aware of) that took place prior to its finalisation.
DOCUMENT
COUNTERPARTIES
PURPOSE
PAGES
ITERATIONS
TOTAL
Political Risk Cover Documents
PRG documents (Debt)
Indemnity Agreement
FGN and WB (IBRD)
FGN provides a guarantee to the IBRD that in the event that WB
has had to make payments to Azura because of the failure of NBET
to make payments in a termination scenario, FGN will reimburse
the WB on those loan obligations.
16
5
80
NBET Cooperation
Agreement
IBRD and NBET
Outlines NBET obligations to IBRD in consideration of IBRD
undertaking its obligations under the Guarantee Agreements and
the IAs.
16
5
80
IBRD Partial Risk
Guarantee Debt
Agreement
IBRD and SCB as agent
to commercial banks
Outlines the terms and conditions of the IBRD PRG Debt
Agreement. Schedule 1 shows the guaranteed loan amounts covered
and relevant fees.
74
10
740
IBRD Debt Project
Agreement
IBTD and Azura
Sets out Azura’s obligations in consideration of IBRD undertakings
under the IBRD PRG Debt Agreement. They include payment of
fees to IBRD and obligations under the ABC and Environmental
Plan.
52
10
520
IBRD Liquidity
Indemnity Agreement
FGN and WB (IBRD)
FGN provides a guarantee to the IBRD that in the event that WB
has had to make payments to Azura because of the failure of NBET
to make its regular monthly payments for power, FGN will
reimburse the WB on those liquidity obligations.
16
5
80
IBRD Partial Risk
Guarantee Liquidity
Agreement
IBRD and JP Morgan
(Issuing Bank for NBET)
IBRD agrees to guarantee to JPM the repayment of the principal
together with interest accrued on each Guaranteed Loan if not
repaid when due in accordance with the Reimbursement and Credit
Agreement.
57
10
570
IBRD Liquidity Project
Agreement
IBRD and Azura
Sets out Azura’s obligations in consideration of IBRD undertakings
under the IBRD PRG L/C Agreement. They include payment of fees
to IBRD and obligations under the ABC and Environmental Plan.
46
10
460
Reimbursement and
Credit Agreement
NBET and JP Morgan
(Issuing Bank for NBET)
JPM shall make available the LC Facility to NBET. NBET shall
repay the amounts drawn by Azura on the NBET LC in a default
event and the NBET LC shall be reinstated by the value of the
repaid amount.
43
10
430
NBET Standby Letter of
Credit
Azura and JP Morgan
(Issuing Bank for NBET)
JPMorgan issue of an irrevocable standby letter of credit to Azura
in connection with certain payments which are not paid by NBET
to Azura pursuant to the PPA.
68
10
680
MIGA Contract of
Guarantee for NonShareholder Loans
MIGA and SCB as facility
agent of commercial
banks
Terms and conditions of guarantee from MIGA on loan from
commercial banks. Guarantee coves Transfer Restriction;
Expropriation; War and Civil Disturbance; and Breach of Contract.
64
10
640
MIGA Contract of
Guarantee for Equity
MIGA and Azura
Terms and conditions of guarantee from MIGA on equity from
Azura. Guarantee coves Transfer Restriction and Breach of
Contract.
55
10
550
MIGA Claims Cooperation Agreement
MIGA and DFI’s
Outlines certain agreements and understandings with regard to
MIGA and DFIs’ respective rights and interests in any award
provided to Azura or the commercial banks.
35
10
350
MIGA Hedging
Guarantee
MIGA and Guarantee
holder (SCB, RMB and
IFC)
Terms and conditions of MIGA’s cover on the hedging agreement
between SCB, RMB and IFC as Hedging Banks and Azura
51
10
510
PRG documents (Liquidity)
MIGA Documents
62
DOCUMENT
COUNTERPARTIES
PURPOSE
PAGES
ITERATIONS
TOTAL
Borrower Offshore
Bank Account
Security Agreement
SCB as Offshore Security
Trustee and Azura
Assignment by Azura of all rights in respect of the Offshore Bank
Accounts
19
5
95
Borrower Offshore
Assignment
Agreement
SCB as Offshore Security
Trustee and Azura
Assignment by Azura of all rights in respect of the Contracts
21
5
105
Shareholder Share
Pledge
Shareholders, Azura and
SCB as Offshore Security
Trustee
Pledge of the Shares in favour of the Security Trustee
52
5
260
Security Lien
Agreement
SCB as Offshore Security
Trustee, Cornerstone as
Insurer, and Azura
A charge (in favour of the Offshore Security Trustee) over the
proceeds of payment under the Reinsurance Policies
32
5
160
Offshore
Subordinated Loan
Assignment
Agreement
Shareholders, Azura and
SCB as Offshore Security
Trustee
Pledge of the rights in relation to the Shareholder Subordinated
Debt in favour of the Security Trustee
26
5
130
Offshore Security
Trust Deed
Azura, All lenders, SCB as
Offshore Security Trustee,
all Agents and all Hedging
Banks
Governs how the security is held in Trust and how the Offshore
Security needs to behave upon Enforcement
102
5
510
Onshore Trust Deed
Azura and all lenders
Trust Deed for SCB, as onshore trustee, holding, inter alia, the
benefit of the security on trust for the lenders
112
10
1120
Onshore Security
Deed
Azura and SCB as onshore
security trustee
SCB, as Onshore Security Trustee, holds the benefit of the rights
conferred upon it in this Deed on trust for the lenders.
70
10
700
Onshore Deed of
PCOA Assignment
Azura and SCB as onshore
security trustee
SCB, as Onshore Security Trustee, holds the benefit of the rights
conferred upon it in this Deed on trust for the lenders.
34
10
340
Borrower Share
Charge
Azura and SCB as onshore
security trustee
Relating to the Shares Held By AEL in Azura. SCB, as Onshore
Security Trustee, holds the benefit of the rights conferred upon it
in this Deed on trust for the lenders.
56
10
560
42
20
840
100
20
2000
Security Documents
Offshore Security Docs
Onshore Security Docs
Other Finance Documents
Subordination
Agreement
Azura, Security Trustees,
Intercreditor Agent and the
Junior Parties
Subordination of the rights of the Junior parties beneath those of
the Finance Parties
Share Retention
Agreement
Azura, the Shareholders (at
all levels) and SCB as
Intercreditor Agent
Restriction on the Shareholders with respect to their ability to
dispose of the shares during the retention period
Hedging
Agreements (x3)
Azura and the 3 Hedging
Banks (SCB, RMB and IFC)
Governs the amendments that are made to the ISDA Master
Agreement
96
20
1920
Offshore Accounts
Agreement
Azura and SCB as Offshore
Security Trustee, Offshore
Account Bank and
Intercreditor Agent
Governs the management of the Offshore Accounts held by the
Borrower
79
20
1580
Onshore Accounts
Agreement
Azura and SCB as Onshore
Security Trustee, Onshore
Account Bank and
Intercreditor Agent
Governs the management of the Onshore Accounts held by the
Borrower
81
20
1620
Intercreditor
Agreement
All lenders, Security
Trustees and Agents
Governs how decision making is made by the lenders
30
20
600
63
DOCUMENT
COUNTERPARTIES
PURPOSE
PAGES
ITERATIONS
TOTAL
Equity Finance Documents
Joint Development
Agreement
Azura and Co-sponsors
Outlines the roles and responsibilities of each party during
development
74
62
4588
Development Cost Loan
Agreement
Azura and Co-sponsors
Outlines the terms and conditions of the development loans
provided by the sponsors during development
24
42
1008
Shareholder and
Subscription Agreement
Azura and Equity Partners
Outlines the terms and conditions of the agreement between
the equity shareholders
166
20
3320
JDA Deed of
Termination
Azura and Co-sponsors
Termination of JDA
14
5
70
Azura Shareholder Loan
AEL and APWAL
Terms and conditions of loan provided to APWAL
14
5
70
EDSG Subscription
Agreement
Azura and EDSG
Subscription terms of equity provided to EDSG
14
5
70
DOCUMENT
COUNTERPARTIES
PURPOSE
PAGES
ITERATIONS
TOTAL
PCOA Direct Agreement
Azura, FGN, NBET and SCB as
Onshore Security Trustee and
Intercreditor Agent
Sets out the obligations of NBET and FGN towards the
Onshore Security Trustee and Intercreditor Agent in respect
of the PCOA
33
20
660
PPA Direct Agreement
Azura, FGN, NBET and SCB as
Onshore Security Trustee and
Intercreditor Agent
Sets out the ability of the lenders to Step-in to the PPA
27
20
540
EPC Direct Agreement
Siemens AG, Siemens Limited,
Julius Berger Nigeria PLC,
Azura, SCB as Offshore
Security Trustee and
Intercreditor Agent
Sets out the ability of the lenders to Step-in to the EPC
Contract
29
20
580
O&M Direct Agreement
PIC Group INC, Azura, SCB as
Offshore Security Trustee and
Intercreditor Agent
Sets out the ability of the lenders to Step-in to the O&M
Contract
21
20
420
LTSA Direct Agreement
Siemens AG, Siemens Limited,
Azura, SCB as Offshore
Security Trustee and
Intercreditor Agent
Sets out the ability of the lenders to Step-in to the LTSA
Contract
26
20
520
GCA Direct Agreement
Azura, TCN and SCB as
Onshore Security Trustee and
Intercreditor Agent
Sets out the ability of the lenders to Step-in to the GCA
Contract
21
20
420
GTA Direct Agreement
Azura, NGC and SCB as
Onshore Security Trustee and
Intercreditor Agent
Sets out the ability of the lenders to Step-in to the GTA
Contract
23
20
460
GSPA Direct Agreement
Azura, NPDC, Seplat and SCB
as Onshore Security Trustee
and Intercreditor Agent
Sets out the ability of the lenders to Step-in to the GSPA
Contract
26
20
520
Direct Agreements
64
DOCUMENT
COUNTERPARTIES
PURPOSE
PAGES
ITERATIONS
TOTAL
Common Terms
Agreement
Azura and all the lenders
Terms and conditions of the facilities that the Lenders are willing
to provide those loans and other facilities upon.
508
25
12700
IBRD Covered Loan
Agreement
Azura and SCB as facility
agent for SCB, RMB,
KFW, Siemens Bank,
Stanbic
Terms and Conditions if different from the CTA are outlined in
these agreements. Plus specific details for the individual loan
agreements e.g. loan amount, notices, fees, etc.
48
20
960
MIGA Covered Loan
Agreement
Azura and SCB as agent
for SCB, RMB, KFW,
Siemens Bank, Stanbic
As above
47
20
940
CDC loan Agreement
Azura and CDC
As above
13
10
130
DEG Loan Agreement
Azura and DEG
As above
15
10
150
EAIF Senior Loan
Agreement
Azura and EAIF
As above
19
10
190
FMO Loan Agreement
Azura and FMO
As above
26
10
260
ICF Loan Agreement
Azura and ICF
As above
16
10
160
IFC Loan Agreement
Azura and IFC
As above
13
10
130
OPIC Senior Loan
Agreement
Azura and OPIC
As above
19
10
190
Proparco Senior Loan
Agreement
Azura and Proparco
As above
15
10
150
Swedfund Loan
Agreement
Azura and Swedfund
As above
13
10
130
Local Loan Agreement
Azura and FCMB
As above
30
10
300
Proparco Mezzanine
Loan Agreement
Azura and Proparco
As above
15
10
150
OPIC Mezzanine Loan
Agreement
Azura and OPIC
As above
19
10
190
EAIF Mezzanine Loan
Agreement
Azura and EAIF
As above
19
10
190
IFC Mezzanine Loan
Agreement
Azura and IFC
As above
14
10
140
Loan Agreements
65
DOCUMENT
COUNTERPARTIES
PURPOSE
PAGES
ITERATIONS
TOTAL
Power Purchase
Agreement
Azura and NBET
Outlines the terms and conditions of the purchase by NBET of
available capacity of the net electrical output produced by Azura
193
40
7720
PPA Addendum
Azura and NBET
Supplement to PPA
138
25
3450
Put Call Option
Agreement
Azura, NBET and FGN
Sets out the terms and conditions upon which the FGN can buy
back the plant from Azura or when Azura can sell the plant to the
FGN, in the event of an early termination.
74
20
1480
Gas Supply and Purchase
Agreement
Azura and Seplat
Sets out the terms and conditions of Azura purchase and receipt of
Natural Gas from Seplat
91
17
1547
GSPA Supplementary
Agreement
Azura and Seplat
Supplement to GSPA
5
20
100
Gas Transportation
Agreement
Azura and NGC
Sets out the terms and conditions of reservation and delivery of
Natural Gas from NGC
116
42
4872
GTA Supplementary
Agreement
Azura and NGC
Supplement to GTA
46
21
966
Grid Connection
Agreement
Azura and TCN
Sets out the terms and conditions upon which Azura can connect
to the transmission network owned by TCN
151
21
3171
Ancillary Services
Agreement
Azura AND TCN
Systems Operator requirement of ancillary services to be provided
by Azura to meet the grid code
94
4
376
Transmission Line and
Substation Extension
Agreement
Azura and TCN
Sets out the T&Cs of the construction, commission and transfer of
certain works by Azura required for the purposes of connecting
Azura’s connection equipment to TCN.
83
6
498
Certificate of Occupation
Azura and EDSG
Permit to allow Azura to occupy and use land acquired
EPC Contract
Azura and JBN, Siemens
Nigeria and Siemens AG
Engineering, Procurement and Construction Contract for the
power station including the technical schedules
Technical Services
Agreement
Azura and Aldwych
Management Services
Agreement
Owners Engineer
Agreement
Project Agreements
4
0
2255
26
58630
Outlines terms of technical services provided by Aldwych during
construction of the power plant.
58
20
1160
Azura and APHL
Outlines terms of management services provided by APHL during
construction of the power plant.
56
20
1120
Azura and Parsons
Brinckerhoff
Services agreement outlining services to be provided by PB as
Owners Engineer during construction
21
20
420
Construction Insurance
0
Long Term Services
Agreement (LTSA)
Azura and Siemens
Services agreement to provide long term maintenance to the
Azura power plant
LTSA Amendment
Agreement
Azura and Siemens
Amendments to LTSA
Operations and
Maintenance Agreement
Azura and PIC Group
Agreement to provide operations and maintenance services to the
Azura power plant post construction
DOCUMENT
COUNTERPARTIES
PURPOSE
All Agreements
66
382
20
7640
21
20
420
237
20
4740
PAGES
ITERATIONS
TOTAL
6,931
1,172
146,850
If all the documentation (including all the red-lined iterations) were laid out, end to end, they
would form a path that would be 43.61 kilometres in length. Slightly longer than the official
marathon distance.
Azura Paper Trail (km)
43.61
Marathan Distance (km)
42.20
67
13
LESSONS LEARNED
The lessons learned during the course of the Azura-Edo IPP were many and varied. Some were
painful; some were bittersweet; some were embarrassing; some made us laugh; most of them
were humbling; and all of them revolved around the cost of time.
When we started to draft this guide, we thought it would be helpful to provide a detailed, blow by
blow, analysis of all the mistakes we made. But, looking back on the preceding chapters, we have
ruefully come to the conclusion that there is really only one lesson that is worth highlighting,
namely the age old adage that time is money.
68
This is particularly true in the year preceding financial close where the development “burn rate”
for the project reaches its peak. At one point during this closing cycle, we calculated the “all in”
cost of delay at over $250,000 per day. This cost comprised the cumulative and exponential
impacts of: out of pocket costs; the knock on impact on the principal and interest that would have
to be repaid on the development loans we had taken out; the consequential growth in total capital
costs; and the subsequent increase in financing fees and interest during construction (all of which
rose in proportion to the increase in the total funding requirement).
In light of the above, the billion dollar question for any prospective developer is: “How do you
save time (and therefore money)”? By way of an answer, we offer our top 10 list of dos and donts:
1.
2.
3.
Do choose high quality advisers.
Do negotiate your contracts with one eye permanently fixed on the clock.
Do make sure you have access to large amounts of development capital...and multiply your
target “time to complete” by a factor of at least three times if you want to know how long it’s
really going to take you!
4. Do choose your co-equity investors carefully; every investor has a different set of motivations
and expectations.
5. Do select your lenders carefully; the dynamic within the lending group has an important
bearing on the project.
6. Do (try to) keep things simple. Complexity simply adds time and money.
7. Don’t allow your advisers to just give you counsel; push them to make commercial
judgements (but don’t let their judgements overrule your own commercial instincts).
8. Don’t let your advisers or lenders claim that precedents dictate your deal...challenge the
“norm” at all times.
9. Don’t approach the banks until the deal is (close to being) cooked.
10. Don’t get downhearted when the going gets tough.
For those of you who are curious, Azura’s senior management instinctively followed its own
advice in respect of lessons 1, 2, 4, 7, 8 and 10. We were taught (painfully) to follow lessons 3, 5
and 6. And, for reasons which hopefully should not apply to other developers, we felt constrained
to break lesson 9 (notwithstanding that we were made to pay a high price for our temerity).
69
But what about policy makers and regulators? Can they also learn something from the Azura
project? Yes, undoubtedly. And the the lesson is exactly the same. The only difference is that the
question is no longer a billion dollar question. It’s a trillion dollar question, because the cost of a
day’s delay - in terms of lost GDP growth - is many times higher than the cost to the individual
developer. So for those of you in the public sector who are charged with the weighty responsibility
of encouraging investments in the power sector, we offer the following list of dos and donts:
1.
Do hire first rate external legal counsel and financial advisers. They are worth their weight in
gold (and, because of the multiplier effects of electricity on gross GDP, the time saved by
using them will be worth a thousand times more than their fees).
2. Do headhunt, recruit and remunerate the best in-house talent you can find.
3. Do work collaboratively with your colleagues in other ministries, departments and agencies,
as you all share a common goal.
4. Do keep one eye permanently fixed on the state of investor confidence. And remember that
nothing destroys investor confidence faster than policy inconsistency.
5. Do remember the asymmetrical nature of the commercial negotiations that you are engaged
in. Time for you (with your eye on the GDP clock) is ten times as precious as it is for the the
IPP developer (with his eye on the much smaller IRR clock). For this reason, you should
always be far more impatient than your private sector counterparts.
6. Do create and stick to deadlines. It will shame your private sector counterparts into trying to
work faster and harder than you.
7. Don’t try to over-optimise. If you have found a bankable formula, stick as close to it as
possible (and for as long as possible). Small “tweaks” and “refinements” are rarely worth the
accompanying loss of time and investor confidence.
8. Don't take equity investors or lenders for granted. Whilst they are generally nice people and
want to make a positive impact (!), they are principally motivated by deploying capital and
generating good financial returns to their shareholders...and if they can’t do that within a
reasonable time frame, they will eventually take their capital to more enabling environments.
9. Don’t forget the bigger picture. A 459MW IPP like Azura will transform the day-to-day lives
of millions of people.
10. Don’t give up, no matter how hard the political terrain.
Needless to say, these are just the lessons that we learned during the development phase of the
project. Now that we are deep into the construction phase of the project, we are experiencing a
new set of instructive challenges, the essence of which we’ll attempt to distill when we publish the
sequel to this Guide in 2018. In the meantime, you can follow our progress on our daily blog at
azurawa.wordpress.com.
70
14
GLOSSARY
ACEI
AIIM
APHL
ARM
ASA
ASPEN
ASYCUDA
BPP
American Capital Energy & Infrastructure
African Infrastructure Investment Managers
Azura Power Holdings Ltd
Asset & Resource Management
Ancillary Services Agreement
The World Bank's Africa Safeguard Protection & Enhancement Unit
Automated System for Customs Data
Bureau of Public Procurement
71
C of O
CAC
CBN
CIA
CP
CSR
CTA
DA
DCLA
DFI
DPR
E&S
EDSG
EnvAccord
EOI
EPC
ESIA
FEED
FGN
FIRS
FMEnv
FML&P
GCA
GDP
GSPA
GTA
GTSA
HAGF
HSE
I.I.O.
IBRD
IPP
JDA
JPM
LC
LoS
LTSA
MEZZ
MIGA
MOU
MSA
MW
Certificate of Occupancy
Corporate Affairs Commission
Central Bank of Nigeria
Construction Insurance Agreement
Condition Precedent
Corporate Social Responsibility
Common Terms Agreement
Direct Agreement
Development Cost Loan Agreement
Development Finance Institution
Department of Petroleum Resources
Environmental & Social
Edo State Government
Environmental Accord
Expression of Interest
Engineering, Procurement and Construction
Environmental & Social Impact Assessment
Front End Engineering Design
Federal Government of Nigeria
Federal Inland Revenue Service
Federal Ministry of the Environment
Federal Ministry of Labour & Productivity
Grid Connection Agreement
Gross Domestic Product
Gas Sales & Purchase Agreement
Gas Transportation Agreement
Supplemental Agreement to the GTA
Honourable Attorney General of the Federation
Health, Safety and Environment
Ihovbor-Evboeka; Idunmwowina-Urho-Nisen; and Orior-Osemwende
International Bank for Reconstruction and Development
Independent Power Plant
Joint Development Agreement
JPMorgan
Letter of Credit
Letter of Support
Long Term Service Agreement
Mezzanine
Multilateral Guarantee Agency
Memorandum of Understanding
Management Services Agreement
Megawatt
72
NAFDAC
NAICOM
NAPIMS
NBET
NCS
NERC
NESREA
NGC
NIAF
NIPC
NNPC
NOTAP
NPDC
O&M
OEA
OIA
OMA
PB Power
PCOA
PPA
PRG
PRI
RAP
RFP
SON
TCN
TLSEA
TSA
USA
UUBO
National Agency for Food and Drug Administration and Control
National Insurance Commission
National Petroleum Investment Management Services
Nigerian Bulk Electricity Trading PLC
Nigeria Customs Service
Nigerian Electricity Regulatory Commission
National Environmental Standards & Regulations Enforcement Agency
Nigerian Gas Company
Nigerian Infrastructure Advisory Facility
Nigerian Investment Promotion Commission
Nigerian National Petroleum Corporation
National Office for Technology Acquisition and Promotion
Nigerian Petroleum Development Company
Operations & Maintenance
Owner's Engineer Agreement
Operational Insurance Agreement
Operations & Maintenance Agreement
Parsons Brinckerhoff's Power Division
Put Call Option Agreement
Power Purchase Agreement
Partial Risk Guarantee
Political Risk Insurance
Resettlement Action Plan
Request for Proposals
Standards Organisation of Nigeria
Transmission Company of Nigeria
Transmission Line & Substation Extension Agreement
Technical Services Agreement
United States of America
Udo Udoma & Belo-Osagie
73