By Sihle Bulose, Partner, Corporate and Commercial Practice at CMS South Africa
Africa’s energy transition is not short of ambition, projects or potential investors. Its constraint is the number of projects – and acquisition targets – that can withstand legal, commercial and financial diligence. Around 565 million people in Africa still live without access to electricity. Closing that gap requires more generation, but it also requires transactions whose revenues, permits, grid access and risk allocation remain credible throughout the life of the asset.
For energy investors, bankability is not synonymous with a sovereign guarantee. Nor does moving away from a state-backed offtaker eliminate the need for credit support. The real question is whether each material risk sits with the party best able to manage it, and whether the resulting package can support long-tenor capital at an acceptable cost.
Bankability begins before the term sheet
From an M&A perspective, the quality of the asset is determined well before signature. A technically attractive project can lose value quickly if land rights are insecure, environmental approvals are vulnerable, grid capacity is assumed rather than contracted, or a licence cannot be transferred following a change of control.
Legal diligence should therefore test the project’s critical path, not merely compile a list of documents. This includes confirming the validity, duration and transferability of permits; the enforceability of land and access rights; compliance with local ownership and procurement requirements; the status of grid-connection and wheeling arrangements; and whether project contracts, financing documents or concessions contain change-of-control restrictions.
The findings must then be translated into the transaction documents. Some risks can be addressed through conditions precedent, pre-completion covenants, targeted indemnities or price retention. Other issues, particularly missing permits, uncertain grid capacity or an unenforceable revenue arrangement, may be fundamental to value and should not be treated as routine warranty matters.
Guarantees are part of the toolkit, not the strategy
Historically, many utility-scale independent power producer projects relied on sovereign or government support for the payment obligations of a state-owned utility. In markets where fiscal headroom is constrained, that model may be unavailable, limited or expensive. The answer is not to pretend that the underlying risk has disappeared. It is to identify the exposure precisely and use proportionate support.
Depending on the project and jurisdiction, the capital and credit package may combine sponsor equity, commercial and development-finance debt, local-currency funding, partial-risk or credit guarantees, political-risk insurance and narrowly tailored government undertakings. These instruments do different jobs. Political-risk insurance may cover specified risks such as expropriation, currency inconvertibility, political violence or breach of contract; it does not substitute for a viable tariff, a creditworthy offtaker or a functioning grid.
Currency risk remains particularly difficult where revenues are earned in local currency but debt is serviced in hard currency. Indexation, local-currency debt and hedging can help, but their availability, tenor and cost vary materially by market. A structure is not bankable merely because the documents allocate foreign-exchange risk: the allocation must be economically sustainable and enforceable.
Private offtake changes the risk (but doesn’t remove it)
Corporate power purchase agreements with mines, industrial users, telecoms operators and data centres are expanding the range of potential buyers and reducing dependence on a single state utility. They can also support portfolios that sell power to several customers. But private offtake replaces sovereign exposure with a different set of risks: corporate credit deterioration, shorter business cycles, demand variability, early termination and concentration.
Financiers and acquirers will examine whether the PPA term matches the debt profile; whether credit support survives a restructuring or sale of the offtaker; whether termination payments cover the relevant debt exposure; and whether replacement offtakers can be added without reopening the financing package. Where power is wheeled through a public network, the transaction must also allocate grid unavailability, curtailment, losses, balancing charges and changes in wheeling tariffs.
The corporate architecture matters
African energy assets are often held through joint ventures involving international sponsors, local partners, infrastructure funds and development-finance institutions. The shareholders’ agreement must work in both the ordinary course and under stress. Reserved matters should protect investors without paralysing operations. Funding provisions should address future equity requirements, shareholder loans, dilution and default. Deadlock mechanisms should be usable in practice, rather than depending on an exit market that may not exist.
Investors should also plan for future transactions. Pre-emption rights, permitted transfers, tag and drag rights, change-of-control provisions and lender consent requirements need to align across the shareholders’ agreement, financing documents and key project contracts. Misalignment can delay a refinancing, prevent a partial exit or give a minority shareholder unintended leverage at the point when capital is most needed.
Bankability must survive completion
Signing an acquisition agreement in connection with an underlying power producer portfolio does not cure weaknesses in the underlying project. The transaction timetable should be built around regulatory approvals, lender consents, government or offtaker approvals, competition clearance where applicable, and any conditions attached to licences or concessions. Completion accounts, locked-box protections and earn-outs must also reflect the project’s revenue model and development stage; conventional EBITDA measures may be a poor proxy for value before commercial operations.
After completion, integration and governance are part of the legal risk plan. Compliance systems, reporting obligations, local-content commitments, environmental and social undertakings and financing covenants must be capable of being monitored at asset level. If the acquisition thesis depends on refinancing, expansion or additional offtakers, the legal pathways for those steps should be established before the buyer commits capital.
The investable project is the real product
Africa’s energy markets are moving towards a mix of utility procurement, private offtake, distributed generation, storage and cross-border trading. No single contractual model will fit every market, and government support will remain necessary for some risks and projects.
The more durable proposition is disciplined bankability: credible revenues, secure rights, workable grid arrangements, proportionate credit support, resilient governance and transaction documents that convert diligence findings into enforceable protections. For sponsors, lenders and acquirers, the objective is not to eliminate risk. It is to build an asset whose risks can be understood, priced, financed and transferred. That is what will turn Africa’s energy opportunity into completed transactions and operating infrastructure.
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