Ann: Red Sky Signs Gas Sales Agreement with Origin Energy, page-48

I learned something new today...

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What Is Take or Pay?

Take or pay is a provision in a contract stating that a buyer has the obligation of either taking delivery of goods from a seller or paying a specified penalty amount to the seller for not taking them. Take-or-pay provisions benefit both parties by sharing risk, and they benefit society by facilitating trade and reducing transactions costs.

KEY TAKEAWAYS

• Take or pay is a type of provision in a purchase contract that guarantees the seller a minimum portion of the agreed-on payment if the buyer does not follow through with actually buying the full amount of goods.
• Take-or-pay provisions can commonly be found in the energy sector, where overhead costs are high.
• Take-or-pay provisions benefit buyers, sellers, and the economy as a whole by sharing the risk of overhead investment and facilitating commerce that might otherwise not occur.

https://www.investopedia.com/terms/t/takeorpay.asp