Ghana: Vendor Financing For Stage 1 Of The Bridge Power Project In Ghana

Last Updated: 9 September 2019
Article by Joseph Lam

The 194MW Stage 1 of the Bridge Power project will bring much-needed generation capacity and fuel mix diversification to Ghana and will be one of the world's largest LPG power plants. The structuring of the limited-recourse vendor financing for the project, which reached financial close in December 2018, presented some unique challenges. This article outlines the key features of the transaction structure, some of these challenges and how they were overcome. The DLA Piper team provided legal advice to the EPC contractor and its parent, which provided the vendor financing.

The vendor financing for this project won the Best Financial Structure Silver award and Best Utilities Project Gold award at the Partnerships Awards 2019.

Electricity shortage in Ghana

For more than a decade, Ghana has been experiencing a severe electricity shortage. This is despite a significant increase in the installed generation capacity during the same period. One reason for this is that much of Ghana's generation capacity consists of hydro facilities and thermal facilities running on natural gas as the primary fuel source. Low water levels at the Akosombo dam and the chronic natural gas shortages in Ghana mean that a significant portion of such capacity is not available for generation.

Significance of the project

Located in Tema, the Bridge Power project is designed to address these challenges and will be developed in two stages. Stage 1 will use five gas turbines and a steam turbine operating in a combined cycled gas turbine (CCGT) configuration with an aggregate capacity of 194MW. Stage 2 will bring the total capacity of the project to 400MW through four additional gas turbines and one additional steam turbine, also in a CCGT configuration.

Stage 1 of the Bridge Power project will initially run on liquefied petroleum gas (LPG), with the ability to switch to natural gas as the primary fuel source once natural gas becomes available in the Tema region. Once LPG becomes the back-up fuel of the project, the LPG facilities constructed as part of the project can be used to supply environmentally friendly LPG for domestic use.

Construction of Stage 1 is expected to be completed within 24 months, although the project will start generating power in ten months initially, with the gas turbines operating in simple cycled configuration. To further shorten the time for project deployment, construction of Stage 1 will first be financed through vendor financing to be replaced subsequently by long-term project financing. This will allow construction to commence while a permanent financing solution is being put in place.

As such, the Bridge Power project is expected to add much-needed generation capacity to the country while helping to diversify its generation fuel mix. It will also be one of the largest LPG power plants in the world.

Project structure

The Bridge Power project is being developed by Early Power Limited (EPL), sponsored by Endeavor Energy, a leading independent power development and generation company focused on Africa; Sage, a leading independent energy trading firm in Ghana; and GE, which will also supply the gas and steam turbines for the project. Construction of the project will be undertaken by Power Projects Sanayi İnşaat Ticaret Limited Şirketi (EPC contractor) under an engineering procurement and construction (EPC) contract.

EPL entered into a Power Purchase Agreement (PPA) with the Electricity Company of Ghana (ECG) with a term of 20 years. Government support is provided in the form of a Put and Call Option Agreement (PCOA) – a structure increasingly common in energy and infrastructure projects in Sub-Saharan Africa and beyond. The PCOA allows EPL to "put" the project (or its shares) to the government where the PPA is terminated early. The purchase price will vary depending on the circumstances in which the PPA is terminated but will, at a minimum, cover the outstanding project debt.

Vendor financing – structuring challenges

The vendor financing for Stage 1 of the Bridge Power project consists of a main tranche of USD264 million provided by the parent company of the EPC Contractor, Mytilineos S.A. (Mytilineos), and a second tranche of USD50 million provided by way of a deferral of part of the EPC contract price to be paid through a guarantee issued by GuarantCo, a development finance institution that forms part of the Private Infrastructure Develoment Group (PIDG) and is sponsored by five G12 governments. The main tranche may be increased by USD50 million in the event that GuarantCo's guarantee is not drawn. Both tranches are structured on a pari passu limited recourse basis.

Unlike most vendor financing solutions for projects of this nature in the market which typically have short-to-medium loan tenors and require access to the project sponsors' balance sheets, the vendor financing for Stage 1 of the Bridge Power project is structured on a true limited recourse basis with a long tenor. This gives the project sponsors the flexibility to keep the vendor financing in place for as long as required and avoids the "cliff-edge" re-financing risk associated with the traditional approach to vendor financing.

Such a structure does, however, bring into focus the challenge around the interplay between the proper allocation of risks and responsibilities between the project company and the EPC contractor, the inter-creditor arrangement between the lenders of the two financing tranches and the range of project control, approval rights and remedies available to Mytilineos in its capacity as vendor financier.

Another challenge is to ensure that the financing structure complies with the requirements set out in the PPA in order to benefit from the protection afforded by the PCOA. In particular, the PPA envisages that the main tranche of the vendor financing will be provided by one (or more) of the project sponsors.

How these challenges are overcome

The successful closing of this vendor financing transaction is the result of the commitment of all parties, including the project sponsors, the EPC contractor and the providers of vendor finance to overcoming the unique challenges of this project with innovative, bespoke structuring solutions. The bespoke vendor financing structure offers a new solution to long-term local energy requirements and is one that can be applied to many future projects in the Sub-Saharan Africa region.

Tailor-made decision-making regime and lender disenfranchisement

To balance the interests of the various parties and address the concerns of any perceived conflict of interest, a bespoke lender decision-making regime has been painstakingly negotiated and put together for the vendor financing. Broadly speaking, it operates to disenfranchise Mytilineos from lenders' decision-making in relation to enforcement actions arising from certain types of default attributable to the EPC contractor and the control over the exercise by EPL of certain reserved discretions connected with the EPC contract or the conduct of the EPC contractor.

Application of enforcement proceeds

Application of enforcement proceeds (e.g. liquidated damages from the EPC contractor or pay-out under the PCOA) was another area of intense negotiation. This is a reflection of the fact that Mytilineos is both a vendor financier and an affiliate of the EPC contractor, which would be expected to take some responsibilities for project failure if caused by a breach by the EPC contractor. In general, a mechanism was agreed that linked the disfranchisement of Mytilineos from its enforcement rights to the amount received by the project sponsors out of the enforcement proceeds. In some cases, EPL would have the flexibility to direct enforcement proceeds to project reinstatement, which had to be balanced by Mytilineos' need to limit its overall exposure to the project by reference to the liability cap agreed under the EPC contract, taking into account any outstanding vendor financing debt in the interim.

Recourse under PCOA

In further recognition of the principle of risk-sharing, it was agreed that in some cases, the PPA was terminated due to a buyer (ECG) default and for a certain period of time, Mytilineos' primary means of enforcement would be through the government support regime under the PCOA. Provisions were introduced to safeguard the sponsors' equity interest during this process.

Sub-participation structure

As explained, the PPA envisages that the main tranche of the vendor financing will be provided by one of the project sponsors. To comply with this requirement, the main tranche of the vendor financing is provided through a GE entity as lender of record, with Mytilineos as a sub-participant. Unlike the typical sub-participation arrangement, however, whereby the loan sub-participant is expected to sit passively behind the lender of record, it was clear from the beginning that it is Mytlineos' requirement that it will play an active role in the exercise of lenders' decision-making, enforcement and other rights. A bespoke sub-participation document was therefore required to give effect to this arrangement and also manage GE's exposure in this respect. Further provisions were included to ensure that Mytilineos would benefit from the usual yield protection and indemnities for lenders under the vendor financing documents.

A further complication was introduced by the fact that the turbine supplier (another GE entity) required the right to convert certain payments under the turbine supply agreement with the EPC contractor into a share of participation into the main tranche of the vendor financing. This resulted in the need for a self-adjustment mechanism to the participation percentage in the sub-participation agreement, tied to the status of the turbine supply payment from time to time.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions