Monday, 30 October 2017

Politics in AMERI deal draining Ghana…. Causes VRA US$11.5m debt per month

Adnan Adams Mohammed

The nation has once again been plunged into the AMERI Power Project controversy with a stiff political stand-off between the former NDC administration which contracted and signed the deal and the current NPP administration.

The danger of this political stand-off is that, the deal is costing the country a whopping US$11.5 million a month, workers of the Volta River Authority (VRA) have said.

VRA has reported that, it has incurred a debt of US$218 million within the first 18 months since the deal was signed in January 2016.

Chairman of the VRA Senior Staff Association, Cephas Ducerhas said per the off-taker agreement signed in the AMERI deal, Ghana Gas would have to supply gas to AMERI at a cost and after the power is produced there is a capacity charge and variable cost.

“The total cost of AMERI power is the cost of the gas plus the capacity charge,” he said, adding, they have a tariff of 15 cent per kilowatt hour but the same power is sold to ECG at a cost of 5 cents per kilowatts hour.

“For every power we pick from AMERI and sell to ECG we have a deficit of 10 cents per kilowatts we have to deal with. We have done the analysis and on the average we incur a loss of $11.5 million every month.

“That is how bad the agreement is and someone must pay for it,” Mr Ducer stressed.

His revelation comes at a time the government has taking a stance of either abrogating or renegotiating the deal.

In 2015, the John Mahama administration signed a US$510 million Build, Own, Operate and Transfer (BOOT) Agreement with AMERI Energy to help solve power crisis the country was enduring at the time.

The deal was criticized heavily by the then opposition, as well as civil society groups including the African Center for Energy Policy (ACEP) and IMANI Africa.

There were claims the deal had been inflated by about US$150 million, an allegation officials of the former administration have rejected.

Several months after operations commenced, VRA workers say the deal is unsustainable.

VRA workers says they do not understand how government will sign an agreement with private power producers who will be depending on government for gas to run their facilities.

They would rather wish these power producers purchase their own gas supplies.

“Until recently, about 70-80 per cent of the gas VRA procured from Nigeria was given to Sunni Asogli for their thermal power generation.

“The Authority has done this for the past ten years. As at now Asogli owes VRA over US$203million for gas supplies,” they said, adding the delayed payment led to suspension of gas supply to Ghana in July 2016.

However, Mr. William Nyarko, Executive Director of the Africa Centre for International Law and Accountability (ACILA) is cautioning the NPP government to “tread cautiously on the AMERI deal”.

Mr. Nyarko is of the view that parliament is not following the proper process to cancel the contract since it is an international transaction which cannot only be subjected to domestic laws.

In statement shared on his facebook page; he said, “This is an international business transaction which was ratified by Parliament and all conditions precedent to the coming into force of the agreement were met and Ghana had the option to cancel the agreement under Section 3(b) of the agreement.

“This agreement being an international business transaction, a finding of fraud and subsequent rescission by Parliament (Parliament is not even following the proper process, it is the judiciary that should be looking at the alleged fraud) will not invalidate the Ameri agreement. Ghana will still be bound by the agreement.”

The International lawyer further stated that, “The Addison report didn’t address the fact that this is an international business transaction and that it is more complicated than merely using a domestic law approach to tackling the alleged issue of fraud. For fraud to stick on Ameri, it must have been perpetrated by Ameri, not Ghanaian officials…

“Section 2(c) of the Ameri agreement requires Ghana to pay a hefty early termination charge in accordance with Section 25(b) of the agreement.”

He advised that, Ghana should be mindful of the standard arbitration clause in the agreement, which provides a dispute settlement process starting with one expert review and determination, failing which the matter will be decided by three experts who will sit on the matter in London, applying UNCITRAL Arbitration Rules.

Meanwhile, K.T Hammond, New Patriotic Party (NPP) Member of Parliament for Adansi Asokwa who was the ranking member of the Energy Committee of Parliament in 2015 when the deal was approved, told Parliament’s Mines and Energy Committee on last week that AMERI failed to live up to portions of the agreement presented to Parliament in March 2015.

He has therefore moved that Parliament withdraws the AMERI agreement due to what he calls “misrepresentations” by the company when the deal was presented to the House under the Mahama Administration.

Mr. Hammond notably seconded the motion for the agreement between the Mahama administration and the Africa and Middle East Resources Investment Group’s (AMERI Energy), to rent the 300MW of emergency power from the company for $510 million, at the peak of the country’s power crisis.

According to him, AMERI acted in a way that was contrary to its proposal to the government for which reason he had seconded the motion for the agreement to be ratified two years ago.

“The law allows for procurement to be made and sole-sourced. The government went through that procedure and brought the agreement to Parliament. We agreed on the $510 million, and expected that they would go out there and achieve results the way it had been presented to us. It’s the process that [it went through] that has brought me here. They made so many misrepresentations,” he said.

He earlier this year revealed that, Ghana stands to lose that $150 million to AMERI in the deal.

He has asked Parliament to, therefore, rescind the agreement in order to allow for a renegotiation of the deal to ensure that the country isn’t shortchanged.

“I beg to move that this House rescinds its aforementioned decision on the terms that AMERI Energy re-engages with government to re-negotiate the said agreement with a view to reaching terms that are agreeable and mutually beneficial to both parties,” the motion from KT Hammond said.

AMERI in its agreement with Government dated February 10th, 2015, charged Ghana significantly higher than what it was charged by the Turkish registered company, PPR, which financed and executed the project.

The Turkish firm pegged the total cost of the project at a maximum of $360 million.

However, in the Build Operate Own Transfer (BOOT) agreement signed between the government and AMERI, the deal was pegged at a minimum of US$510 million leaving Ameri with a commission of US$150 million.

But, Edward Bawa, NDC Member of Parliament and former Communication Consultant to the Ministry of Energy in an attempt to share a few insights into this developing story stated that, the AMERI controversy is going beyond the alleged attempt by government to save the taxpayer some money through either a renegotiation of the current deal, an abrogation of the agreement because of alleged fraud or both, to the seeming suggestion that the minority MPs on the Mines and Energy Committee are unpatriotic by their action not to take part in the deliberations on the referral brought to the committee by Mr. Speaker with respect to the Ameri project.

He explained that, the Minority MPs on the Mines and Energy Committee decided upon due consideration of all relevant facts, not to take part in the deliberation of the Committee in respect of the urgent motion filed by Hon. K.T. Hammond.

Mr Bawa said, the Minority does not want to be part of any bad precedent as far as parliamentary practice is concerned. “Parliament as an arm of Government conducts its business on the dictates of the Standing Orders as stipulated under Article 110 (1) of the 1992 Constitution. In other words, any action or move taken by any Member of the House has to be within the remit of the Constitution and the Standing Orders. It is worthy to note that there is no part, section or rule of the Standing Orders that allows for a motion to be referred to a committee after it has been moved and seconded to without deliberation by the House. This cannot be found in the current Standing Orders or any Standing Orders of Parliament since independence.

“Secondly, it is strange that Hon. K.T. Hammond, who is not a party to the agreement, is requesting Parliament to rescind its decision on the basis of gross misrepresentation. Hon. K.T. Hammond has no locus standi in this matter. Though we in the Minority respect the right and standing of Hon. K. T. Hammond as a member of the Committee on Mines and Energy to take up matters pertaining to the sector, in the overall circumstances of this matter, we think he is just a busy bee and should not be honoured with any consideration of the referral by the committee.”

The MP emphasized that, “It must be noted that, though Parliament has a constitutional role in the approval of international economic or financial agreements to which the Government is a party, Parliament becomes functus officio after approving such agreements. Once approved, the agreements are now in the domain of the parties thereto which, in this case are the executive branch of government and Ameri Energy. If there is anything untoward about the agreement, it is for the parties to say so and take the necessary action within the framework of the agreement to vindicate their rights and not for any other person.”

In reference to the case at hand, in the Supreme Court case of Ndebugre v. Attorney-General & Anor, Suit Number J1/5/2013 [Unreported], the Supreme Court held that where parliament exercises its constitutional function of approving an agreement without indicating that it has a future role in the termination or variation of the terms of the agreement, Parliament cannot subsequently purport to partake in terminating or varying such terms. In the specific instance of the Ameri BOOT Agreement, Parliament failed and or neglected to indicate in the approval decision that it retained a future role in the termination of the agreement. Therefore, the attempt to do so using the motion filed by Hon. K. T. Hammond is, in our considered opinion, ultra vires the powers of Parliament and hence unconstitutional.

Mr Bawa has however said, the NDC MPs believe that, notwithstanding the emergency nature in which this project was done, Ghana still had value for money.It is therefore not surprising that Hon K.T Hammond does not make any reference, in arguing his case, to the contract itself that binds the Government of Ghana and Ameri Energy, but jumps to an EPC agreement between Ameri and a third party. What we should be asking Hon. K.T Hammond is, was there value for money in the execution of the project? It was to answer this very critical question that the state hired the services of independent V for Money audit on the project. I will try to highlight a few of the findings in that audit report.”

On the issue of composite tariff, the former Energy Ministry communication consultant noted that, “When you compare the Ameri project to seven comparable thermal plants in Ghana (Trojan power limited, Cenit Energy Limited, SunonAsogli Power Plant 1, Tema Thermal 2 Power Plant, TICO and SunonAsogli Power Plant 2) the composite generation tariff for the Ameri of about USc14.59kWh is lower than the average approved composite tariff for the 7 plants at UScent14.94/kWh. When ranked together with the approved composite tariffsfor the 7 comparable plants, the approved composite tariff for the AMERI Project is the fourth lowest and the lowest when spread over 20 year period.Projects of this nature are typically for 15 to 20 years.Ameri project is for 20 years but the capital recovery charge is applicable for the first five years after which it drops to zero. To facilitate comparison with other projects with longer tenure for capital recovery, it is important to compute the comparable capital recovery charge for Ameri over the 20 year contract period.”

He further noted that, “When you compare the project data for the AMERI to the 9 comparable plants (Amandi, SunonAsogli Power Plant 1, Cenpower Generation Company limited, SunonAsogli Power Plant 2, Cenit Energy Limited, Trojan power limited, Jacobsen Jelco Ghana limited, TICO, Tema Thermal 2 Power Plant) selected from Ghana, the capacity tariff for the AMERI Project of about US cent 5.5/kWh is higher than the average approved capacity tariff for the 9 plants at UScent4.4/kWh when ranked together with the approved tariff for the 9 comparable plants. However, when legalised over the 20 year period, Ameri's capacity charge is the lowest when compared with that of the 9 comparable plants.”

“Additionally, when you compare comparable thermal plants in Ghana (Amandi Energy, Cenpower Generation Company limited, Jacobsen Jelco Ghana limited, Genser Power Ghana limited, TICO, Cenit Energy Limited, SunonAsogli Power Plant 2, Sunon Asogli Power Plant 1) to the project data for the AMERI Project the derived installed cost per kW for AMERI of about the average installed cost per kW for the 8 plants at US$1,593/kW. When ranked together with the installed cost per kW for the 8 comparable plants, the installed cost per kW for the AMERI Project is the 4th lowest. It is also important to note that the AMERI Project has lower installed cost per kW compared to similar power plants that have been contracted or constructed over the last 3 years such as Amandi, Cenpower and Jacobsen.”

Also, one of the elements PWC, the firm contracted to review the Ameri contract, used to assess and review the contract was to estimate the internal rate of return (IRR) to the Ameri Energy who is the developer. The IRR represents the minimum cost of funds at which the project will break even.

In the PWC computation of the IRR, the assumed cost of site preparation and civil works is US$6.3m and this relates to all costs required to get the project site ready for installation of the AMERI plant; site preparation and civil works include land clearing, excavation and filling, road works and other civils works. Their IRR computation also took account of the contingency of US$12.4m as part of the initial capital outlay.

Based on this assumption, the project is expected to make IRR of 17.3% compared to GoG average cost of debt of 9.5% (MoP). This is close to the lower limit of PURC’s allowable return on power project of 17-19%.

The return to the developer is also slightly below the range of industry return for IPPs which is 18-23%, based on interviews conducted in Ghana by CEPA in August 2015.

Mr Bawa in his comment concluded on the note that, “It must be made abundantly clear that the terms of the agreement contain dispute resolution mechanisms including resort to court action. Hon. K.T. Hammond can, therefore, make his evidence of gross misrepresentation available to the Government which is a party to the agreement for the appropriate action to be taken. In as much as the Minority is not against the alleged attempt by the Government to save the taxpayer money in this transaction, we take the view that this must be done in the right way and through the right means and not through the subterfuge of a motion for rescission.”