Speaking Energy

Last month over 35,000 participants attended the Gastech 2019 Conference, the world’s largest gas and LNG conference, in Houston, Texas. Members of Akin Gump Strauss Hauer & Feld LLP’s global energy and transactions team attended Gastech and wanted to share the following observations:

This Practice Note (i) considers what is meant by “structure” in the context of a project finance transaction and identifies key issues that inform the approach to structuring a project finance transaction, and (ii) looks closely at the Azura Edo independent power project in Nigeria (“Azura Edo IPP”) as a case study to help identify and explain a number of recent and innovative project finance structuring solutions that have been successfully implemented in order to overcome certain identified risks and challenges.

On August 21, 2017, Power Africa published its 2017 Annual Report highlighting more than 80 Power Africa transactions closed and more than $14.5 billion in financings since its inception.  Overall, it has facilitated the financial close of power transactions expected to generate more than 7,200 MW of power in sub-Saharan Africa and generated more than $500 million in U.S. exports.  The report demonstrates how Power Africa, and the recently passed Electrify Africa Act, continues to create opportunities for American businesses in Africa as it proceeds toward its goals of increasing installed generation capacity by 30,000 MW and adding 60 million new electricity connections by 2030 on the continent. These developments are important, since interested investors continue to seek access to the $300 billion energy market in sub-Saharan Africa and tap into the demand for an additional 20,000 megawatts in the region.

From August 4-6, President Obama will host approximately 45 leaders from across the African continent in Washington, D.C., for a three-day U.S.-Africa Leaders Summit (the “Summit”). This is the first such event of its kind and is the largest event any U.S. President has held with African heads of state and government. The Summit is intended to advance the administration’s focus on power and investment in Africa. As such, the Summit will focus heavily on the administration’s new Power Africa initiative, as well as the renewal of the African Growth and Opportunity Act (AGOA). These initiatives and pending Power Africa legislation, including the Electrify Africa Act and the Energize Africa Act, are of importance to anyone looking to invest in Africa in the future.

Last week, the U.S. House of Representatives passed the Electrify Africa Act of 2014, approving a plan to bring power to over 50 million Africans and further open the door for U.S. investors in the continent's development and growth.

The Electrify Africa Act, which mirrors many aspects of the Power Africa initiative unveiled last year by President Obama, aims to make government-backed credit more accessible to the private sector in order to deliver access to energy for more than 50 million people in sub-Saharan Africa.  This important development could help interested investors access a $300 billion energy market in sub-Saharan Africa and tap into the demand for an additional 20,000 megawatts in the region.

On February 27, 2014, the House Committee on Foreign Affairs passed H.R. 2548, the Electrify Africa Act, to improve access to electricity in sub-Saharan Africa, through a comprehensive U.S. government approach to electricity projects in the region.  The bipartisan legislation would establish a U.S. strategy to support affordable, reliable electricity in sub-Saharan Africa in order to improve economic growth, health and education in Africa, while helping job creation in the United States through greater exports.

The main purpose of the Electrify Africa Act is to make government-backed credit more accessible to the private sector in order to deliver access to energy for more than 50 million people in sub-Saharan Africa.  This important development could help interested investors access a $300 billion energy market in sub-Saharan Africa and tap into the demand for an additional 20,000 megawatts in the region. 

A sluggish economy, a desire to cut back on the use of coal-powered electricity, and a worldwide focus on new oil and gas recovery techniques have pushed the South African government to take steps toward diversifying its energy industry and developing its natural resources using best practices from around the world. This week, the South African Department of Mineral Resources took a step towards achieving this goal.

Oil and gas E&P activity in South Africa is fairly limited, as evidenced by the fact that the country relies on imports to meet nearly 95 percent of its crude oil requirements, according to the South African Department of Energy.¹ This situation, however, is not due to a complete lack of resources. Exxon Mobil Corp.; Royal Dutch Shell Plc and the South African, state-owned PetroSA have interests in the mostly undeveloped 15 million barrels of proven oil reserves located in the south of the country and in varied waters offshore.² With the vast majority of South Africa’s energy needs being covered by locally produced coal (28% of which is exported), incentives to develop oil and gas resources have been lacking until now.

To accomplish the goal of safely developing its oil and gas resources, and thus adding these resources to its energy portfolio, the South African Department of Mineral Resources has released proposed regulations to augment existing gaps identified in the current oil and gas E&P regulatory framework, with a particular emphasis on hydraulic fracturing.³ These regulations were released on October 15, 2013, and the South African Department of Mineral Resources is accepting public comments on them until November 14, 2013.

On June 14, 2013, the High Court in London ruled that Heritage should pay Tullow Oil c.$313 million under the terms of a tax indemnity relating to the 2010 transaction that saw it acquire Heritage oil licenses in Lake Albert, Uganda. 

The litigation centered on Heritage’s Ugandan capital gains tax (“CGT”) liability arising from that transaction.  Heritage realized c.$1.45 billion from the sale and the Ugandan government raised a CGT assessment of c.$434 million, calculated as broadly 30 percent of the transaction value.  Heritage disagreed with the amount and paid the Ugandan government only $121.5 million, departing Uganda shortly afterwards.

Originally, the dispute was to be resolved by arbitration and $283 million of the purchase price was placed in escrow pending the conclusion of the dispute. In addition, Heritage paid $121 million to the Ugandan government as a ‘refundable deposit,’ to be returned should the arbitration go in their favor.