The Finance Minister, Mr Ken Ofori-Atta has said that although several achievements have been made in the power and petroleum sub-sectors, Ghana’s energy sector faced significant financial challenges due to the fragmented and uncoordinated approach to procuring additional generation capacity, which led to excess generation capacity beyond the acceptable reserve margin.
He said that government in spite of this continues to develop and sustain an efficient and financially viable energy sector that provides secure, safe, and reliable supply of energy to promote economic growth.
“Considering the financial implications of this development, Government, in 2019, approved the rationalisation of signed Power Purchase Agreements (PPAs) and placed a moratorium on further development and expansion of thermal power generation in Ghana.”
He also said that as part of a recovery program for the energy sector, government in 2019 set up the Energy Sector Task Force who are currently executing a more structured, transparent, and objective process for collaborative consultations with IPPs and gas suppliers, to modify existing contract terms with the ultimate aim of reducing Government’s substantial excess capacity liability under the onerous take-or-pay power contracts.
“This consultation process is designed to help Government and its energy sector partners achieve a managed transition towards more balanced, long-term relationships, and sustainable energy partnerships.”
At the mid-year review of the economic budget, he said
“The committee and advisors have carried out detailed and holistic legal and financial analysis of 15 operational and near-operational power projects, within the context of Government’s broader sector-wide objectives and cost-reduction considerations.”
“In addition, the Steering Committee’s Negotiating Team has entered into consultations with each of these 15 IPPs (First Tier IPPs) and tabled various strategic interventions and solutions to achieve efficiencies and cost savings for the country.”
These strategic interventions include; Conversion to natural gas as primary fuel, to not only achieve cost savings from running thermal plants on gas and prioritising use of Ghana’s abundant natural gas resources, but also reducing foreign exchange pressure and reaping environmental benefits from lower emissions; Conversion of gas-fired thermal plants that currently operate on the basis of PPAs to a tolling regime using Energy Conversion Agreements (ECAs), to achieve additional cost savings for the country; centralized arrangements for procuring, stocking and supplying back-up fuel to thermal IPPs to further reduce overall costs; government refinancing and restructuring of expensive debt held by IPPs through the Ghana Infrastructure Investment Fund (GIIF), with a view to reducing capacity payments and overall costs within the shortest time possible and reductions in IPP capacity charges over the life of their respective power projects.
“Further, Government continues to enforce certain interventions, such as the current moratorium on the signing of new PPAs, Gas Supply Agreements (GSAs), Put-Call Option Agreements (PCOAs), and any long-term take-or-pay contracts until further notice, or unless properly exempted by Government on a case-by case basis. Careful forward planning, proper data-driven analysis, and transparent, competitive, corruption-free contracting processes, are critical for a sustainable and sound energy sector development.”
He also said the government in order to address the chronic financial challenges and effect an equitable distribution of sector revenues, on 1st April, 2020, implemented a Cash Waterfall Mechanism (CWM) and monitoring regime. The CWM, he said, will ensure that all participants in the power supply value chain, will, based on dispatched output, benefit from ECG’s collections and VRA’s revenues from its deregulated market operations, in a transparent manner that eliminates any discretionary element.
“Since the commencement of the implementation of the CWM, stakeholders along the power supply value-chain are receiving payments, based on agreed percentages.”
He further outlined some of the specific achievements so far in the area of power generation from 2017 to date.
“They include the completion of the 340 MW Kpone Power Project by CenPower Limited, the relocation of the 470 MW Karpowership Project; specifically, the switch of the Karpowership to Natural Gas (NG) which would save electricity users an amount of US$170.5 million per annum and a projected amount of US$1.2 billion over the remaining term of the contract by way of reduced electricity charges to consumers, Completion of construction works under the 190 MW Amandi Power Project, which is yet to be commissioned; and Construction of the 400 MW Early Power Phase 1 Project (now 98% complete).”
