An Offtake Purchase Agreement is executed between an offtake purchaser and the private partner. It secures the project payment cash flow and obliges the offtake purchaser to procure a certain amount of project output or pay for an amount of project service, whether or not it is used, over a given time.
The Offtake Purchase Agreement may provide sanctions if the private partner/project company fails to deliver output as promised, particularly if the construction of the project is not finished on time or does not perform as required when completed. The offtake purchaser will typically look for a guaranteed long-term output from the project. One example of an Offtake Purchase Agreement is a 'power purchase agreement' between a private power producer and State power distribution companies.
An Offtake Purchase Agreement is unnecessary for some projects, such as hospitals, tunnels, roadways and bridges, where no physical offtake is produced. It is often the client of the public entity who will pay the private partner/project company for use of the project. In such instances, a separate offtake agreement may not be needed.