Rain, record temperatures... and risk

Posted in Northern Africa Southern Africa Central Africa Western Africa Eastern Africa Blog post Renewables Oil and gas Power Infrastructure

We would typically argue that extreme weather events are unforeseen, and must be natural force majeure “acts of god”. But will this always be true? 

In Botswana in the week of 11 January 2016 near record temperatures are recorded. People die of heat stroke. In Zimbabwe the falling level of Lake Kariba gives cause for concern for the Zambian and Zimbabwe hydropower plants. South Africa is in the grip of a drought that shows no sign of abating. 2015 was the driest year since records began in 1904. Livestock have been slaughtered, crops have not been planted. All this while in the northern hemisphere December 2015 in the UK will go down in history as one of the wettest – and warmest – on record. Based on records going back to 1910 this was the wettest December ever in Scotland and Wales.

 Do these recurring extremes of weather conditions mean that sooner rather than later we will need to reconsider risk allocation paradigms on African energy and infrastructure projects?  Can such extreme weather conditions still be regarded as “acts of god” when defining allocation of risk for natural force majeure events? For if these exceptional events are no longer exceptional but are fast becoming the new normal, will it be incumbent on us to rethink the consequences? If weather data is being skewed by these record events, project developers may find themselves being forced to budget for such extremes in their project pricing.

 Fifteen years ago the drafting of force majeure clauses in contracts would include within the standard litany of events a  “tsunami”, although those of us involved in the negotiation had no real appreciation of what such an event could entail. Now, after the events of 2004, we are all too well aware of the impact and consequences of such an event. Perhaps we will now have to start to rethink the realities of other extreme weather events on our projects. If countries and regions are increasingly prone to extremes of weather, will project counterparties be able to contend that such extreme events were not expected and they should continue to be allowed relief from performance under their contracts, or from the consequences?


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