Originally published in The Lightbulb, a journal of the African Legal Support Facility (ALSF).
Swift and equitable negotiation of power purchase agreements (PPAs) is critical to accelerating renewable energy deployment across Africa and meeting the continent’s energy access targets. As the foundational contract underpinning privately financed power projects, the PPA defines the obligations between the project developer and the power purchaser, typically a state-owned utility, and determines the revenue stream that secures project financing. Given that lenders usually provide over 75 percent of total development costs, the PPA’s structure and integrity are crucial to both financial viability and long-term sustainability. However, despite their central role in power sector investment, persistent myths surrounding PPAs continue to distort governance, inflate public debt, and impede progress on essential infrastructure. Drawing on lessons from Ghana, Zambia, and other comparative experiences with contract disclosure and standardisation, this article challenges five of the most common misconceptions about PPAs and argues that transparency in power contracting is indispensable to Africa’s energy and fiscal future.
Myth 1: PPAs are private agreements between private parties that should enjoy a high degree of confidentiality
In reality, this description applies only to fully liberalised wholesale power markets. It does not reflect how power purchase agreements function across most of Africa. PPAs on the continent are rarely private in any meaningful sense. They are usually signed with independent power producers in environments where governments provide guarantees, oversee the electricity market, or rely on state-owned and state-subsidised utilities as offtakers. The financial implications of these agreements flow directly to citizens through higher tariffs, taxation, or additional public borrowing, which exposes national balance sheets to long-term fiscal pressure. Even when the project developer is a private entity, the offtaker, the guarantor, and the ultimate payer of the costs are public. For that reason, the public has the most significant stake in how these contracts are negotiated and managed.
International financial institutions have repeatedly cautioned against treating PPAs as purely commercial transactions. The International Monetary Fund’s Fiscal Monitor in 2020 emphasised that future government obligations arising from contract defaults can evolve into significant contingent liabilities and contribute to debt distress in low-income countries. Ghana provides a clear illustration. In 2019, the Ministry of Finance reported that payments for unused power capacity under PPAs amounted to around USD 500 million dollars annually, straining the national budget and contributing to the country’s subsequent debt restructuring. The IMF highlighted these risks in its Article IV consultations with Ghana. A similar pattern unfolded in Zambia, where the 2020 sovereign default was linked in part to sizeable off-balance-sheet commitments in the power sector, a point underscored by World Bank analyses.
When the public ultimately bears the financial burden of contract failure, it follows that the terms of these agreements should be open to public scrutiny.
Myth 2: Transparency drives investors away and slows projects
In practice, well-functioning markets depend on information and trust. In many emerging economies, energy project financing carries a heavy risk premium, driven mainly by data opacity and regulatory uncertainty. Governments that worry transparent contracting will expose their decisions to unwelcome scrutiny overlook a simple fact. When investors lack information, they tend to assume the worst about legal, financial, and technical risks. This leads to higher capital costs, which in Africa are two to three times greater than in advanced economies. Transparency is therefore not the obstacle; uncertainty is. Open contracting helps reduce that uncertainty, lowering perceived risk and improving financing terms.
Examples from across the continent illustrate this dynamic. In Zambia, previously undisclosed power-sector arrears amounting to more than one billion dollars in PPA-related liabilities intensified perceptions of sovereign fragility and raised the country’s borrowing costs. The International Finance Corporation’s Creating Markets initiative similarly identifies the absence of accessible contract and sector data as a major reason investors demand higher risk premiums in power projects. Broader fiscal research reinforces these conclusions. Analyses show that greater budget transparency can improve a country’s credit rating by up to one notch and that transparent debt reporting is a stronger predictor of sovereign risk than political regime type. The IMF also finds that increased debt transparency lowers borrowing costs across emerging markets, particularly in states with substantial financing needs.
Investors respond to uncertainty. Open contracting gives market participants a more accurate understanding of project and sovereign risk, strengthening investor confidence and ultimately improving project viability.
Myth 3: Power markets are too different for standard contracts
In practice, African power markets share several core features. State-owned utilities dominate electricity supply, governments provide various forms of public guarantees, and many countries pursue regional power-trade ambitions. Renewable energy projects, especially solar and wind, also tend to follow similar technical designs and risk-allocation structures across the continent.
These commonalities provide a strong foundation for standardised contracts. Model PPAs and uniform templates help streamline negotiations, reduce drafting errors, and lower transaction costs, which ultimately reduces the cost of power. Standardisation is beneficial in smaller or capacity-constrained markets where governments may have limited experience with previous projects and therefore limited knowledge of established contracting norms. Openly sharing and adopting model PPAs enables governments to strengthen their contracting capacity and supports the gradual convergence of legal frameworks across regions. This kind of harmonisation strengthens emerging power pools and encourages fairer, lower-cost contracting practices.
Regional institutions and development partners have long recognised these benefits. The African Development Bank, in its Regional Integration Strategy, has highlighted the value of harmonised legal frameworks and explained that standardised contracts are essential for successful regional power pools. Over the past decade, several governments and multilateral institutions have used standardised procurement models and non-negotiable PPAs, government support agreements, and financing documents to reduce transaction costs and accelerate financial close for renewable energy projects. The Open Solar Contracts initiative offers a practical example of this approach. By making standardised PPA templates publicly accessible, including those used for Barbados’s solar feed-in tariff programme, it shows how replicable contracting models can support transparent and efficient procurement.
Standardisation is therefore not a loss of flexibility. It is an effort to build on proven contractual norms so that negotiations conclude more quickly and agreements reflect fair and sustainable terms. As countries seek greater private investment and deeper integration through regional power pools, harmonised PPAs offer a pathway to affordable energy and more substantial economic cooperation.
Myth 4: PPA debt does not affect national balance sheets
In reality, the financial obligations embedded in power purchase agreements have direct consequences for public debt. This mirrors the misunderstanding that PPAs function as private contracts. Across much of Africa, utilities that sign these agreements remain state-owned or heavily state-funded, which means their payment commitments under PPAs are treated as sovereign liabilities. The IMF’s evolving approaches to accounting for contingent liabilities make this connection increasingly explicit. When governments also issue sovereign guarantees to support these projects, the exposure on national balance sheets becomes even more substantial. Limited transparency around these obligations turns them into hidden debt risks that can undermine fiscal stability.
Recent country experiences demonstrate the scale of the challenge. After Zambia’s 2021 audit, the IMF identified around $1 billion in deferred arrears under PPAs and recognised them as underreported public debt. This finding contributed to the country’s broader sovereign credit crisis. IMF and World Bank public finance analyses repeatedly stress the importance of including contingent liabilities such as PPAs and other public-private partnerships in debt sustainability assessments to prevent destabilising surprises. Empirical studies referenced by the IMF show that concealed debt obligations increase borrowing costs, weaken investor confidence, and heighten the likelihood of sovereign default, particularly in emerging markets.
Debt obligations arising from opaque PPAs present immediate and long-term risks for debt sustainability. Without public insight and stronger oversight, governments may handle these commitments poorly, worsening the debt pressures that already affect many African economies.
Myth 5: Technical complexity justifies confidentiality
In reality, complexity should lead to more transparency rather than less. Complex and opaque agreements make it difficult for governments to benchmark prices and terms, reduce regulators’ ability to provide adequate oversight, and limit officials’ capacity to negotiate stronger contracts in the future. Complexity, therefore, argues for greater openness. Transparent contracts enable data analysis, strengthen accountability, and build institutional expertise over time.
Experience from the extractives sector illustrates this clearly. Countries that have paired complex petroleum and mining contracts with transparency measures, such as regulatory publication requirements, parliamentary review, or public data platforms, have achieved better commercial terms and reduced corruption risks. The Extractive Industries Transparency Initiative’s contract disclosure standard shows that even highly technical petroleum agreements can be published without undermining investor engagement or weakening a government’s negotiating position. Research by the Open Contracting Partnership and the Open Government Partnership further demonstrates that publishing complex infrastructure contracts improves project performance and increases public trust.
In practice, complexity is most effectively managed when data is shared and accessible. Concealment limits institutions’ ability to learn, adapt, and negotiate better deals.
Conclusion and recommendations
Transparency offers a pathway to stronger institutions, better contracts, and a more secure energy future for Africa. Moving beyond long-standing myths about power purchase agreements will allow governments to benefit from the demonstrated advantages of contract disclosure and standardisation. With power sector investments representing multi-billion-dollar, long-term fiscal commitments, and with energy access central to economic growth, transparent contracting becomes a foundation for sustainable development rather than simply an element of good governance.
African governments, therefore, face a clear choice. They can continue relying on outdated assumptions that strain public finances and slow the expansion of reliable electricity, or they can adopt practices that have delivered improved outcomes in other regions and sectors. The myths surrounding power sector contracting have endured for too long. Replacing them with evidence-based approaches will strengthen accountability and deliver the transparency that citizens, investors, and development partners increasingly expect.
A practical four-part framework can help governments implement transparent contracting. The first step is to legislate disclosure so that PPA terms, associated guarantees, and linked fiscal obligations are published as a matter of course. Ghana’s Energy Sector Recovery Programme illustrates the value of this approach. The publication of power-sector arrears in 2019 revealed more than two billion dollars in contingent liabilities and created the conditions for renegotiating problematic agreements.
The second step is to adopt model contracts. Standardised PPA templates adapted to national contexts can shorten negotiation timelines and lower risks. The extractives sector shows what is possible. Countries using model petroleum contracts reduced average negotiation periods from eighteen to six months and secured stronger fiscal terms. Chad’s experience stands out, with its adoption of model petroleum agreements increasing the government’s revenue share by fifteen percent while attracting stronger investors.
The third step is to systematically report contract data. Including PPA-related liabilities in annual debt reports and debt sustainability assessments helps ensure that fiscal risks are reflected in official analyses. The IMF’s debt sustainability assessment for Ghana explicitly identified contingent liabilities from the power sector as a significant source of fiscal pressure. Countries such as Rwanda, which include these obligations in their public debt reports, are better positioned to build creditor confidence and avoid unexpected financial shocks.
The fourth step is to strengthen the state’s capacity to manage these contracts. Establishing specialised contract management units within ministries, utilities, and regulatory bodies allows governments to monitor, oversee, and renegotiate agreements more effectively. Colombia’s experience demonstrates that improved oversight of complex resource contracts can raise government revenues significantly; its dedicated contract management units increased revenue by twenty-five percent. Transparent and competitive procurement should also be encouraged wherever possible. Pakistan’s competitive solar auctions secured tariffs that were sixty percent lower than those negotiated through direct deals. In contrast, South Africa’s renewable energy auction programme procured more than 6,300 megawatts at prices that declined with each successive bid round. These steps offer a route to more resilient power sectors, stronger public finances, and an energy landscape in which Africans benefit from contracts that serve the public interest.