A provision in a project finance transaction between a project company and an offtaker that requires the offtaker to either purchase and take delivery of the product (or use a service) or pay a specified amount to the project company. The amount the offtaker must pay if it does not take delivery of the product (or use the service) is typically calculated to pay the project company's fixed costs, make debt service payments and earn a specified return for the sponsor.

In some cases, the offtaker's obligation to pay the specified amount may be structured as a hell or high water obligation. This means that the offtaker must pay the contract price even if the project company cannot perform its obligations under the agreement (whether as a result of a force majeure event or the unavailability of the project). While this provision provides the project company with a stable revenue source that can be used to repay the loans, it is not common. Offtakers typically do not want to be obligated to pay unless the project is ready and available to deliver the product or the service required under the agreement and they elected not to take delivery or use the service.

For more information on offtake agreements and how they are used in project finance transactions, see Practice Notes: