Sovereign Guarantees for Energy Projects in Africa

Investors may be wary of of committing funds to energy projects in Africa because they perceive the risks to be too great. One way of mitigating these risks is to ensure that there is a contractual requirement to repay the lenders in the event of a termination of a concession agreement due to the default of a project company. However, these can sometimes be difficulty to negotiate and obtain because the state may end up in the position of having to repay the lenders without being able to use the infrastructure. 

In this instance, lenders may need to turn to the EPC contractor. If the EPC contractor is in default, they should be able to provide indemnification covering at least the lenders. However, it should be noted that the liabilities of the EPC contractor under the EPC contract will not necessarily align with the liabilities of the project contractor under the concession agreements. Furthermore, if the default of the EPC contractor leads to its bankruptcy then the project company and the lenders are left without recourse.