The former Minister of Power Dr. Kwabena Donkor, has clarified the ongoing challenges in Ghana’s power sector, particularly focusing on the procurement of fuel and the issue of load shedding.
His remarks shed light on the complexities of managing fuel supply for independent power producers (IPPs) and the financial difficulties the Electricity Company of Ghana (ECG) is currently facing. In this report, we examine his key points and the implications for the energy sector.
Dr. Donkor emphasized that the procurement of fuel, specifically Light Crude Oil (LCO), is indeed the responsibility of the ECG. This responsibility stems from the contracts the state, through ECG, signed with various IPPs. He emphasized; “The contract we signed, fuel is a cost that we call pass-through.”
This arrangement ensures that fuel costs, whether for natural gas, diesel, or light crude oil, are borne by the consumer, making it crucial for ECG to be prudent in its fuel purchases.
Dr. Donkor further clarified that various plants, such as the VRA plant in Tema, operate on dual-fuel systems, using both natural gas and diesel, while others rely on light crude oil and heavy fuel oil. “The Absa plant uses light crude and heavy fuel oil,” he noted.
This variety in fuel types adds complexity to the procurement process, making it essential for ECG to manage fuel purchases carefully to avoid escalating costs.
According to Dr. Donkor, it is more cost-effective for ECG to procure fuel directly than relying on the IPPs. He argued that when IPPs purchase fuel, they often do so at higher prices, which ultimately gets passed on to the ECG and, by extension, to consumers.
“If you ask them to go and buy fuel and they buy fuel at a higher price and pass it on to you, you are not being prudent if you are buying the fuel yourself all things being equal, you know you would be able to minimize the cost of fuel. It is for that reason, that in those contracts, the obligation to provide fuel was put on the Ghanaian state represented by ECG in those contracts.”
Dr. Kwabena Donkor former Minister of Power
By procuring the fuel themselves, ECG can potentially lower costs and avoid additional markups from third-party suppliers. He explained that this rationale was behind the contractual obligation for Ghanaians.
Challenges in Fuel Procurement: Issues with Agents
Despite the intention to reduce costs, Dr. Donkor acknowledged that ECG has faced significant challenges in its fuel procurement process. One major issue has been with the agents the company uses to source fuel. He indicated that these agents are linked to private companies, and this has sometimes resulted in higher-than-expected costs. He reiterated; “We have had issues with the agents we use we are using a private company linked to a particular family in the political space.”
Dr. Donkor also addressed the recurring issue of load shedding in the country, which the minority in Parliament has attributed to a 500-megawatt shortfall in generation capacity. According to Dr. Donkor, this shortage is not merely a result of maintenance activities, as claimed by some, but rather a deeper financial crisis within the energy sector.
He explained that while maintenance activities on plants like the Ghana Gas Processing Plant could cause temporary disruptions, these should not lead to significant outages. This is because many of the thermal plants have dual-fuel capabilities, allowing them to switch between natural gas and light crude oil.
“The inability to supply gas will not let the Tema plant not fire. They will be fired by light crude oil and so, the maintenance argument doesn’t make sense, yes Ghana gas facility could be shut down for maintenance, am not disputing that possibility but Ghana gas is only a fuel supplier.”
Dr. Kwabena Donkor former Minister of Power
The Reality of Financial Strain in the Power Sector
Dr. Donkor emphasized that the real issue behind the outages is the financial strain the power sector is facing, particularly in its ability to pay for fuel. He noted; “As we speak, ENI has reduced the quantum of gas they are supplying because we haven’t paid them for more than three months.”
Dr. Donkor further explained that this inability to pay for fuel has a ripple effect throughout the energy supply chain. Without sufficient fuel, power generation is constrained, leading to the outages currently being experienced by consumers.
“We are in a financial crunch in the power sector and arising out of that crunch, we are unable to meet our obligation, and it has ripple effects.”
Dr. Kwabena Donkor former Minister of Power
Dr. Kwabena Donkor’s comments clearly show the challenges facing Ghana’s power sector. To resolve these issues, the country will need to address its financial obligations to fuel suppliers and ensure that ECG is equipped to manage its fuel procurement effectively. He reiterated; “The reality is that we are in a financial crunch in the power sector.” Dr. Donkor concluded, urging stakeholders to focus on addressing these systemic issues to prevent further disruptions.
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