By Chongo Sombo Mulenga (MCIArb)
An Independent Power Producer (IPP) is a private entity that produces electrical energy for sale to a utility, central government buyer or the public at large. IPP projects and Public Private Partnership (PPP) projects share the central theme of private sector involvement in the provision of a public service or asset; save that IPPs are limited to the energy sector whereas PPPs span across various sectors such as transportation, water and sanitation, agriculture and telecommunications, among others. On account of the strong overlaps between IPPs and PPPs, experts opine that IPPs are actually a form of public private partnership focusing on
electricity supply.
Key Differences between PPPs and IPPs
As PPPs and IPPs represent a collaborative effort between the public and private sectors in infrastructure development and the delivery of public services, curiosity demands an appreciation of the distinguishing factors. Some of these factors pertain to the following:
Sector Coverage and Scope
PPPs span across various sectors and are therefore considered to have a wider sector coverage as opposed to IPPs which are focused on and limited to energy production. In this regard, PPPs have a broader scope viz a viz infrastructure development and public service delivery as compared to IPPs which are exclusively dedicated to the generation and sale of electricity.
Objectives
While it has been advanced that IPPs are a form of public private partnership, it is cardinal to note that IPPs are predominantly commercially motivated and the delivery of electricity supply to end users can be said to be a means to an end. For this reason, many IPPs are anchored on “Build Own Operate” or “Build Own Operate and Transfer” PPP models which enable the private entity to operate the project facility for profit. Conversely, public service delivery and infrastructure development are at the heart of PPPs which seek to leverage private sector financing, efficiency and expertise in the delivery of public services. For this reason, it is not uncommon to see PPP projects facilitated through alternative models such as “Build and Transfer” whereby the public sector reimburses the total project investment with returns for the private entity from sources that may not necessarily relate to the project itself.
Contractual Relationships
The rights and obligations of the public and private entities under a PPP project are governed by a concession agreement which records the long term contractual arrangement between the parties. The parties under a Concession Agreement are recognized as the “Contracting Authority” representing the public sector and the “Concessionaire” representing the private entity which creates a project company or Special Purpose Vehicle through which it fulfils its responsibilities and exercises its rights under the Concession Agreement.
On the understanding that IPPs are a form of public private partnership, it must be noted that under an IPP project, the public and private sector entities also enter into a Concession Agreement which not only stipulates the parties’ obligations relating to the sale and purchase of the power generated, but also reflects the parties’ agreement for the design, construction, operation and maintenance of the power plant. However, certain agreements are akin to IPPs such as the Power Purchase Agreement (PPA) which is the principal agreement for the sale and purchase of electricity entered into between the off taker of the one part and a privately – owned/independent power producer of the other part. Under a PPA, the public sector purchaser of electricity is referred to as the “off taker” and, as per common practice in PPPs, the private party establishes a project company or Special Purpose Vehicle for the development, financing, construction and operation of the power plant. The foregoing notwithstanding, there are other project related agreements that form part of the contractual framework for PPP and IPP projects. These include Financing Agreements; Engineering, Procurement and Construction (EPC) Contracts; Operation and Maintenance (O&M) Contracts and Government Support Agreements, where necessary.
Conclusion
In summary, this brief comparative analysis highlights the peculiarities and similarities of PPPs and IPPs. While both project types involve private sector participation, there are key differences relating to sector coverage, objectives and contractual relationships. Ultimately, PPPs and IPPs encourage public and private sector collaboration and development within infrastructure and energy sectors.
Resource Materials:
1. Understanding Power Purchase Agreements – Version 1.2, funded by Power Africa and developed by the African Legal Support Facility (ALSF) and the Commercial Laws Development Program (CLDP) of the United States, 2014
2. https://ppp.worldbank.org/public-private-partnership/sector/energy/energy-power-agreements/power-purchase-agreements
3. https://alsf.academy/
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