Wednesday, 4 April 2018

Gov’t saves over US$60mn yearly on new Karpower deal

Image result for KARPOWER

Adnan Adams Mohammed 

All things being equal, Ghana will be saving over US$60 million per year from the renegotiation of the Karpowership deal, according to a deputy Minister for Energy, William Owuraku Aidoo.

These savings will come from the utilization of gas from the Sankofa fields and additional savings from the renegotiation of the deal from initial ten years to twenty years.

Accordingly, the government renegotiated pricing of the power generated from the initial 16cent/kilowatt hour to 10cent/kilowatt hour, with Ghana saving 6cent/kilowatt hour.

It is unclear what the whole new terms are, but the company recently announced it will move from using Heavy Fuel Oil [HFO] to natural gas when it moves the vessel from Tema to Takoradi.

The Karpowership from Turkey has the capacity to supply 470 megawatts (MW) of power to Ghana.

However, Mr. Aidoo has said, “The basic structure of the deal under the previous administration was totally wrong. It was nothing to write home about… We’ve renegotiated the Karpower deal and stretched it over 20 years to ensure value for money.”

“If you sign a power purchase agreement over a short period of time; that was 10 years, what it meant was that the good people of Ghana would virtually have to pay through the nose over a 10-year period which necessarily means they would have to pay higher tariffs. To stretch over a longer period will [see tariffs] come down to somewhere in the region of 10 cents/kilowatt hour.”

The tariffs under the previous deal stood at around 16 cents/Kilowatt hour.

Aside from the reduced tariffs, Mr. Aidoo added that extending the deal also “stabilized the power in the west and at the same time utilizes gas from the Sankofa fields, which if we didn’t will cost the government somewhere in the region of US$60 million dollars per year.”

Meanwhile, the Member of Parliament for Damongo Constituency, Adam Mutawakilu has said the renegotiation was nothing exciting.

He noted, the reduced tariffs as a result of the extension was no surprise.

“We know Karpower is a ship. The moment you extend the period, the tariff will come down so it is not magic that they have done. But what they have done is that, by going that way, they will not be able to build an asset for the country. That means after 20 years, the ship goes back.”

The MP also maintained that the ship was not needed after 10 years “because we have excess capacity and that becomes an asset to the nation.”

In December 2015, Dr. Mahamudu Bawumia, then running mate to Nana Addo Dankwa Akufo-Addo, said it “made no sense” for government to secure the power barge as an emergency solution to the power crisis, explaining that the deal did not give the country value for money.

The 225 megawatts power barge docked at the Tema Port in December 2015, to augment the shortfall in power supply at the time.

Per Dr. Bawumia’s analysis, “A 225 megawatts plant like the Karpower Plant that we are renting, will cost some US$225 million if we wanted to purchase it; and we will own it. Under the Karpower deal, we will pay for the power from the barge for the next ten years whether we use it or not. The African Center for Energy Policy (ACEP) estimates that, based on the capacity charge alone which is 5.6cent per kilowatt hour, it will cost Ghana close to one billion dollars over the next ten years for the energy from the barge. This, however, excludes the cost of fuel which will require about 35,000 tones every month. After ten years, the barge will sail away and with this one billion dollar, we could have built a 1,000-megawatt plant for ourselves. Power from the barge will also cost at least twice what it cost to supply power from Takoradi. This really does not make sense” he concluded.