Take-Or-Pay And Take-And-Pay: Practical And Bankability Considerations In Power Purchase Agreements

Over the years, power markets worldwide have relied on contractual frameworks to allocate risks, ensure revenue certainty, and facilitate investment in capital-intensive infrastructure. In Nigeria, the electricity sector has historically has long grappled with structural inefficiencies, including inadequate generation and transmission capacity, liquidity shortfalls, and tariff gaps.

Power Purchase Agreements (PPAs) have consistently served as the cornerstone of investments in the sector, typically structured around two well-established contractualmechanisms: Take-and-Pay and Take-or-Pay obligations.Under any PPA, energy or gas sale agreement, the producer (Generator) undertakes to make a specified volume of power, gas, or energy available to the purchaser. The purchaser's obligation to pay then depends on the agreed contractual structure, which determines whether payment is contingent on actual offtake (Take-and-Pay) or guaranteed irrespective of offtake