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GSA WAPIC Presentation - ESI Africa · 2019-09-02 · GSA WAPIC Presentation.ppsx Author: Nico...
Transcript of GSA WAPIC Presentation - ESI Africa · 2019-09-02 · GSA WAPIC Presentation.ppsx Author: Nico...
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Ayodele OniSenior Associate
Energy PracticeBanwo & Ighodalo
Review ofKey Power Sector Contracts
Gas Supply Agreements
Banwo & Ighodalo
Nigeria
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Outline
•• General PrinciplesGeneral Principles
• Gas Supply Agreements
• The Nigerian Gas Sale and Aggregation AgreementAgreement
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General
Investor Friendly Inter-sectorial Policy
Scalable Gas
Infrastructure
Blueprint
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General• A more commercially viable gas
market is emerging;
• An overhaul being done re: industry Contracts;Contracts;
• Policy is to have standard documents with a few bilateral terms;
• A proper match between gas & power effective;
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General
• Nigeria is ready for the next level-Square pegs in square holes;
• Fine Incentives including
– the PRG;– the PRG;
– Commercial pricing;
– Infrastructure;
– DSO;
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Outline
• General Principles
•• Gas Supply AgreementsGas Supply Agreements
• The Nigerian Gas Sale and Aggregation AgreementAggregation Agreement
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Gas Sales Agreements
• Negotiation Issues:– Term;
– Hell or High Water (ToP);
– Make-Up Gas;– Make-Up Gas;
– Excess Gas
– Pricing;
– Delivery Project;
– Carry Forward;
– Make Good Gas;
– Price;
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Gas Sales Agreements
– Shortfall;– Delivery Point Issues;– Gas Specs & Effect;– Supply or Pay/ Alternative Fuels;– Supply or Pay/ Alternative Fuels;– Deemed Commissioning;– Pre-Commissioning Gas;– Liability Cap for Supplier;– Extensions;– Disputes and Disputed Payments
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Gas Sales Agreements
• ToP– Minimum Quantity to take or Pay for;– If not taken, must be paid for;
• Make-Up Gas• Make-Up Gas– Corollary of Take or Pay;– Negotiate a discounted price;– Seller may have a different view;– Middle term: pay difference in price.– Negotiate the price for future take and duration of
take.
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Gas Sales Agreements
• Term:– Varies
• Excess Gas– In excess of contract capacity;– Negotiate discounted price;– Reduce your ToP Obligation.
• Carry Forward Gas:– Reduce your ToP Obligation in future;
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Gas Sales Agreements
• Short Fall:– Less than contract quantity (daily/ monthly
etc);– Pay for alternative fuels;– Pay for alternative fuels;– Benchmark against cheap alternatives;
• Make Good Gas:– Discounted– Benchmark against LPFO etc;– Pay difference;
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Gas Sales Agreements
• Pricing:
– Clear; – Take any loans or equity recovery into – Take any loans or equity recovery into
consideration;– Determine of the country has a pricing regime
for gas;– Whether it falls within the DSO Regime.
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Gas Sales Agreements
• Deliver Project/ Delivery Point:– Who would be responsible?– Depends on where and what.– Discounted pricing or factor into.– Discounted pricing or factor into.
• Gas Specs:– Off-spec versus shortfall– Take by Buyer @discount;– Depends on circumstances.
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Gas Sales Agreements
• Commissioning Gas;– Effect of off-spec;– Liability to supply: “reasonable” or “best”.– When do “deem” and “start earning”: do you – When do “deem” and “start earning”: do you
want to and effect;
• Disputed Amount Account:– Payment of amount not disputed;– Quantum in DAA: All or a fraction?– What fraction, interest payment alternative.
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Gas Sales Agreement
• Basis for extension:– when?– How long?
• Liability:• Liability:– Seller typically;– Who is more desperate?– 1-5% NGC;– A bit more generally.
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Outline
• General Principles
• Gas Supply Agreements
•• The Nigerian Gas Sale and The Nigerian Gas Sale and Aggregation AgreementAggregation AgreementAggregation AgreementAggregation Agreement
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The Nigerian GSAA
• Enabling policy framework to support critical mass of gas supply to power sector;
• Robust gas grid being developed for diverse sources of supply;
• Looks promising;
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• Aggregator established to manage Domestic Gas
Supply obligations volumes;
• First point of contact for Gas Buyers to access gas for
domestic market use;
The Nigerian GSAA
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• Coordinates and manages wholesale gas supply from
Gas Producers to eligible Purchasers in Nigeria;
• Facilitates the execution of the GSAA and GTA
between the buyer, seller and transporter
respectively;
• Operational since Jan 2010;
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The Nigerian GSAA
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THE Nigerian GSAA
• Designed to present common terms for wholesale Gas Supply in Nigeria – it’s a template
• Highlights• - Term
- Gas Purchase Order- Conditions Precedent
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- Conditions Precedent- Take or pay- Nomination issues- Payment security- Gas specification - Transportation to Delivery Point- Transitional based pricing scheme - Termination
• Collateral Contracts
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PARTIES• Seller (s)
- For NNPC JVs: Operator will represent the JV[Seller Representative Agreement]
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• Aggregator
• Buyer- GENCOs & IPPs
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Critical CPs• Approvals for the construction and operation of
Seller & Buyer Facilities;
• Construction Contracts signed;
• Financial Close/ FID (in NNPC JVs) for construction
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• Financial Close/ FID (in NNPC JVs) for construction of Seller facilities;
• A Gas Transportation Agreement signed;
• Allocation Agreement - where there are more than one Seller at Delivery Point;
• Payment security/guarantees in place;
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Delivery Point, Title, Transmission
• Delivery Point: inlet flange of nearest
gas transmission pipeline to Seller’s
facilities;
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facilities;
• Title to and risk in the gas to pass from
Seller to Buyer at the Delivery Point;
• Buyer to procure transportation from the
Delivery Point at own risk and expense.
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TAKE OR PAY
ToP= 80% of
ADJUSTED ACQ
ACQ
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- SHORTFALL - CARRY –FORWARD GAS
- FORCE MAJEURE
- MAINTENANCE DCQ
REDUCTION
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INVOICING AND PAYMENT• Monthly invoices for Gas delivered;
• Yearly reconciliations;
• Payment by Buyer into Escrow Account to be evidenced;
• Payment to be made in Naira;
• No set - offs allowed;
• Disputed amounts to be paid into Disputed Amount Account;
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DEFAULT IN PAYMENT
• Issuance of Notice of Non-Payment;
– To be issued 2 days before payment due date;
– To give 5 days Grace Period commencing the – To give 5 days Grace Period commencing the day after payment due date;
• Buyer’s failure to pay within the Grace Period will entitle Seller to trigger the LC.
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COMMISSIONING GAS• Commissioning Period agreed for testing of facilities
- period b/w the end of construction and the Start Date
• Gas supplied during Commissioning Period:
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- on a “reasonable endeavours basis”
- sold at Contract Price
• No liability for Off – Spec delivery;
• No ToP liability;
• No Shortfall liability;
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EXCESS GAS• Gas required by Buyer in excess of the MDQ;
• Seller’s obligation limited – “Reasonable
Endeavours” requirement only;
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• Has no obligation to deliver Excess Gas so no Shortfall liability for failure to deliver same;
• Excess Gas is sold at the Contract Price;
• Excess Gas will reduce the ToP and ACQ
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MAKE GOOD GAS• Gas made available by Seller to Buyer in
excess of nominated quantities;
• An attempt by Seller to restore or “Make Good” Shortfall Gas and therefore reduce Shortfall liability;
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Shortfall liability;
• To be taken by Buyer only on a “reasonable endeavours” basis;
• Aggregator can help to find alternative Buyers for the Make Good Gas
• Sold at the Contract Price
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Make – Up & Carry Forward
• Make-Up Gas (MUG) is gas paid for under ToP not taken;
• There is no duration limit for MUG recovery;
• MUG is recoverable at the prevailing
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• MUG is recoverable at the prevailing price at time of recovery;
• Carry Forward Gas (CFG) is gas taken in excess of ACQ;
• CFG adjusts Annual Contract Quantity for next year;
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SHORTFALL GAS• Gas which Seller fails to deliver in
response to Buyer nomination [unless excused]
• Shortfall Gas arises from daily nominations
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• Shortfall is calculated on a yearly basis even though it occurs on a daily basis
• “Shortfall Tolerance” – an upper and lower band of Shortfall which will be excused by Buyer
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SHORTFALL GAS REMIEDIES
• B is entitled to a 10% discount on the Contract Price of the Shortfall quantity;
• S liable to pay for alternative fuel sourced by Buyer;
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sourced by Buyer;
• S may, at Buyer’s election, pay financial compensation to Buyer;
• If the Aggregate Shortfall Tolerance exceeds an agreed quantity, then Shortfall occurs;
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OFF – SPEC GAS• General rule: Gas must conform to contract spec
• B’s remedies
- right to reject Off spec gas with no liability
- if rejected, Off Spec Quantity = Shortfall Gas
- compensation for cost of direct damage to Buyer’s facilities, including cost of cleaning and clearing B’s
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- compensation for cost of direct damage to Buyer’s facilities, including cost of cleaning and clearing B’s facilities
• NOTE: possibility of negotiated/agreed Offspec Gas for an agreed (initial) period
• Where knowingly taken, Seller absolved of liability
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MEASUREMENT
• Seller to measure gas delivered at the
Delivery Point;
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• Buyer to have right of access to verify its
accuracy
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RESERVOIR RISK
• Depletion
• Reservoir failure – constitutes FM if it is • Reservoir failure – constitutes FM if it is total and verified by DPR
– Is this sufficient protection for you?
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TERMINATION• EVENTS
- Effluxion of time- Delivery of Contract Quantity- Issuance of Termination Notice- Operation of Law
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- Operation of Law- Insolvency- Prolonged Failure to Deliver Gas- Prolonged failure to take Gas- Prolonged Force Majeure
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Want to Know More?BUY BOOK: INTERNATIONAL ENERGY SECURITY
ByAyodele Oni
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THANK YOUTHANK YOU
Ayodele OniAyodele Oni
Senior Associate (Energy)Senior Associate (Energy)
Banwo & IghodaloBanwo & Ighodalo
0805236248008052362480