Adnan Adams Mohammed
A Former Chief Executive Officer of Ghana National Petroleum
Corporation (GNPC) has expressed shock at the wide-silence of the World Bank
over the 'Take-or-Pay' Power Purchase Agreement (PPAs) debate.
The current government has accused the former Mahama-led
administration for signing unproductive PPAs under 'Take-or-Pay' agreements
which is causing financial loss to the state as the country is paying for
unused power.
Reacting to this accusation, the former CEO, who was part of most of the PPAs signed under the previous administration, explained that
the Mahama government gave World Bank-backed guarantees to four independent
power producers (IPPs) to be built in Ghana to be off-takers of the ENI-Sankofa-Gye
Nyame gas. This was because the Bretton Woods institution saw the need for them
at the time
“What people don’t know is that the World Bank supported the
government of Ghana to support four IPPs to be built mainly because they needed
guarantees for the off-takers of the ENI-Sankofa-Gye Nyame gas”, Alex K. Mould
in an interview last week.
"World Bank had given Ghana US$750 million in terms of
guarantees to guarantee the ENI-led Sankofa-Gye Nyame gas project, one of the
conditions were that we would either build a pipeline or do the convertibility
so that the gas can go from the west to the east and we would have off-takers –
IPPs that are ready to take the gas”.
“And, as such, they supported Ghana to give what we call a
Government Support and Consent Agreement to these IPPs for them to be able to
take to their financial institutions to say that: ‘We have a guarantee from the
Ghana government which is backed by the World Bank; and, as such, they were
able to get the financial decision to build these plants”, he explained.
“That is what we have to understand; that there was a reason
for these plants to be built”, he argued, noting: “It wasn’t like these guys
came willy-nilly, they had a PPA, they went to their banks, they got financial
[support] and now we are saddled with that. No”.
The Daily Guide newspaper recently reported that a source at
the Finance Ministry said the government of Ghana has, so far, had to pay GHS12
billion as the cost of excess energy capacity charges inherited since 2017 by
the Akufo-Addo government from the Mahama administration due to the
‘Take-or-Pay’ PPAs signed by the Mahama government in dealing with the dumsor.
The government says the country pays over US$500 million a
year for unused electricity, since most of the PPAs were an ‘uncoordinated and
hasty’ attempt to end dumsor.
In April 2019, Danquah Institute founder Gabby Asare
Otchere-Darko, the governing New Patriotic Party (NPP) inherited “financial and
legal burdens” in the power sector, “as a result of National Democratic
Congress’ strange decision to agree to over 7,000 of excess capacity
contracts”.
According to the cousin to President Nana Akufo-Addo, the
NPP government “saved Ghana over $7 billion that we otherwise would have paid
because John Mahama decides to sign us on for power we had to pay for even
though we would never get to use”.
In his write-up, Mr Otchere-Darko said as of the end of
2016, the Electricity Company of Ghana (ECG) “had signed 14 Power Purchase
Agreements (PPA), which were operational with a combined capacity of 1104MW”.
He said another 18 PPAs were signed by ECG with a combined
capacity of about 6,000MW and 8 PPAs were under discussions with a total
capacity of 2116MW.
“This, in addition to existing generation capacity from
hydro, the VRA plants at Aboadzi and Tema; and the TICO plant, will result in a
total installed capacity of about 11,000MW if the committed capacity were all
deployed. This will by far be more than the current peak demand of 2400MW. Even
at an annual growth in demand of 10%, our country will not be able to utilise
this capacity in two decades”, Mr Otchere-Darko wrote.
In his view, “the over-contracting of capacity imposed
serious financial and legal obligations on the government and power consumers”.
To address these, he said the Ministry of Energy tasked a
Committee led by the Energy Commission to review all PPAs signed by the Electricity
Company of Ghana (ECG) for conventional thermal power projects.
The Committee, he noted, “reviewed 26 out of 30 PPAs ECG had
initiated. The other four were not reviewed because they were already
operational. The combined generation capacity of the 26 PPAs reviewed amounted
to 7,838MW”.
Mr Otchere-Darko said the “review noted that the projected
capacity additions from the PPAs were far in excess of the required additions
inclusive of a 20% system reserve margin from 2018 to 2030 and would result in
the payment of capacity charges for the dispatched plants”.
The review recommended that:
I. 8 PPAs with a combined capacity of 2070 were to proceed
without modification;
II. 4 PPAs with a combined capacity of 1,810MW were to be
deferred to 2018-2025;
III. 3 PPAs with a combined capacity of 1,150MW were to be
deferred beyond 2025; and
IIII. 11 PPAs with a combined capacity of 2,808MW were to be
terminated.
He noted that the government stood to make “significant
savings from the deferment and/or termination of the reviewed PPAs”.
“The estimated cost for the termination is $402.39 million,
compared to an average annual capacity cost of USD 586 million each year or a
cumulative cost of $7.217 billion from 2018 to 2030. This yields an estimated
saving of $6.8 billion over the 13 year period”, Mr Otchere-Darko asserted.
The International Court of Arbitration recently awarded a
cost of $134 million against the government of Ghana in connection with the
termination of one such PPAs – GPGC Limited.
The court, in its ruling, ordered the government to Ghana to
pay to “GPGC the full value of the Early Termination Payment, together with
Mobilisation, Demobilisation and preservation and maintenance costs in the
amount of US$ 134,348,661, together also with interest thereon from 12 November
2018 until the date of payment, accruing daily and compounded monthly, at the
rate of LIBOR for six-month US dollar deposits plus six per cent (6%).”
The Government of Ghana will also pay an amount of “US$
309,877.74 in respect of the Costs of the Arbitration, together with US$
3,000,000 in respect of GPGC’s legal representation and the fees and expenses
of its expert witness, together with interest on the aggregate amount of US$
3,309,877.74 at the rate of LIBOR for three-month US dollar deposits,
compounded quarterly” to GPGC.
In his interview, however, Mr Mould insisted that the Mahama
administration did not just enter into PPAs for their sake. “The Ghana
government supported these IPPs because it was one of the World Bank’s
stipulations and for the World Bank to stipulate that they put their money
where their mouth was, they backed these IPPs to be built in Ghana, I am
surprised that the World Bank is so quiet about these issues”.
“When people raise issues that the John Mahama-led
government were at one time giving out PPAs and gave out PPAs and got these
plants built when we did not need the electricity; will the World Bank
guarantee if we did not need the electricity? That is the fundamental question
and what surprises me is how quiet the World Bank is when this government talks
but when the NDC is in power and we are talking, the World Bank is very vocal”,
he observed.
“I am surprised and I’m just hoping and I know, when we come
back, we will be able to deal with them so they deal with us the same way they
are dealing with the NPP”, he noted.
“They [World Bank] should come out and tell the people of
Ghana that: ‘Yes’, they were behind us getting these IPPs built. They supported
us because they did the analysis and they realised that we needed this power in
the country”, he argued.
“They supported it not only with their mouth, but they
supported it by giving government the requisite support we needed, financially,
to get these plants built. There were more than four plants which applied,
maybe about eight plants that applied but the World Bank said: ‘We would only
give approval for four’. Amandi, Trafigura one and two others”.
Mr Mould also disputed the claim that Ghana has been paying
some $500 million per year for the excess capacity.