CENTRE FOR DEVELOPMENT & MANAGEMENT SOLUTIONS

EPC-Engineering Procurement Construction and the Power Purchase

Agreement (PPA)
This training programme provides a detailed overview of EPC - Engineering, Procurement, and
Construction as well as Power purchase agreements
The primary focus of the course will be on ensuring that the technical scope of any project is in
line with the overall project objectives and operates properly in conjunction with the contractual
conditions. It also explores the risks that commonly arise on construction projects and how they can
be managed and mitigated. You will thus gain the knowledge and confidence you need to to
administer EPC contracts and power purchase agreements as well as competently address and
resolve any problems that may arise.

All of these issues are analysed in the context of typical EPC contract clauses, providing you with
the in-depth knowledge to execute projects successfully and keep claims & risk possibilities to a
minimum. EPC contracts are the most common form of construction contract used for large-scale and complex
infrastructure projects. Because of the flexibility of this form of contract, the value and certainty that project sponsors and
lenders obtain from their use and the development of different project models (Public Private Partnerships, BOTs,
BOOTs and BOOs) for which they are suitable, EPC contracts will remain as the most common form of construction
contract.
The Power and Energy sectors are essential to any economy even more so to economies going through a period of
reform and liberalisation. This is particularly so in the case of Afriva where historically there has been insufficient capital
expenditure, inadequate supplies of fuel, irregular maintenance of facilities, use of outdated facilities and inefficient
administration. In recent years many Government in afriva have reformed the country's electricity supply industry by
liberalisation and privatisation of the power sector and providing for separate generating companies, distribution
companies and a transmission company. Africa now need a framework for the privatisation and liberalisation of the
electricity supply industry with a view to making it competitive and efficient. An understanding of the use, preparation
and negotiation of EPC contracts for power and energy projects in this and other changing economies is essential.

Overview and Objectives

The objective of the course in Project Engineering Management is to provide the student an
understanding and appreciation of:

The importance of EPC contracts in the context of projects in the power and energy sector, especially in the
context of the reform of the electricity sector in Nigeria, how those projects come about, the participants and
sources of funding and the terminology associated with EPC contracts and other commonly used contracts

The purpose and use of the FIDIC suite of contracts for power and energy projects, the reasons for the use of
EPC/Turnkey contracts and their role in power and energy projects and their impact on project financing

The structure and usual provisions of an EPC contract, associated risk allocation and how to maximise the
contractual incentives to obtain successful outcomes

How to use an EPC contract tender process and negotiation documentation and techniques to conclude a
successful EPC contract for a power or energy project, especially in the Nigeria context

The importance of EPC contracts in the context of projects in the power and energy sector, especially in the
context of the reform of the electricity sector in Nigeria, how those projects come about, the participants and
sources of funding and the terminology associated with EPC contracts and other commonly used contracts

The purpose and use of the FIDIC suite of contracts for power and energy projects, the reasons for the use of
EPC/Turnkey contracts and their role in power and energy projects and their impact on project financing

The structure and usual provisions of an EPC contract, associated risk allocation and how to maximise the
contractual incentives to obtain successful outcomes

How to use an EPC contract tender process and negotiation documentation and techniques to conclude a
successful EPC contract for a power or energy project, especially in the Nigeria context

The importance of managing the engineering of an industrial project within the overall project
objectives. The Engineering Manager is a key member of the project management team.
What is involved in developing the project design and moving the design forward through
each of the project execution planning phases and finally through the execution phases to
meet project objectives.
Engineering's role in providing enquiry and requisition packages that can be used to secure
bids on materials and equipment and in solving engineering related problems that arise in the
process of fabrication, inspection, expediting and delivery.
Engineering's role in providing contract document packages that can be used to secure
consultant support, or any part of the engineering, procurement or construction work that is
to be done by others.

The management systems and tools required in meeting the above objectives and to enable
engineering groups to work constructively and in harmony with the project team as a whole.
An appreciation and understanding of the interaction required between engineering and other
important groups involved in the Project, such as:
Procurement
Construction
Commissioning Team
Start-up and Operating Organization
The business relations and business activities involved as project work is parceled out from
owners to consultants and contractors under various arrangements.

Who should attend?

This EPC Contracts course is aimed at:

Legal Counsels & Lawyers

Contract Managers

Procurement Managers

Purchasing, Sourcing and Supply Managers

Project Managers

Facilities Engineers

Operation Managers

MODULE 1:
The Course Content

Day One
EPCIC Overview, Legal Framework & Contract Structure and Risk Allocation

Maximising parties rights and interests with appropriate contracting strategy

Contractors single point of responsibility

Split contract structure

Exercise in choosing the right contract structure for your project

Exercise in preparing for the tender exercise, tender and award. Discussing and analysing different
strategies

Day Two
Tender Process Leading to an EPCIC Contract

Legal, Technical and Commercial Pre-Qualification of tenderers

Best practices in tender evaluations and selection of tenderer

Important of scope of work and specifications and terms and conditions

Exceptions what to accept and what to deny

Finalising tender negotiations & Award

LOI and LOA essential terms and legal effects

Exercise on the selection process and main elements to ensure a successful tender exercise

Day Three
Negotiating Essential Contractual Terms of EPCIC Contracts

Identifying critical issues in the project life-cycle

Managing cost impact clauses like delay, price fluctuations

Indemnities and other liabilities, MAC clauses, HSE

Changes in Law and regulations in host country & stabilization clauses

Political Risk Insurance

Force Majeure & Termination for cause and without cause

Case study & drafting exercise

Day Four
Essential Aspects of Risk Management Strategies

Design, Technology & Process Risk

Procurement & Specification risk

Variations and cost impact

Payment and multi- currency contracts

Delay and liquidated damages

Completion and testing & effects of acceptance

Day Five
Contract Completion Critical Issues

Acceptance of punch list of defects - What is the effect?

Passing of tile and risk - safety & insurance

Warranties and Guarantees

Passing of Intellectual Property rights

Defects - Exculpatory Clauses

Dealing with disputes considering the different options

Discussion on issues participants have faced and how it was handled

MODULE 2:
Module 5: Power Purchase Agreements
What is a Power Purchase Agreement (PPA)?
A PPA defines the commercial terms for the sale of energy between two parties
Explanation of range of situations in which a PPA is used
International examples of commercial deals using PPAs both short and long term
Drafting a PPA: part I
General interests of buyer versus seller
Drafting the technical scope of work and construction milestones
Pricing structures
Timing
Payment terms and credit arrangements
Liquidated damages
Damages for delays
Programmes (time schedules)
Force Majeure clauses
Curtailments
Maintenance
Risks related to changes in law
Environmental risks
Effective contract management
Understanding the rights, roles, responsibilities and obligations of the parties
Ensuring the parties fulfil their obligations
Record keeping and document control
Management of change and speedy resolution of technical disputes
Programme management
Claims management
Time bar and limitation- international examples of commercial deals using PPAs
both short and long term
Understanding arbitration and how its used in PPAs
What is arbitration and how does it apply to PPAs?
Types of arbitration

How it works
How to use arbitration effectively
The relationship between in-house and outside counsel: how to maintain, or ruin, the
relationship
Cost estimates, fee arrangements, and budgeting
Establishing dispute resolution objectives goal setting

POWER PURCHASE AGREEMENTS

Global trends driving Power Purchase Agreements (PPAs),
electricity market designs & merchant power investments
The context in which todays PPAs operate
The trends driving the creation of wholesale power markets and
merchant power
Energy sector unbundling
Operating efficiency
Independent regulation
Private sector investment
Demand side management
System reliability energy price risk
Power market exchanges
Overview of the power industry in developing countries
Conventional power generation technologies
o Coal
o Fuel oil
o Gas
o Nuclear
o Hydro
Renewable technologies
o Wind
o Landfill gas
o Biomass
o Hydro
o Wave/tidal energy
Solar
Developments in and Reform of the Industry
o Deregulation, restructuring and privatisation of the industry
o Role of regulator
Liberalisation of the Electricity Industry (capacity short)
Use of Independent Power Projects in developing countries
Structures and working energy markets
Review of the organisation of energy markets, trading venues and
trading purposes.
Correlation between electricity, gas, oil and coal markets
Fundamentals of physical and financial trading
o Power
o Natural gas
o LNG
o Coal
Energy markets and how they function:
o OTC vs. exchange trading
o Spot vs. forward trading
o Current trends and developments
Electricity Value Chain
Electricity value chain
o Fuels, Generation, Transmission &Distribution, Wholesale and
retail

 Portfolio of Contracts
o Forward sales, retail supply, fuel, Freight, hedges etc.
Sources of Risk
o Market, Credit ,Operational, Legal and regulatory , Business
,Strategic and Reputation Risk
Power Price Dynamics
Non-storability
Price Drivers; supply and demand, weather and others
Evolution of volatility in energy markets
Comparing spot with forward volatility: spikes and mean-reversion
Seasonality
o Causes of seasonality
Correlations
ower Plant Economics
Technologies power plants
o Base load
o Iintermediate or cyclic plant
o Peaking plant
Supply
Demand
Understanding the generation stack
Operating decisions of a power plant
o Efficiency curves and heat rates
o Minimum on- and off-times
o Ramp time
o Nonconstant heat rates
o Response rate
o Minimum electricity dispatch level.
Competition
Role Exchange
Overview of Project Finance in the Power Sector
What is project finance
History and current market developments
Differences between corporate and project lending
Why do sponsors choose project finance
The risk-reward relationship with the project
Comparative economics of renewable energy sources
Types and impacts of incentive programmes
o Environmental credits and feed in tariff structure
Structuring Independent Power Projects (IPPs) & the Role of the
Power Purchase Agreement (PPA)
Unique requirements of non-recourse project financing
How it determines the structuring options for Power Purchase
Agreements
Lenders and financiers requirements when it comes to evaluating
PPAs
tructuring & Contracting Requirements for Merchant Power
Investments
Understanding of the common risk allocation models for merchant
power projects
Investment decision-making tools
Examples of merchant power risk allocation and structuring will be
selected from the energy investment experiences of the United
Kingdom, Latin America, or the USA
Power Plant Valuation Approaches
Main approaches
o Sales comparison approach

o Income approach
o Cost approach
Intrinisc Valuation
Price Uncertainty and Real Option Valuation
o A power plant as an option
Financing merchant power investments & electricity price
modeling under competition
Investment analysis and structuring requirements of merchant
power financing, including limited-recourse project financing, and
how it is determined by the projects unique risk allocation matrix.
General models for estimating and reviewing merchant power tariffs
and prices in a competitive wholesale power market
Other contract structures and issues in power and renewable
energy projects
Fuel supply agreements
Operations & maintenance agreements
Long term service agreements
Quantitative risk assessment in a power generation project
asic Types Power sales agreements
Power Purchase Agreement
Merchant Power Structures
Tolling Agreements
Contract for Differences (CFD)
Feed-in tariff with preferential despatch
Key features Power Purchase Agreement (PPA)
What is a PPA
Differences for base load, mid-range or peaking thermal plant or
hydro plants
When PPA appropriate
Basic terms Power Purchase Agreement
o Length of the Agreement
o Commissioning Process
o Sale and Purchase
o Curtailment
o Transmission Issues
o Milestones and Defaults
o Credit
o Insurance
o Environmental Attributes or Credits
o Risk issues
o Issues and Strategies
Pricing PPA
Pricing Formula
o Flat
o Fixed or Floating Escalator
o Others
Energy Factor and Unit Charge
Determination of Base Rate
Case Study; Analysis PPAs
Country case studies
Detailed example PPAs
ther contract structures and issues
Fuel supply agreements
Operations & maintenance agreements
Long term service agreements
Quantitative risk assessment in a power generation project
Fundamentals of Negotiation Theory and Practice

Negotiation process
Art and science of persuasion
Preparation
Understanding the interests of all parties
Creating common ground
Team composition

Day 1
Introduction to deregulated and competitive electricity markets

Overview of electricity functional markets

Generation

Wholesale

Transmission

Distribution

Retail

Overview of deregulated competitive electricity wholesale markets

Wholesale market transactions (bids and offers) in electricity are typically cleared and settled by the market
operator or a special-purpose independent entity charged exclusively with that function

Criteria
o

Co-ordinated spot market

Bid/offer based

Security-constrained, economic dispatch and nodal prices (locational marginal prices)

History of competitive wholesale markets

Competitive wholesale markets vs. Single buyer markets

Competitive wholesale markets in contest of traditional electricity market reform measures

Introduction to Power Purchase Agreements

Role of Power Purchase Agreement (PPA) in competitive markets

Purpose of PPA

Types of PPAs

Types of purchasers

Basic risks allocated by Power Purchase Agreements

Completion of power project

Reserves of feedstock fuel

Operation of the power project

Transport (connection, transmission and distribution)

Credit risk

Market risk

Pricing in competitive markets

Price negotiation

Pricing models

Pricing structures

Two part tariff structures

Case study: Use of two part tariff structure

Take or pay structures and market risk

Key issues in take or pay PPAs

Hedges (Contract for Differences, Futures Contracts and Options)

Day 2
PPA Conditions Precedent

Conditions precedent

PPA and Plant Operations

Commissioning and commercial operation dates Scheduling and dispatch

Delivery points and transport

Ownership of connection assets

Scheduling of outages

The PPA and project financing

Interrelationship between PPA and:

EPC (procurement and construction) agreements

Vendor project vehicle (incorporated and unincorporated joint ventures)

Operating agreements

Financing agreements

Transport (connection, transmission and distribution) agreements

Feedstock fuel supply agreement

Insurance

Assignment of PPA revenue

Assignment of PPA

Project lender step in rights

Case Study: Overnight review of the Sample Power Purchase Agreement

Day 3
Specific risk allocations

Feedstock fuel risk

Transport risk

Foreign exchange risk

Tax risk

The key risk allocation mechanism

Force Majeure

Frustrated PPAs and force majeure

Definition of force majeure events

Who does the clause protect?

Notice

Prorata of available supply of power

Failure of feedstock fuel supply

Scope of force majeure events

Case Study: Risk allocation and mitigation measures in Power Purchase Agreements
Discussion: What is the risk allocation under the Sample Power Purchase Agreement?
'Boiler plate' provisions (so called)

Assignment and change in control

Negotiation in good faith

Reasonable/best endeavours

Entire agreement clauses

PPAs with government and state-owned enterprises

Political risk

Sovereign risk

Stabilization provisions

Change in law

Tax gross ups

Other contractual mechanisms

Dispute resolution

Dispute resolution procedures (private sector party to party PPAs)

International arbitration for private sector party to party PPAs International arbitration with Governments

International arbitration clauses