One of the sectors deemed essential in Nigeria under the Covid-19 2020 Regulations ("Regulations") is the power sector. A sector already bedevilled with issues mainly liquidity issues may find its problems further compounded with the Covid-19 pandemic. The pandemic poses numerous risks for sector participants including but not limited to vendors, suppliers, contractors, employees, and consumers.
With the country under lockdown (all air travel is suspended, land borders are closed, and seaports congested) supply chain delays are inevitable. Majority of off-grid and mini-grid renewable projects will be hard hit given the attendant delays in the supply of inverters, solar panels and other spare parts, which are sourced in the main from Asia, a continent which has been significantly impacted by Covid-19.
Furthermore, the licencing of power projects and ancillary activities in the sector is undertaken at the offices of the Nigeria Electricity Regulatory Commission (NERC) in Abuja, (FCT) which is, along with 2 states, presently under lockdown pursuant to the Regulations. This will undoubtedly cause delays in the processing of licences and other administrative proceedings. Parties to contracts with pending regulatory approvals, such as off-grid power generators, captive power solutions providers, off grid and mini grid operators and eligible customers, should anticipate such delays.
Given some of the risks highlighted above, sector participants should review all existing contracts to ascertain their exposure and if same can be addressed and mitigated by the force majeure provisions in their contracts.
Force majeure in the Nigerian Electricity Supply Industry
Force majeure provisions essentially nullifies parties' contractual obligations under a contract freeing them from liability on the occurrence of an extraordinary event or circumstance beyond the parties' control. So, in the context of power purchase agreements (PPAs), force majeure provisions, would typically be drafted to include acts or events not reasonably contemplated and not within the reasonable control of the counter party to avoid through the exercise of due diligence. Events such as epidemics; inability to attain regulatory approvals, action or inaction by government authority, inability to attain necessary services or materials, a national, regional, or local emergency (as is seen with state government directives e.g. Lagos, Rivers State) are events if included in a force majeure provision a party can rely upon during this pandemic. For a successful force majeure claim, it must be premised on compliance with all contractual notice requirements. It is, therefore, important that the party seeking to invoke the provision is conversant with the notice provisions to the contract as to the appropriate time to declare force majeure.
With the prevailing conditions brought about by the Covid 19 pandemic, where there exist force majeure provisions, offtakers to several off grid PPAs will undoubtedly seek to declare force majeure.
For manufacturers under PPAs with off-grid and mini-grid operators, who may wish to invoke the force majeure provisions in their offtake contracts due to the lockdown resulting from the covid-19 pandemic, they should review their contracts to ensure that such provisions make specific reference to epidemics or plagues as this will be critical for the success of their claim. For franchise electricity distribution companies (Distcos), their ability to declare force majeure in the supply of electricity to its customers is curtailed by virtue of the Nigerian Electricity Regulatory Commission's Connection and Disconnection Procedure for Electricity Services 2007 (Connection and Disconnection Procedure), which prohibits a distco from disconnecting a customer without giving the customer a written warning prior to the electricity supply to such customer being disconnected if such customer's bill is not paid within a specified period.
In addition to the force majeure provisions parties should also avert their minds to the change in law provisions in their PPAs and supply contracts. A Change in law provision takes cognisance of any amendments, repeals, modification and or supplementation of any existing laws. Such provision would and often stipulate that if a change in law becomes effective and impacts an essential or material element of the contract, then parties may, upon mutual agreement, renegotiate certain terms or provisions of the agreement adversely impacted or materially changed due to the change in applicable law. In the context of the Covid-19 pandemic there may be several situations where a new order or rule or directive may make it impossible for a party to fulfil its obligations and duties under a contract. Asides the Presidential lockdown order for Lagos, Ogun and Abuja under the Regulations, other states have issued directives restricting movement of persons with non-essential business closed. If a party such as a Meter Asset Provider ("MAP") or manufacturing companies that are deemed non-essential cannot fulfil their obligations under their respective supply contracts, then in relation to financed backed off grid PPAs and financed MAP programmes, sponsors of such projects may be able to rely on the change in law provisions in the discussions with their financiers to renegotiate the terms of the agreement. Parties to such contracts should therefore review any change in law provisions in their contracts to identify terms and/ or provisions for renegotiation when an element of a contract has been changed due to a change in law.