azura | the guide | v.1

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Rahul Kitchlu, Markus Kluczka, Jo Knights, Boladale Kolade, Fatusi Kolawole, Pimhein Kool, Gernot Koop, George Kotsovos, Olaf Kreyenberg, Olakunbi Kurunmi, Dele Kuti, David Ladipo

HIGH VOLTAGEA Development Guide to the 459MW Azura-Edo IPP

Michael Lakota, Laurie Lander, Gert Landmann, Jahn Lang, Michael Larbie, Erik Lathouwers, Fatima Lawan, Sola Lawson, Oyewole Lawuyi, Diana Layfield, Charles Le Quesne, James Lea-Fox,

Norman Lee, Colin Lewin, Rod Linnett, Elizabeth Littlefield, Tom Longmuir, Detlev Lubasch, Peer Lubasch, Mia Ludlam, Paul Lytle, Vicky Ma, Sean MacDonald, Roderick MacLeod, Paul Maddock,

Muravha Mafela, Katie Magee, Aisha Mahmud, Kwabena Malgas, Wandile Mamba, Sean Manley, Marie Francoise Marie-Nelly, Marie Marketis, Uwe Markmann, Darren Marshall, Scott Masfen,

Susan Maslen, Yetti Mathias, Emmanuelle Matz, Ifeoma Mba, Okey Mba, Gugulethu Mbatha, Caireen McCluskey, Will McDowall, Angela Mega, Pelayo Menendez, John Mesko, Thomas Meurer,

Rudi Meyenburg, Chidi Mike-Eneh, Ben Milam, Sameh Mobarek, Muhammed Modibbo, Darren Moens, A.B. Mohammed, Haruna Mohammed, Saidu Mohammed, Nick Mokha, Ada Mokolo-

Oladunke, Anthony Molle, Chidi Momah, Jade Montenegro, Danielle Montgomery, Diveshan Moodley, Tunde Morakinyo, Rachel More, Thabang Moroa, Jo Morrison, Rosie Morrison, Hoda

Moustafa, Luke Muchamore, Jana Muchyova, Isa Muhammad, Kamal Muhammed, Alan Muir, Aart Mulder, Tony Muoneke, Joseph Musa, Dario Musso, Andrew Mustoe, Emlen Myers, Tamila

Nakazwe, Hugh Naylor, Ntuase Ndoma-Egba, Ikeli Ndubusi, Chinedu Nebo, Kene Nebo, Marcus Nelle, Greg Ness, Elisabeth Nguyen, Marc Nickelsen, Gunilla Nilsson, Barth Nnaji, Adaobi Nnorukah,

Simon Norris, Nana Nosayaba, Patrizia Nowakowski, Vuyo Ntoi, Ifelunwa Nwabogor, S.N. Nwankwo, Obi Nwasike, Stanley Nweke-Eze, Maeve O'Shea, Kyran O'Sullivan, Godwin Obaseki, Chike

Obianwu, Azu Obiaya, Nonye Obibuaku, Emenike Obiorah, Talatu Ocheja, Isaiah Odeleye, Thomas Odewo, Toyin Odewole, Bola Odugbesan, Shakirudeen Odunuga, Kehinde Odusanya, Segun

Odusanya, Omobolaji Oduwole, Opuiyo Oforiokuma, Desmond Ogba, Godwin Ogbahor, Sunny Ogbodo, Toyin Ogunade, Damilola Ogunbiyi, Ibi Ogunbiyi, Solanke Ogunlana, Leke Ogunlewe, Lekan

Ogunleye, Taiwo Ogunleye, Vincent Ohenzuwa, Alfred Ohiani, Callistus Ojeabo, Anslem Ojezua, Abimbola Ojo, Happiness Okafor, Clement Oke, Ephraim Okejiri, Edu Okeke, Awele Okigbo, Patrick

Okigbo, Bright Okogu, Mike Okojie, Imeh Okon, Ngozi Okonjo-Iweala, Paulinus Okoronkwo, Dozie Okpalaobieri, Paul Okpere, Oyin Oladeji, Kemi Oladipo, Blessing Oladosu, Olamide Oladosu,

Mudashiru Olaitan, Ayodele Olajiga, Atanda Olaogun, Rasheed Olaoluwa, Olalekan Olaribigbe, Abdusalam Olatunji, Janice Olawoye, Ajibola Olomola, Akin Olorunfemi, Abolaji Olorunkoya, Supo

Olusi, Weyinmi Omagbemi, Oluwatosin Omidiji, Soji Omisore, Basorun Omolola, Vuoke Omonigho, Abiodun Oni, Samuel Oniha, Cynthia Onwo, Chinedu Onyegbula, Chidiebere Onyia, Henk

Oosterdijk, Karen Opitz, Kavodel Oredugba, Giancarlo Ortega, Mario Ortwein, George Osahon, Jobalo Oshikanlu, Adams Oshiomhole, Caroline Osiagwu, Lanre Osibona, Donald Osikhena-Boih,

Robinson Osikorobie, Yemi Osinbajo, Funlola Osinupebi, Chris Osoba-Ebare, Olaniran Osotuyi, Emmanuel Osuagwu, Faith Otoikhila, Nath Oyatogun, Olutokunbo Oyesola, Elena Palei, Doug Park,

Nicholas Parkinson, Justin Pavry, Dave Peacock, Dele Petrie, Mike Pickin, Lisa Pinsley, Ken Pollack, Lachlan Poustie, Stephen Priestley, Razvan Purcaru, Peter Purkl, Solomon Quaynor, Edith

Quintrell, Tinesh Ramprusad, Kaushik Ray, Maia Renchon, Basil Rennias, Torsten Richter, Chris Rinaldi, Jorge Rivas, Elleanor Robins, Joseph Rodriguez, Carsten Roeth, Vicki Rosslee, Dirk

Rountree, Sandra Rozenbrand, Christina Ruebesamen, Lothar Rueck, Aman Sachdeva, Linda Saitta, Johnson Salako, Ibrahim Salau, Diana Saldarriaga Farfan, Mohammed Sambo, Suresh Samuel,

Sam Sandiford, Sanjiv Sangar, Mohammed Sani, Ranjani Sankaran, Richard Santoroski, Emir Muhammadu Sanusi II, Helena Sathekge, Tim Scales, Mark Schmaman, Jim Schmidt, Roland Schmitt-

Bargenda, Christian Scholz, Rene-Alexander Schwab, Dafe Sejebor, Oludare Senbore, Ahmed Shafiie, Bernie Sheahan, Mary Sheridan, Abdulkadir Shettima, Tom Shiel, Norman Shields, Christian

Sievers, Delphine Siino Courtin, Dev Singh, Brad Smith, Maurice Smith, Carine Smith-Ihenacho, Adetutu Soetan, Lanre Sogbesan, Olumide Sokoya, Fela Somoye, Frank Soree, Nicole Soulanille,

Cliff Stanley, Tim Steadman, Paul Stefiszyn, Clarine Stenfert, Maria Stratonova, Abbas Suleiman, Ravi Suri, Jurie Swart, Jo Sykes, Gerard Tague, Mariya Tariq, Helen Tarnoy, Nick Tasker, Olayinka

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Tsumba, Myrthe Tudoux, Hassan Tukur, Keita Uematsu, Chiedu Ugbo, Kalu Ukoha, Patrick Umeh, Arnold Ushiadi, Deborah Usman, Emmanuel Usoh, Fatweena Uteene, Agbuza Uyigue, Peter Van

den Dool, Barbara van Helden, Bernhard van Meeteren, Neil VanNiekerk, Karine Verriere Billard, Samson Vese, Juan Villarreal, Bhavin Vyas, Mohammed Wakil, Muhammad Wakil, Philip Walsh,

Tom Walton, Ugochi Wamuo, Annabel Ward, Takeshi Watanabe, Peter Watson, Markus Weber, Heinz Weidt, Russell Wells, Alwyn Wessels, Joachim Wieder, Barry Williams, Kunle Williams, Goetz

Willmann, Eve Wilson, Christoph Wittmann, Joerg Wittwer, Olaf Woeller, Ellen Wolchek, Steve Wolf, Rumundaka Wonodi, Geoff Wormell, Nuhu Wya, Zoe Wyatt, Lai Yahaya, Danuta Yarygina,

Akinkunmi Yejide, Abdullahi Yola, Bashir Yuguda, Ibrahim Yusuf, Michael Zeitlmann, Daniel Zinman, Ahmadu Zubairu, Binaebi Zuofa

Copyright 2016 by Amaya Capital Limited (including its subsidiaries and affiliates)All rights reserved

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1 Introduction 3

2 The Development Dashboard 5

3 Choosing the Right Co-Sponsors & Advisers 9

4 Negotiating the Key Project Agreements 13

5 Obtaining Key Permits & Approvals 35

6 Attracting & Securing the Equity Capital 38

7 Attracting & Arranging the Debt Capital 42

8 Negotiating the Direct Agreements 48

9 Credit Enhancement: Obtaining World Bank PRG & MIGA Cover 51

10 Developing Key Operational Policies & Manuals 54

11 Escaping the Matrix of Conditions Precedent 57

12 The Full Tally 60

13 Lessons Learned 68

Glossary 71

CONTENTS

The Azura-Edo IPP is at the forefront of a new wave of large scale, project-financed, greenfield independent power plants (IPPs) currently being developed in Nigeria. Financed with debt and equity sourced from a consortium of local and international financiers, Phase 1 of the project comprises: a 459MW open cycle gas turbine power station; a short transmission line connecting the power plant to a local substation; and a short underground gas pipeline connecting the power plant to the countrys main gas-supply. The power that it generates will be consumed in millions of homes and businesses across the country and it will create over 1,000 jobs during its

INTRODUCTION

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construction and operation. Phases 2 and 3 of the project will then take the total capacity up to 1,500MW.

As a summary of the project, the bland paragraph above is factually correct; but it offers no backstory. It teleports the reader to the final destination instead of ferrying her through the twists and turns of the development journey. For, as we shall see in the chapters that follow, piloting an IPP development project requires a good deal of patience and perseverance. Clearly the team propelling and managing the craft is critical; but its also important to have a good set of navigational instruments on board and sufficient funds to keep the whole enterprise above water.

Yet when Azura embarked on its own journey back in 2010, its navigational aids were extremely rudimentary. We set off with the right intentions but with little visibility of the river ahead and often not the right equipment to hand; our boat careened down certain sections of the river at breakneck speed; and there were a number of occasions where we nearly capsized. Needless to say, we would like the journey for other explorers to be a little easier.

To that end, this short development guide has been prepared to help other prospective IPP developers understand the bends in the river. More specifically, we illustrate: the scope of the activities they may have to engage in; the time intensity of these activities; and the effort that will need to be expended during the course of the development period.

It is a trite but true observation that the most important input into the production of electrical energy is human energy. The Azura-Edo IPP is a classic example of this. This guide is dedicated to the many hundreds of people who were actively involved in its incubation and development, whether as a sponsor, employee, lender, adviser, contractor, sub-contractor, regulator, insurer, legislator, or policy maker. And as we move further into the construction phase of the project, many hundreds more will join these ranks.

Please forgive us, therefore, if you cant find your name on the book jacket (and let us know so that we can include it in the next edition). There were far too many of you to fit on just one page, even though we shrunk the font to the smallest we could. We have merely taken a sample drawn from each of the key participating organisations with a view to providing a partial illustration of the scale of the collective action that has been poured into this project.

As at the time of writing, we are 6 months into the 30 month construction cycle; there are 450 workers on site; we have suffered no lost time injuries; and progress is ahead of schedule. Although we still have a steep mountain to climb before the turbines generate their first kilowatt hours of electricity, we look forward to publishing the second volume of High Voltage in mid 2018 under the subtitle: A Construction Guide to the Azura-Edo IPP.

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As shown on the following page, the development dashboard created by Azuras Management Team consists of a set of 9 dials representing the universe of essential elements that had to be assembled before the full Notice to Proceed could be issued to the Contractor. The significance of the dials is important to recognise. The circle represents the "Azura Wheel" denoting continuous forward motion and the inter-dependence of each spoke of the wheel.

From the very outset, one of the key mantras that we adopted was: work hard; work smart; and work in parallel. So the wheel was a great way for us to visualise the need to keep juggling all the

THE DEVELOPMENT DASHBOARD

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balls in the air whilst continuing to press forward towards our goal. In the chapters that follow, we examine each of these 9 dials in greater detail.

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Governan

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PPA#Direct#Agreement#

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ct#Agreement#

GSPA#Direct#Agreement#

GCA#Direct#Agreement#

GTA#Direct#Agreement#

PPA#DA#

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LTSA#DA#

OMA#DA#

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OperationalPolicies

Credit Enhancement

DirectAgreements

Permits& Approvals

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Co-Sponsors& Advisors

ProjectAgreements

The Nine Development Dials: Azuras Navigational Dashboard

For some of our readers, the data contained in this guide may, at first sight, appear rather dry and devoid of the salt of life (the blood, the sweat, the tears) that always seasons a good narrative. It is important, therefore, that we start off with a brief summation of the years of toil that were spent on this project even before the contractor began to work on the site.

To gauge the full extent of this endeavour, we took a cumulative reading at the end of Dec 2015 of the billable hours logged by the sponsors, the lenders and their respective advisers. As shown in the chart below, the total came to circa 145,000 hours for the sponsors/lenders and an additional 76,000 hours for their advisers.

But what about the hours of work expended by our project counterparties (i.e. our gas supplier, our off-taker, our EPC Contractor, etc)? We didnt have the heart to ask them to furnish us with detailed estimates of the thousands of man-hours they had expended on the project. Instead, we conservatively assumed that the total number of hours expended by the sponsor/lender side of the negotiating table would be equal to the aggregate of the hours spent by all the parties sitting on the other side.

Hence, the total amount of time devoted to the Azura-Project as at Dec 2015 was approximately 442,000 hours. If we use the OECD average for the number of hours per worker per year (of 1,765 hours), we deduce that more than 250 person-years of work were spent developing the Azura-Edo IPP before the construction crew mobilised to site. Thats a whole quarry full of human salt.

7

Project Counterparties221,000

S/L Advisers76,000

Sponsors/Lenders145,000

Cumulative hours expended on the Azura-Edo IPP as at Dec 2015 (est.)

Moreover, as shown in the timeline below, the hundreds of individuals who committed their time to this project did so over a six year stretch of time during which the Nigerian electricity supply industry underwent a complete change of ownership and control. There was never a dull day.

8

Conception to Birth: Overall Project Timeline of the Azura-Edo IPP

2010 2011 2012 2013 2014 2015 2016 2017

Execution of MSA/TSAJan 2015

Execution of GTAJul 2014

Contractor Starts Work at SiteJan 2015

Kick-Off meeting with TCNFeb 2011

11th Session with NBET on PPAApr 2013

Demobilisation Pending FGN Legal OpinionFeb 2015

Final Approval of Gas TariffNov 2014

Execution of PPAApr 2013

1st Draft of ESIA to WBNov 2011

JDA Signed with Co-Equity SponsorApr 2012

Start of Project2009

ITB for EPC ContractorsNov 2011

Appointment of ESIA AdviserDec 2010

Execution of PCOAOct 2014

Execution of GSPAApr 2014

First Draf of LOS (PCOA)Jul 2012

1st Draft of ESIA Scoping Study Submitted to FMEnvDec 2010

Kick-Off Meeting on GTAMay 2012

Registration of C of OJun 2012

Financial Close29 Dec 2015

Execution of Shareholder AgreementNov 2014

Execution of EPC & OMAApr 2014

Final FMEnv Approval of ESIAFeb 2013

Contractor Remobilises to Site5 Jan 2016

SCB Hired as Global MLAFeb 2012

FEED StudiesDec 2010-Jul 2011

1st Sesssion with NBET on PPANov 2011

Execution of GCAJun 2014

Satisfaction of CPsAug-Dec 2015

Waiting for FGN Legal OpinionFeb-July 2015

RAP Approval by WBFeb 2012

MOU with EDSGNov 2010

CTA and Loan Agreements SignedNov 2014

The success of any project-financed IPP is critically dependent on the quality of the co-sponsors and advisers selected by the projects lead sponsor. In Azuras case, the lead sponsor (Amaya Capital) sought, from the very beginning, to find a group of like minded co-sponsors and advisers. But what does like minded actually mean in this context? It is a multivalent word that captures a range of attributes including: sharing the same vision as the founders; understanding the entrepreneurial nature of the development process; a capacity to burn the midnight oil; tried and tested experience on other projects coupled with an open mind to innovative solutions; and a good sense of humour (particularly helpful in the most testing periods).

CHOOSING THE RIGHT CO-SPONSORS & ADVISERS

3

9

The circular chart below shows the entire array of co-sponsors and advisers that were instrumental to the development of the Azura Project.

10

Amaya%&%ACE

I%(Co

,Spo

nsor)%

AIIM

%(Co,Spon

sor)%

Aldw

ych%(Co,Sp

onsor)%

ARM%(Co

,Spons

or)%

EDSG%(Co,S

ponsor)%

Templars%(Legal)%

Trinity%(Legal)%

UUBO%(Company%Secretary)%

Fieldstone%(Financial)%

EnvAccord%(ESIA)%Pedabo

%(Accou

nJng)%

KPMG%(Audit%&

%TAX)%

Grant%Tho

rnton%

(Tax)%Jiyod

a%(Technica

l)%

PB%Power%(Technical)%

AON%(Insurance)%

SCIB%(Insurance)%

DeRisk%(PoliJcal%Risk%Insurance)%

ERM%(E

SIA)%

Adamu%Kasim

u%(Land%Valuers)%

APHL%AIIM%

ALDW%

ARM%

EDSG%

TEMP%

TRIN%

UUBO%

FPCG%

ENVA%ERM%

PEDA%

KPMG%

GT%

JIYO%

PB%

AON%

SCIB%

DERI%

AKAS%

The timeline chart below shows the dates when each of these co-sponsors and advisers first started working on the Azura project.

1 May 2010 1 Sep 2010 1 Jan 2011 1 May 2011 1 Sep 2011 1 Jan 2012 1 May 2012 1 Sep 2012 1 Jan 2013 1 May 2013 1 Sep 2013

Adamu Kasimu (Land Valuation)Feb 2012

KPMG (Audit & Tax)Feb 2011

DeRisk (PRI)Apr 2010

PB Power (Technical)Sep 2011

ARM (Co-Sponsor)May 2012

Fieldstone (Financial)Mar 2012

Envaccord (ESIA)Nov 2010

ERM (ESIA)Nov 2010

Templars (Legal)May 2012

AIIM (Co-Sponsor)Dec 2011

Grant Thornton (Tax)Jan 2012

Pedabo (Audit)Oct 2011

Jiyoda (Technical)Nov 2012

ACEI (Co-Sponsor)>> Late 2013

Aldwych (Co-Sponsor)Jun 2010

Trinity (Legal)Sep 2011

UUBO (Legal)Jun 2010

EDSG (Co-Sponsor)Nov 2010

AON & SCIB (Insurance)Jun 2012

In the preceding chapter, we noted that the sponsors and lenders advisers had clocked up a total of 76,000 man-hours of work (as at Dec 2015). As shown in the chart below, over 80% of this time was spent on legal and financial advice. This statistic, in turn, points to the fact that the key challenge in the construction of a privately financed power plant is not the engineering and construction challenge. It is the financing challenge.

11

Technical/Other10%

Environmental8%

Financial48%

Legal34%

Breakdown of the total time spent by the sponsor/lender advisers

More specifically, this chart illustrates the unique set of challenges inherent in a limited-recourse project-financing. A limited recourse project-financed transaction is very different to a corporate financed deal. In a corporate financed transaction you borrow money against a balance sheet. You have real assets which you can post as security for your borrowing. By contrast, in the case of a project-financed IPP, like Azura, the banks are lending to a special purpose vehicle whose only assets comprise the web of contractual agreements between the project company, its supplier and its offtaker. The Azura project is made up of dozens of different contracts. And each and every clause, in each and every contract, must be scrutinized ad nauseam by the banks because these contracts are the sum total of their security.

12

This chapter summarises the development history of the key project agreements that underpin the Azura-Edo IPP. These agreements define the universe of risks faced by the project; and they also allocate - between the various project stakeholders - the responsibility for bearing and mitigating these risks.

4

13

NEGOTIATING THE KEY PROJECT AGREEMENTS

The chart below depicts the full suite of contractual agreements that underpin the Azura-Edo IPP. It should be noted, however, that the financing agreements (depicted by the little green circle at the bottom of the wheel) are so numerous that they have their own dedicated chapters (Chapters 6 & 7).

14

PPA#PCOA#

GSPA#

GTA#

GTSA#

GCA#

ASA#

TLSEA#

C#of#O#$$#

EPC#

TSA#

MSA#

OEA#

CIAs#

LTSA#

OMA#

OIAs#

Power#Purchase#Ag

reem

ent#

Put#C

all#O

p>on

#Agreement#

Gas#Supply#Agreeme

nt#

Gas#Tra

nsporta

>on#Ag

reeme

nt#

GTA#Supplementar

y#Agreement#

Grid#Connec>on#Agreement#

FEEDSTOCK#

DEMAND#

EVACUA

TION

#

LAND#

FINANCE#

CONSTRUCTION#

OPERATIONS#

Ancillary#Services#Agreement#

Substa>on#Extension#Agreement#

Cer>cate#of#Occupa>on#

Finance#

Turnkey#Co

nstruc>o

n#Co

ntract#

Technical#Services#Agre

ement#

Mgmt#Se

rvices#A

greemen

t#Owners#Engineer

#Agreement#

Construc>on#Insurance#

Long#Term#Service#Agreement#

Ops#Maintenance#Agreement#

Opera>onal#Insurance#

On the previous page, we illustrated the wheel of contractual agreements with the acronyms of the individual contracts. In the chart below, we take this same wheel and reveal the identities of each of the counterparties to these agreements. Our public sector counterparties are highlighted in green; our private sector counterparties are highlighted in blue; and the piebald Gas Supply Agreement reflects the fact that Azura has two counterparties on this agreement: (Seplat, private sector) and NPDC (public sector).

15

NBET%MoF%&%NBET%

Seplat%&%

NPDC%

NGC%

NGC%

TCN%

TCN%

TCN%

EDSG%Debt%&%Equity%

Siemens%&%JBN%

Aldwych%

APHL%

PB%Power%

AON%&%SCIB%

Siemens%

PIC%Group%

AON%&%SCIB%

Power%Purchase%Ag

reem

ent%

Put%C

all%O

pHon

%Agreement%

Gas%Supply%Agreeme

nt%

Gas%Tra

nsporta

Hon%Ag

reeme

nt%

GTA%Supplementar

y%Agreement%

Grid%ConnecHon%Agreement%Ancillary%Services%Agreement%

SubstaHon%Extension%Agreement%

CerHcate%of%OccupaHon%

Finance%

Turnkey%Co

nstrucHo

n%Co

ntract%

Technical%Services%Agre

ement%

Mgmt%Se

rvices%A

greemen

t%Owners%Engineer

%Agreement%

ConstrucHon%Insurance%

Long%Term%Service%Agreement%

Ops%&%Maintenance%Agreement%

OperaHonal%Insurance%

The timeline chart below shows the (first) date of execution of each of these project agreements with the exception of the Certificate of Occupancy (registered on 9 June 2012) and the Power Purchase Agreement (first signed on 22 April 2013). These first two documents can be thought of as the parent documents for everything else that followed. For without the land on which to build the power plant and an off-take agreement from a credible customer, it is nigh impossible for a developer to conclude any of the other project agreements.

In the sections that follow, we will take a closer look at the various steps (and volume of work) involved in negotiating each individual agreement.

After the C of O and the PPA: The Execution Dates of the other Project Documents

1 May 2014 1 Jul 2014 1 Sep 2014 1 Nov 2014 1 Jan 2015 1 Mar 2015 1 May 2015

Substation Extension Agreement3 Dec 2014

GTA Supplemental Agreement22 July 2014

PPA Addendum Agreement1 Dec 2014

Ancillary Services Agreement24 Jun 2014

Owners Engineer Agreement4 July 2014

Gas Transportation Agreement22 July 2014

O&M Agreement5 May 2014

Long Term Service Agreement2 Jul 2014

EPC Contract30 Apr 2014

GSPA Addendum Agreement1 Dec 2014

Put Call Option Agreement22 Oct 2014

Gas Supply Agreement14 Apr 2014

Grid Connection Agreement24 Jun 2014

Loan Agreements25 Nov 2014

Management Services Agreement23 Jan 2015

Technical Services Agreement29 Jan 2015

Construction Insurance Cover26 Feb 2015

16

The Azura-Edo IPP is recognised to be of public interest and therefore the projects land acquisition process was led by the Edo State Government (EDSG). However, in tandem with the EDSG-led land acquisition process, Azura implemented an integrated stakeholder engagement process to understand and adequately reflect upon the potential impacts (in terms of the environmental and social issues) associated with land acquisition and resettlement. Under the guidance of the World Bank, Azuras daily interaction with the local communities was then used to develop a Compensation Plan and a Resettlement Action Plan (RAP).

The land acquired by the Azura facility was previously owned by the inhabitants of three different communities (Orior-Osemwende, Ihovbor-Evboeka and Idunmwowina-Urho-Nisen) and the number of individuals with a purported claim to compensation was just over 1,000 persons. Not surprisingly, the process of enumerating and assessing the value of each individual claim proved to be extremely time consuming and labour intensive.

The importance and sensitivity of the exercise (and the need to insure that it was carried out to World Bank and IFC standards) necessitated the employment of three different sets of environmental experts, namely: the ERM Group; Environmental Accord; and Adamu Kasimu & Associates.

It is worth noting that we had to commence the land acquisition process (in late 2010) before we had agreed any of the key project documents including the Power Purchase Agreement (PPA). In the conventional development cycle (at least in mature markets) this approach would be seen as the wrong way round since the developer would normally seek to execute the PPA and other key project documents before the land was acquired or at least have an option on acquiring the land subject to the execution of other project documents. However, in Azuras case, we had to take that risk up front in order to get a seat at the negotiating table with key counterparties such as our off-taker and our gas supplier.

LAND ACQUISITION

SECTION 1

17

Land Acquisition & Compensation - the Key Protagonists

PURCHASER VENDOR LENDERS

Azura Edo State Government The 5 Lead Arrangers

World Bank Group (RAP Adviser) Local Communities Clifford Chance (Lenderss Counsel)

Trinity & Templars (Legal Counsel) Individual Land Owners Olaniwun Ajayi (Lenders Counsel)

ERM (E&S Adviser) Royal Haskoning (Lenders E&S Adviser)

Environmental Accord (E&S Adviser)

A. Kasimu & Associates (Land Valuer)

18

Land Acquisition Timeline - Charting the Major Milestones

2011 2012 2013 2014 2015 2016

World Bank Approval of RAPFeb 2012

Initial World Bank FeedbackJul 2011

C of O AwardedJun 2012

EDSG Notice of RevocationJun 2011

Enumeration Survey22-29 Aug 2011

First Set of Payments by Azura11-21 Nov 2013

Application for C of OFeb 2012

Sign Off by Each ClaimantMar-Apr 2013

Census and Asset Inventory8-20 Sep 2011

First Set of Payments by EDSGNov 2014 - Feb 2015

MOU with EDSGNov 2010

Second Set of Payments by Azura26-30 May 2014

1st Draft of EIA Scoping Study Submitted to FMEnvDec 2010

Disclosure of RAP in World Bank's Info ShopMar 2012

The first formal engagement between NBET and Azura began on 29 November 2011 when NBET sent to Azura (along with several other prospective IPPs) a draft Power Purchase Agreement (PPA) for New Build Independent Power Projects. Subsequent to Azuras initial review of this draft PPA, the first meeting between the parties was held in Abuja a day later (on 30 November 2011). Present at this initial meeting were NBETs counsel (Hunton & Williams and G. Elias & Co).

Over the course of the subsequent three years, the parties held successive rounds of negotiations. These took place via: face-t0-face round table sessions; conference calls; and the iterative exchange of (literally) hundreds of red-lined drafts of each successive draft of the Power Purchase. On 22 April 2013, a landmark day in the history of Nigerias power sector, the parties signed the countrys first PPA between NBET and a project-financed IPP. But it wasnt until 1 December 2014 before the final set of schedules to the PPA were concluded and the PPA Addendum Agreement was signed.

SECTION 2

19

1 Jul 2012 1 Apr 2013 1 Jan 2014 1 Oct 2014 1 Jul 2015

Session 15 Abuja10 Jul - 11 July 2014

Session 6 Abuja2 Jul 2012

Session 9 Abuja14 Nov - 15 Nov 2012

Session 13 Abuja22 Apr - 2 May 2014

Session 14 Abuja30 Jun - 31 July 2014

Session 5 Abuja20 May 2012

Session 8 Abuja19 Sep 2012

Session 2 Abuja27 Feb 2012

Session 12 Washington DC12 Nov - 16 Nov 2013

Execution of PPA22 Apr 2013

Session 3 Abuja28 Feb - 1 Mar 2012

Session 16 Abuja12 Nov - 14 Nov 2014

Execution of PPA Addendum1 Dec 2014

Session 4 Abuja21 Mar 2012

Session 11 Washington DC3 Apr - 14 Apr 2013

Session 7 Abuja10 Sep - 12 Sep 2012

Session 10 Abuja19 Feb - 21 Feb 2013

Session 1 Abuja29 Nov 2011

PPA Timeline - Charting the Dates of the Major Face-to-Face Negotiation Sessions

THE POWER PURCHASE AGREEMENT

PPA Negotiations - the Key Protagonists

POWER PURCHASER POWER PRODUCER LENDERS

NBET Azura The 5 Lead Arrangers

Hunton & Williams (Legal Counsel) Trinity (Legal Counsel) Clifford Chance (Lenders Counsel)

G. Elias & Co (Local Counsel) Templars (Legal Counsel) Olaniwun Ajayi (Lenders Counsel)

Nexant (Financial & Legal Advisers) Fieldstone (Financial Advisors)

Lummus (Lenders Technical Adviser)

World Bank Group (Adviser to all Parties)



The chart below provides a partial measure of the flow of email traffic between Azura and NBET between 2011 and 2014.

0

300

600

900

1,200

1,500

2011 2012 2013 2014 2015

No. of emails to/from NBET and Azuras Senior Management

No.

of e

mai

ls

What is particularly interesting about this chart is that it shows how the engagement between NBET and Azura more than doubled in 2014 (the year after the PPA was first executed).

At first sight, this might seem counterintuitive. Indeed, the natural presumption for an outside observer would be to assume that most of the hard work was over by the time the first draft of the PPA was signed in April 2013. The reality, however, was very different and it is instructive to examine the reasons why.

The first reason has already been alluded to, viz. the fact that the schedules to the PPA still needed to be negotiated. And the process for so doing was highly time-consuming, not least because the

20

negotiations over the tariff schedule and the various technical schedules required both sides of the negotiating table to undertake a tremendous amount of detailed (and iterative) data analysis.

The second reason derives from the close intersection between the PPA and the PCOA and the fact that NBET took the lead (from the Governments side) in negotiating the PCOA. As will be illustrated in the next chapter, the negotiation of the PCOA - which was finally signed in October 2014 - proved to be just as challenging as the negotiation of the PPA.

21

The need for credit enhancement by the Sovereign Government (to backstop the payment obligations of NBET) was linked to the recognition that it might take several years before NBET could demonstrate, by reference to a track record of sufficient longevity, that it had the capacity to meet its payment obligations in a timely and reliable fashion. Without such credit enhancement, it is simply not possible to raise the capital required to finance a project of this kind.

The initial round of discussions suggested that this backstop was likely to take the form of a Federal Government Letter of Support (LoS) akin to the instruments used by a number of other Sub-Saharan countries to help catalyse project-finance IPPs. However, by the time the first draft of the PPA was executed in April 2013, the Federal Government counterparties had opted for a different structure which became known as the Put Call Option Agreement (PCOA).

As for the parties responsible for the negotiation of the PCOA, they comprised all the institutions responsible for the negotiation of the PPA. But the universe of protagonists whose views and interests were factored into the PCOA was expanded to include the Ministry of Finance (representing the FGN); the Office of the Attorney General (Legal Counsel to the Ministry of Finance); the Ministry of Power; and the Nigerian National Petroleum Corporation (which provided a Parent Company Guarantee to the Ministry of Finance and NBET to help mitigate their exposure under the PCOA in the event of a failure by the Nigerian Gas Company to transport gas to the project).

THE PUT CALL OPTION AGREEMENT

SECTION 3

22

PCOA Negotiations - the Key Protagonists

POWER PURCHASER FGN GUARANTOR POWER PRODUCER LENDERS

NBET Ministry of Finance Azura The 5 Lead Arrangers

Hunton & Williams Ministry of Power Trinity Clifford Chance

G. Elias & Co Office of the Attorney General Templars Olaniwun Ajayi

Nexant NNPC Fieldstone Lummus

World Bank Group World Bank Group World Bank Group World Bank Group

23

LoS PCOA

0

100

200

300

400

500

2012 2013 2014 2015

No. of emails to/from Azuras Senior Management with an LoS or PCOA Heading

No.

of e

mai

ls

PCOA Timeline - Charting the Major Milestones

1 Jul 2012 1 Jan 2013 1 Jul 2013 1 Jan 2014 1 Jul 2014 1 Jan 2015 1 Jul 2015

Signed PCOA Term Sheet23 Apr 2013

Second Draft of LoS9 Oct 2013

Final Draft of PCOA Agreed10 Oct 2014

PCOA Executed22 Oct 2014

First Agreed Draft of PCOA2 May 2014

Third Draft of LoS13 Nov 2012

Multiple Iterations of PCOAJul 2013 to Apr 2014

Initial Draft of Full Form PCOA17 Jun 2013

First Draft of LoS30 July 2012

The bankability of any project-financed gas-fired IPP is critically dependent on the negotiation of a long-term Gas Sales & Purchase Agreement (GSPA) with a credit-worthy gas supplier on terms that are acceptable (and recognisable) to the providers of non-recourse debt.

In Azuras case, the journey towards a bankable GSPA required the expenditure of an extraordinary amount of time, capital and patience. Indeed, it is fair to say that the smooth linear path depicted below bears little correlation to the sturm und drang involved in: the multiple rounds of face-to-face negotiations; the iterative exchange of redlined documents; and the receipt of the necessary approvals from NBET; NERC; NPDC; and Azuras lenders.

By the time the GSPA between Azura and Seplat Petroleum Development Company PLC (Seplat) was finally executed in April 2014, most of the key protagonists felt as if they had just completed an ironman triathlon.

THE GAS SALES & PURCHASE AGREEMENT

SECTION 4

24

GSPA Timeline - Charting the Major Milestones

2011 2012 2013 2014 2015 2016

Seplat Due Diligence on AzuraFeb 2013

Final Approval of Gas Tariff by NERCNov 2014

Full Form GSPA submitted to Seplat15 May 2013

Multiple Iterations of GSPAMay 2013 to Feb 2013

GSPA InitialedFeb 2013

GSPA ExecutedApr 2014

Draft GSPA disclosed to NBET, NERC and World BankJan 2013

GSPA Term Sheet agreedJun 2012

GSPA Addendun ExecutedDec 2014

Gas Suppy Due DiligenceJan 2011 to Jun 2012

Letter of Intent securedDec 2010

GSPA Negotiations - the Key Protagonists

GAS PURCHASER GAS SUPPLIER LENDERS

Azura Seplat The 5 Lead Arrangers

NBET (Approval i.r.o. Risk Allocation) NPDC (Field Partner) Clifford Chance (Lenderss Counsel)

NERC (Approval i.r.o. Gas Pricing) Seven Energy (NPDCs Service Partner) Olaniwun Ajayi (Lenders Counsel)

Trinity & Templars (Legal Counsel) G. Elias & Co (Legal Counsel) Lummus (Lenders Technical Adviser)

25

Seven Energy Seplat

0

140

280

420

560

700

2010 2011 2012 2013 2014 2015

No. of GSPA related emails to/from Azuras Senior Management

No.

of e

mai

ls

The site of the Azura-Edo IPP is located about 50km northwest of the Oben Gas Plant (the source of the gas that will be used to fire Azuras turbines) and the pipeline that connects the Oben Gas Plant to the Azura-Edo IPP is owned and operated by the Nigerian Gas Company (NGC). Hence on 20 May 2012, NGC supplied Azura with a draft Gas Transportation Agreement (GTA) and began the two years of negotiations that culminated in the execution of the GTA on 22 July 2014. An ancillary document called the GTA Supplemental Agreement (that governs the construction of the 800m spur line between the ELPS and the Azura facility and the gas metering facility) was also signed on 22 July 2014.

THE GAS TRANSPORTATION AGREEMENT

SECTION 5

26

GTA Timeline - Charting the Dates of the Major Face-to-Face Negotiation Sessions

1 Oct 2012 1 Jul 2013 1 Apr 2014 1 Jan 2015 1 Oct 2015

Execution of GTA & Supplemental Agreement22 Jul 2014

Session 1126 Jun 2014

Session 816 May 2014

Session 1012-13 Jun 2014

Session 214 Aug 2013

Session 430-31 Jan 2014

Session 714-15 Apr 2014

Session 129 Jul 2014

Session 627 Mar 2014

Session 34-5 Nov 2013


Session 512 Mar 2014


GTA Negotiations - the Key Protagonists

GAS SHIPPER GAS TRANSPORTER LENDERS

Azura Nigerian Gas Company The 5 Lead Arrangers

NBET (Approval i.r.o. Risk Allocation) NNPC (Parent Company)

Clifford Chance (Lenderss Counsel)

NERC (Approval i.r.o. GTA Pricing & Risk)

Department of Petroleum Resources Olaniwun Ajayi (Lenders Counsel)

Trinity & Templars (Legal Counsel) Lummus (Lenders Technical Adviser)

Siemens (EPC Contractor)

As can be seen from the Timeline Chart on the preceding page, after the first meeting between NGC and Azura in May 2012, the parties agreed that any further face-to-face discussions on the GTA should take place after Azura had made further progress in its GSPA negotiations such that NGC could be supplied with precise details of the upstream gas supplier(s) and the likely interconnection points with the Escravos Lagos Pipeline System. This watershed was reached in August 2013 whereupon the parties commenced a series of intensive negotiations that involved monthly meetings, numerous conference calls and the iterative exchange of multiple redlined drafts of the GTA and the Supplemental Agreement.

0

60

120

180

240

300

2012 2013 2014 2015

No. of GTA related emails to/from Azuras Senior Management

No.

of e

mai

ls

27

The site of the Azura-Edo IPP is located directly adjacent to the Benin North Sub-Station which makes the physical evacuation of power on to the Grid far easier than is the case with projects that are remote from the nearest high voltage interconnection point. However, the contractual arrangements governing the relationship between Azura and the Transmission Company of Nigeria (TCN) still required extensive negotiations (not least because these documents were being negotiated de novo and all parties were conscious that they would form the template for other IPPs).

As shown in the chart below, the entire process took nearly 4 years from start to finish. Will this be the same for other IPPs in Nigeria? Certainly not. The contracts between Azura and TCN are highly replicable. Nevertheless, it would still be prudent for other IPPs to plan on a 24 month end-to-end cycle (i.e. from the point where they commence their evacuation studies to the point where they have agreed all the design drawings with their EPC Contractor and have executed the Grid Documents with TCN).

THE GRID CONNECTION AGREEMENT

SECTION 6

28

2011 2012 2013 2014 2015

Kick off meeting with TCN17 Feb 2011

Evacuation StudyFeb-July 2011

Cooperation Agreement18 Mar 2013

GCA Executed24 Jun 2014

TLSEA Executed3 Dec 2014

Application for GCA3 May 2013

Provisional Connection Approval12 Jul 2011

Multiple Iterations of GCAMay 2013 - Jun 2014

Design DrawingsJul 2011 - May 2013

ASA Executed24 Jun 2014

Grid Connection Timeline - Charting the Major Milestones

Grid Connection Negotiations - the Key Protagonists

POWER PRODUCER POWER TRANSMITTER LENDERS

Azura Transmission Company of Nigeria The 5 Lead Arrangers

NBET (Approval i.r.o. Risk Allocation) NIAF (Legal Counsel)


NERC (Approval i.r.o. Risk Allocation) Olaniwun Ajayi (Lenders Counsel)

Trinity & Templars (Legal Counsel) Lummus (Lenders Technical Adviser)

Jiyoda Engineering (Technical Adviser)

Parsons Brinckerhoff (Technical Adviser)

Siemens (EPC Contractor)

0

120

240

360

480

600

2011 2012 2013 2014 2015

No. of GCA related emails to/from Azuras Senior Management

No.

of e

mai

ls

29

The engineering, procurement and construction (EPC) of the Azura-Edo IPP is being carried out by a consortium composed of Siemens AG, Siemens Nigeria Ltd and Julius Berger Nigeria PLC. Siemens is also the manufacturer of the heavy equipment used in the plant and has contracted to service this equipment under a Long Term Service Agreement (LTSA).

Ex post, that all sounds very neat, simple and effortless. In reality, however, both the tendering process and the subsequent contract negotiations proved to be long and grueling affairs. Indeed, it is fair to say that, ex ante, neither Azura not its counterparties could have anticipated the full extent of the rigors that would be imposed upon them by the interlocking constraints of: international competitive bidding; World Bank requirements; NBET requirements; and lender requirements.

After the initial front end engineering design (FEED) studies had been completed, the general procurement notice was issued in October 2011 and in late November of the same year, 21 pre-qualified bidders received the formal invitation to bid (together with all the supporting documentation). A total of 17 firms pre-qualified to receive the invitation to bid, from countries including the following: USA, France, Germany, Italy, Greece, South Africa, Egypt, Israel, Saudi Arabia, Kuwait, India, China, Korea, and Japan. These firms were required to tender for the provision of fully wrapped turnkey EPC and long term maintenance services for the Project.

More than a year later (after the completion of multiple bidding rounds), a preferred bidder was finally appointed for both the EPC Contract and the LTSA. And the workload increased still further from this point as the parties settled down for the long haul of contract negotiations which lasted for 18 months before concluding with the execution, respectively, of the EPC Contract in April 2014 and the LTSA in July 2014.

EPC & LTSA Negotiations - the Key Protagonists

EMPLOYER CONTRACTOR LENDERS

Azura Siemens/JBN Consortium The 5 Lead Arrangers

Parsons Brinckerhoff (Technical Adviser) Siemens AG


Trinity & Templars (Legal Counsel) Siemens Nigeria Ltd Olaniwun Ajayi (Lenders Counsel)

ERM (E&S Adviser) Julius Berger Nigeria PLC Royal Haskoning (Lenders E&S Adviser)

NBET (influencing Risk Allocation)

THE EPC CONTRACT & THE LONG TERM SERVICE AGREEMENT

SECTION 7

30

31

1 Jul 2011 1 Jan 2012 1 Jul 2012 1 Jan 2013 1 Jul 2013 1 Jan 2014 1 Jul 2014 1 Jan 2015

General Procurement Notice14 Oct 2011

FEED studiesDec 2010 - Jul 2011

Bidder PrequalificationOct-Nov 2011

Invitation to Bid21 Nov 2011

Receipt of 1st Round EPC & LTSA Bids23 Mar 2012

Receipt of 2nd Round EPC & LTSA Bids8 Jun 2012

Receipt of 3rd Round EPC Bids2 Nov 2012

Appointment of Preferred Bidder24 Dec 2012

Preparation of Bid DocumentsJul-Nov 2011

Receipt of 3rd Round LTSA Bids16 Nov 2012

Execution of EPC Contract30 Apr 2014

Execution of LTSA Contract2 Jul 2014

Contract NegotiationsJan 2013 - Jul 2014

EPC & LTSA Timeline - Charting the Major Milestones

0

180

360

540

720

900

2011 2012 2013 2014 2015

No. of emails to/from Siemens and Azuras Senior Management

No.

of e

mai

ls

Whilst the timely and cost-efficient construction of the Azura-Edo IPP are most visibly affected by the performance of the EPC Contractor, the oversight and interface functions performed by the project owners (and their nominated Owners Engineer) are equally mission-critical.

Accordingly, the lead equity sponsor (Azura Power Holdings) and the sponsor with the greatest technical input into the project (Aldwych International) were selected by the other co-sponsors as the parties responsible for the construction management function. Their respective contractual obligations are set out in the Management Services Agreement and the Technical Services Agreement. Their broad oversight functions are complemented by the narrower (but more specialised) functions performed by Parsons Brinckerhoff (the Owners Engineer).

Construction Management - the Key Protagonists

OWNER CONSTRUCTION MANAGER LENDERS

Azura APHL / Aldwych / PB Power The 5 Lead Arrangers

Trinity & Templars (Legal Counsel) Trinity & Templars (Legal Counsel)Clifford Chance (Lenderss Counsel)

Olaniwun Ajayi (Lenders Counsel)


SECTION 8

32

Construction Management Agreements - Charting the Major Milestones

THE CONSTRUCTION MANAGEMENT AGREEMENTS

1 May 2014 1 Jul 2014 1 Sep 2014 1 Nov 2014 1 Jan 2015 1 Mar 2015

RFP for Owner's Engineer20 March 2014

Receipt of Bids for Owner's Engineer15 April 2014

Selection of PB as Preferred Bidder for Owner's EngineerJun 2014

Negotiation of Owner's Engineer AgreementJun-Jul 2014

Execution of Owner's Engineer Agreement4 Jul 2014

Negotiation of MSAApr-Dec 2014

Negotiation of TSAApr-Dec 2014

Execution of MSA23 Jan 2015

Execution of TSA29 Jan 2015

The Projects insurances are placed and maintained with onshore and offshore insurers and reinsurers in accordance with the requirements under local law and regulation. For example, the Nigerian insurance regulator, the National Insurance Commission (NAICOM) requires that the total amount of insurance is offered first to Nigerian insurers and only when the Nigerian markets capacity has been exhausted is it permissible to reinsure off-shore. Hence a key milestone for the project was the date, in late November 2014, when NAICOM issued its Approval in Principle pursuant to which Azura proceeded to bind cover at the end of February 2015.

Insurance Cover - the Key Protagonists

OWNER INSURANCE BROKER LENDERS

Azura AON & SCIB (Brokers) The 5 Lead Arrangers

Trinity & Templars (Legal Counsel) NAICOM (Regulator) Clifford Chance (Lenderss Counsel)

Olaniwun Ajayi (Lenders Counsel)

Indecs (Lenders Insurance Adviser)

SECTION 9

33

INSURANCE COVER

May 2012 Sep 2012 Jan 2013 May 2013 Sep 2013 Jan 2014 May 2014 Sep 2014 Jan 2015 May 2015 Sep 2015

RFP to Insurance BrokersMay 2012

Receipt of Bids from Insurance BrokersJun 2012

Appointment of AON as Lead Insurance BrokerJun 2012

Engagement of SCIB as AON's Local Insurance PartnerJul 2012

Local Market SoundingsNov 2013

Full Market TestingNov 2014

Application for NAICOM Dispensation14 Nov 2014

Receipt of NAICOM Approval in Principle24 Nov 2014

Purchase of Insurance Cover26 Feb 2015

Appointment of Indecs as Lenders' Insurance Adviser13 Sep 2013

Insurance Cover - Charting the Major Milestones

For the appointment of its Operations & Maintenance (O&M) Contractor, Azura replicated the international competitive bidding process that it used for the selection of its EPC and LTSA provider. However, the number of bidding rounds was a little less punishing (just two rounds instead of three). Nevertheless, the whole process still took just over two years from the issuance of the call for Expressions of Interest in March 2012 to the eventual execution of the O&M Agreement with the PIC Group (Marubeni) in May 2014.

O&M Negotiations - the Key Protagonists

EMPLOYER CONTRACTOR LENDERS

Azura PIC Group (Marubeni) The 5 Lead Arrangers

Trinity & Templars (Legal Counsel) Clifford Chance (Lenderss Counsel)

NBET (influencing Risk Allocation) Olaniwun Ajayi (Lenders Counsel)


SECTION 10

34

THE OPERATIONS & MAINTENANCE AGREEMENT

Apr 2012 Jul 2012 Oct 2012 Jan 2013 Apr 2013 Jul 2013 Oct 2013 Jan 2014 Apr 2014 Jul 2014 Oct 2014

Call for EOIs from O&M Providers22 Mar 2012

Prequalification of O&M ProvidersMar-Apr 2012

Invitation to Bid Sent Out24 Apr 2012

Receipt of O&M Bids29 Jun 2012

O&M Shortlist SelectedOct 2012

Revised Invitation to Bid Sent OutMay 2013

Analysis of Final O&M BidsJun-Oct 2013

Appointment of PIC Group as Preferred BidderAug 2013

Execution of O&M Agreement5 May 2014

O&M Timeline - Charting the Major Milestones

The construction of any large scale power plant necessitates the receipt of a wide array of regulatory permits and approvals. These include: business permits and licences (of which the most important is, of course, a generation license); environmental permits; building permits; certificates of due process and compliance; reinsurance dispensations; foreign exchange approvals & dispensations; importation permits & duty waivers; tax registrations; and stamp duty receipts.

OBTAINING KEY PERMITS & APPROVALS

5

35

The chart below summarises the key Project Permits and Approvals that had to be obtained by the Azura-Edo IPP. Each of the acronyms shown below represents a different Nigerian Government Ministry or Agency.

36

Busin

ess'P

ermit'

Gene

ra.o

n'Lic

ense,'Taris,'Etc.'

Oil'Pipe

line'License'

EIA'Sta

tement

'&'Cer

.cat

e'

Various'En

vironmental'

Permits'


Environmental'

Business'

Building'

Communi.e

s'

Insurance'

Impo

rta.

on'

Security'

Perfec.

on'

AGs'Legal'Opinions'



Community'M

OUs'Vario

us'app

rovals'(with

'FX'im

pact)'

FX'Dispensa.ons'

SON'Imp

ort'Pe

rmits'N

AFDAC'Imp

ort'Permits

'





NIPC'NERC'

DPR'

FMEnv'

NESREA'

BPP'

HAGF'

EDSG'

FML&P'

I.I.O.'NAICOM'

NOTAP'

CBN'

SON'

NAFDAC'

FMF'

NAPIMS'

NCS'

FIRS'

CAC'

Reinsurance'Ap

prov

al'


Due'Process'

Foreign'Exchange'

Previous experience has taught us that the provision of a set of timelines showing the milestone dates for each key permit/approval can produce dangerously soporific effects on the audience.

Nevertheless, to give our readership a flavour of the work involved, the chart below illustrates the steps that had to be undertaken in respect of a single permit (viz. the Environmental & Social Impact Assessment and the corresponding approval and certification by the World Bank and the the Nigerian Federal Ministry of the Environment).

37

1 Jul 2011 1 Oct 2011 1 Jan 2012 1 Apr 2012 1 Jul 2012 1 Oct 2012 1 Jan 2013 1 Apr 2013 1 Jul 2013

Submission of First Draft of ESIA to World Bank10 Nov 2011

Nigerian FMEnv Panel Hearing (Attended by the World Bank)3 Jul 2012

Submission of First Draft of RAP to World Bank16 Dec 2011

Submission of Second Draft of RAP to World Bank8 Feb 2012

Disclosure of ESIA to the Nigerian FMEnv20 Feb 2012

Newspaper Notice of ESIA Disclosure by the Nigerian FMEnv 16 Mar 2012

World Bank Approval of RAP and Submission to ASPEN10 Feb 2012

End of 120 day World Bank ESIA Disclosure Period13 July 2012

Disclosure of RAP in World Banks Information Shop6 Mar 2012

Formal FMEnv Approval of ESIA27 Feb 2013

Second World Bank Site Visit2 Feb 2012

Submission of Second Draft of ESIA to World Bank25 Dec 2011

Disclosure of ESIA in World Banks Information Shop5 Mar 2012

First World Bank Site Visit17 June 2011

World Bank Approval of ESIA and Submission to ASPEN5 Feb 2012

Panel Approval of ESIA by the Nigerian FMEnv4 July 2012

Environmental & Social Impact Assessment: Charting the Major Milestone

Funding the development, construction and on-going operations of an IPP requires a substantial amount of capital. This is especially true in emerging markets where costs can be substantially higher than in more mature markets. The reasons for this include: the early stage of development of the sector (which means that things are often done for the first time leading to additional costs); the higher cost of doing business (driven in turn by the higher costs of logistics, security, skill sourcing, and the time required for the attainment of governmental permits and regulatory approvals); and higher funding costs (capital providers want higher returns for higher risk).

ATTRACTING & SECURING THE EQUITY CAPITAL

6

38

Moreover, it is very easy to underestimate the costs of developing a large scale power project because - as this guide hopefully shows - time is money. With the development cycle lasting longer than expected, costs quickly escalate. As shown in the graphs below, the original forecast date for financial close (March 2013) was overly optimistic (to put it mildly). In turn, this delay resulted in a five fold increase in the initial development budget.

0

50

100

150

200

250

300

350

400

450

500

Jul 12 Dec 12 Jul 13 Dec 13 Jul 14 Dec 14 Dec 15

Index of Budgeted Development Costs for the Azura-Edo IPP

Inde

x of

Cos

ts (J

ul 12

= 10

0)

0

250

500

750

1,000

Mar 13 Jun 13 Dec 13 Mar 14 Sep 14 Jan 15 May 15 Dec 15

Forecast Date for Financial Close

Day

s Del

ayed

For all these reasons and many more, it is critical that the developer attracts the right type of co-developers and co-equity sponsors. Every investment institution has its own investment philosophy, its own (perceived and actual) value-add, its own perception of risk/reward, its own hold/exit strategy; and its own view of investment returns. As a result, developers must choose their equity partners very carefully.

39

For the Azura-Edo IPP, Amaya Capital (Amaya), the lead developer and sponsor, selected the following equity partners:

American Capital Energy and Infrastructure (ACEI) as its co-lead investor, with ACEI providing both financial and industry expertise to the transaction;

Aldwych International (Aldwych) as a co-developer and co-equity investor, with Aldwychs primary value-add being its technical capabilities;

African Infrastructure Investment Managers (AIIM) as a co-developer and co-equity investor, with AIIM being the largest financial investor in the project; and

Asset & Resource Management (ARM) as a co-developer and co-equity investor, with ARM, a Nigerian-resident investment firm, providing additional value through its extensive local knowledge and experience.

Finally, the Azura-Edo IPP would not have been possible without the strong and close cooperation of the Edo State Government (EDSG) which became a minority equity shareholder in APWAL in exchange for the land and support that was provided by the state government.

As displayed in the timeline graph shown overleaf, each of these partners came into the project at different times.

In contrast to the arrangement of the debt capital (see Chapter 7), the actual number of key contracts that had to be agreed to secure the equity capital were relatively few. The significant contracts were:

A Joint Development Agreement (JDA) that outlined the roles and responsibilities of the development partners;

A Development Cost Loan Agreement (DCLA) that outlined the financial terms of the JDA; and

The Shareholder Agreement and Subscription Agreement between the equity partners.

However, the length of time it took to negotiate these contracts was not short. For example, there were 32 versions or mark-ups of the first JDA before it was signed, followed by a further 30 versions of the amended contract, taking it to a total of 62 versions from beginning to end. There were 24 versions of the original DCLA and another 18 versions of the final agreement, i.e. a total of 42 versions. Thus, over 100 versions of two documents (with a combined length of over 100 pages) were negotiated over a period of 16 months i.e. 10,000 pages of review and proof reading were required just to structure the development contract between the sponsors.

40

Raising the Equity Capital - the Key Protagonists

LEAD SPONSORS CO-SPONSORS ADVISORS

Amaya Aldwych Fieldstone

ACEI AIIM Trinity

ARM Dentons

EDSG Norton Rose

Chadbourne & Parke

41

2011 2012 2013 2014 2015 2016 2017

DCLA signed between APHL, AEL, APWAL & AIIM24 Apr 2012

NDA signed between APWAL and ARM18 Nov 2011

NDA signed between APHL and ACEI29 Jun 2013

MOU signed between APWAL and Aldwych21 Jul 2011

Project Implementation Agreement signed between APWAL and EDSG28 Oct 2011

NDA signed between Amaya and Aldwych 11 Jun 2010

MOU signed between Amaya and Aldwych29 Jun 2010

Amended DCLA signed between APWAL, AIIM, Aldwych & ARM21 Aug 2013

JDA signed between APHL, AEL, APWAL & AIIM24 Apr 2012

Amended JDA signed between APWAL, AIIM, Aldwych & ARM21 Aug 2013

Shareholder Agreement signed between Amaya Capital, ACEI & APHL6 Nov 2013

Subscription and Shareholder Agreement between AEL, APHL, AIIM, Aldwych & ARM25 Nov 2014

Subscription Agreement signed between AEL, APWAL & EDSG18 Jun 2014

NDA signed between APWAL and AIIM4 Jul 2011

Letter of Extension re JDA between APHL, AEL, APWAL, AIIM & Aldwych28 Jun 2012

Letter of Services from Aldwych24 May 2013

Equity Timeline - Charting the Major Milestones

Throughout the course of the development of the Azura-Edo IPP, the single most over-used word (other than deadline, redline, well get there and no wahallah) was bankability. Every project agreement had to be negotiated with one eye on the requirements of the lending banks. With more than 70% of the total capital costs being funded by debt rather than equity, the equity sponsors could never escape the age-old adage that he who pays the piper calls the tune.

ATTRACTING & ARRANGING THE DEBT CAPITAL

7

42

The chart below shows the identities of the 15 banks that provided the debt financing (both senior and mezzanine) for the Azura-Edo IPP.

43

Stan

dard'Cha

rtered

'Ban

k'

Rand'M

erchant'B

ank'

IFC'(Interna3onal'DFI)'

FMO'(Dut

ch'DFI)'

First'City'Monument'Bank'

CDC'(Bri3sh'DFI)'

DEG'(German'DFI)'

FMFM

'(Interna3onal'DFI)'Stanbic'IBT

C'

ICF'Debt'Pool'(D

FI)'

KfW'Ban

k'

OPIC'(US'DFI)'

Proparco'(French'DFI)'

Siemens'Bank'

Swedfund'(Sw

edish'DFI)'

SCB'RMB'

IFC'

FMO'

FCMB'

CDC'

DEG'

FMFM'IBTC'

ICF'

KFW'

OPIC'

PRO'

SB'

SWED'

The chart below depicts the full range of loan agreements and the associated ancillary finance agreements and security agreements. These agreements comprise those entered into between Azura and the Lenders and those which are of a solely (or largely) inter-lender nature.

44

IBRD

%Cov

ered

%Loa

n%Ag

reem

ent%%

MIGA%Covered%Loan%Agreement%

DFI%Lo

an%Agr

eement

s%x%9%

Local%Loan%Agreement%

Loan%Agreements%

Security%

Agreeme

nts%

Mezz%Loan%Agreements%x%4%

Accounts%Agreements%x2%

Common%Term

s%Agreement%Su

bordinaD

on%Agreemen

t%

Claims%CooperaD

on%Agreem

ent%

Share%Rete

nDon%Agre

ement%

Hedging%Agreement%

Intercreditor%Agreement%x%10%Security%Docum

ents%

Ancillary%Agreements%

IBLA%

MGLA%

DFLA%

LCLA%

MZLA%

ACTS%

CTA%SUBA%

CCA%

SRA%

HDGA%

ICA%

SCTY%

As shown below, there were five lead debt arrangers for the Azura-Edo IPP: Standard Chartered Bank (Global Lead Arranger); Rand Merchant Bank (Co-Lead Arranger for the commercial debt trance); IFC and FMO (Joint Lead Arrangers for the DFI debt tranche); and FCMB (Lead Arranger for the PAIF debt tranche). These five banks constituted what became known as the Core Lender Group.

The banks, in turn, were advised by the following six advisory institutions: Clifford Chance and Olaniwun Ajayi (Lenders Legal Counsel); Lummus (Lenders Technical & Gas Adviser); Royal Haskoning (Lenders E&S Adviser); Indecs (Lenders Insurance Adviser); and Allen & Overy (Counsel to the subset of banks providing Mezzanine debt financing).

The timeline chart below shows the dates when each of the above was formally mandated to start work on the Azura project.

SECTION 1

45

2011 2012 2013 2014 2015

SCB: Ongoing DiscussionsJul 2011

Development of PIM & Financial ModelJul 2012

RMB: Mandated Co-Lead ArrangerJun 2013

Release of Debt PIM & RFPDec 2012

IFC: Mandated Joint DFI Lead ArrangerApr 2013

Clifford Chance: Appointed Lenders' CounselJan 2013

Royal Haskoning: Appointed Lenders' ESIA AdviserSep 2013

Lummus: Appointed Lenders' Technical AdviserJun 2013

FCMB: Mandated PAIF Lead ArrangerApr 2013

SCB: Receipt of Letter of IntentDec 2010

Allen & Overy: Appointed Counsel to Mezz LendersFeb 2014

Indecs: Appointed Lenders' Insurance AdvisersSep 2013

SCB: Mandated Global Lead ArrangerFeb 2012

Olaniwun Ajayi: Appointed Lenders' CounselJuly 2013

FMO: Mandated Joint DFI Lead ArrangerApr 2013

APPOINTING THE LEAD DEBT ARRANGERS & ADVISERS

The timeline chart below shows the execution dates of all the loan agreements (coloured black) and the bulk of the security documents (coloured blue) as at May 2015.

SECTION 2

46

NEGOTIATING LOAN AGREEMENTS & ANCILLARY DOCUMENTS

FMO Loan Agreement25 Nov 2014

IFC Senior Loan Agreement25 Nov 2014

ICF Loan Agreement25 Nov 2014

MIGA Covered Loan Agreement25 Nov 2014

EAIF Mezzanine Loan Agreement25 Nov 2014

OPIC Senior Loan Agreement25 Nov 2014

Offshore Bank Account Security Agreement3 Mar 2015

Onshore Trust Deed25 Nov 2014

Swedfund Loan Agreement25 Nov 2014

Proparco Senior Loan Agreement25 Nov 2014

Local Loan Agreement25 Nov 2014

Offshore Security Trust Deed26 Jan 2015

Onshore Deed of PCOA Assignment 25 Nov 2014

OPIC Mezzanine Loan Agreement25 Nov 2014

IBRD Covered Loan Agreement25 Nov 2014

EAIF Senior Loan Agreement25 Nov 2014

Onshore Security Deed25 Nov 2014

Common Terms Agreement27 Nov 2014

DEG Loan Agreement25 Nov 2014

CDC Loan Agreement25 Nov 2014

Proparco Mezzanine Loan Agreement25 Nov 2014

IFC Mezzanine Loan Agreement25 Nov 2014

Borrower Share Charge25 Nov 2014

Borrower Offshore Assignment Agreement3 Mar 2015

However, as we entered the second half of 2015, there were still a number of outstanding security documents that needed to be executed, together with a clutch of ancillary finance documents. These documents are shown in the table below.

ANCILLARY DOCS EXECUTED IN LATE 2015 SECURITY DOCS EXECUTED IN LATE 2015

Onshore Accounts Agreement Offshore Share Pledge Agreement

Offshore Accounts Agreement Offshore Subordinated Loan Assignment

Subordination Agreement

Share Retention Agreement

Claims Co-Operation Agreement

IFC, RMB & SCB ISDAS

In the run-up to Financial Close, we also had to revivify all the loan agreements (which we had previously signed in November 2014) through the execution of an Omnibus Amendment and Restatement Agreement and an Amended and Restated Common Terms Agreement.

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You cannot be serious?! The tennis aficionados amongst you will recognise this as John McEnroes signature catchphrase. It also neatly captures the expressions on the faces of some of Azuras counterparts when they were informed of the need to enter into a separate agreement, not with Azura itself but with Azuras lenders. Why, for example, should NGC (the gas transporter) having spent thousands of hours negotiating the Gas Transportation Agreement have to enter into a new agreement with Azuras finance parties. Surely these finance parties should sit behind the veil of the project company?

NEGOTIATING THE DIRECT AGREEMENTS

8

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The question above is not an unreasonable one. It is important to remember, however, that the key words in the phrase non recourse project finance are the first two. For when the banks have no recourse to the balance sheets of the equity sponsors, it is critically important that they have the right (in respect of all the key project agreements) to step into the shoes of the sponsors. Or, to put it another way, the banks need to know that the project agreements are not going to fall away at short notice just because of the non-performance of the project sponsors (much as all the parties sincerely wish that such an event never transpires) and that whenever an agreement is jeopardised, they (the banks) will have sufficient time to attempt a cure.

Hence the key elements in most of the direct agreements signed between the banks and Azuras project counterparties are as follows:

Suspension of Rights: The counterparty agrees not to terminate or suspend performance for a certain period of time from the date of the notice.

Step-In: The security agent may nominate a third party to step into the shoes of Azura under the project agreement to perform the obligations of Azura and cure the relevant default . If the default is cured, Azura steps back in.

Transfer to Third party: Alternatively, the security agent may transfer the project agreement to a third party (to be approved by the counterparty) who will take on the obligations of Azura permanently.

Step Out: The security agent and the step-in party may step-out during an agreed period if the default is not cured or if no transfer to a third party can be completed. It will also step out if the default is cured.

No Amendments and Payment Direct to the Security Agent: The counterparty agrees not to amend the project agreement without the security agents consent and to make any payments due under the project agreement (including termination compensation) to the security agent directly.

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The chart below shows the full suite of Direct Agreements that had to be negotiated between Azuras lenders and its key project counterparties.

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PPA#Direct#Agreement#

PCOA#Direct#Agreement#

EPC#Direct#Agreement#

LTSA#Direct#Agreement#

O&M#Dire

ct#Agreement#

GSPA#Direct#Agreement#

GCA#Direct#Agreement#

GTA#Direct#Agreement#

PPA#DA#

PCOA#DA#

EPC#DA#

LTSA#DA#

OMA#DA#

GSPA#DA#

GCA#DA#

GTA#DA#

The establishment of a bulk purchaser (NBET) was a huge step forward for large-scale pri