Life after ELSA bond

Kweku Awotwi, Board Chair, VRA

 

  • Fix prepaid meters in MMDAs
  • Fix ECG conundrum
  • Rationalise gas price

With government expected to raise an additional GH¢6billion in March to clear the bulk of the GH¢10billion energy sector debt using ESLA Plc – a special purpose vehicle created for the purpose – managers of the sector want specific actions taken to avoid a relapse into debt by the utilities.

Current installed capacity of the country stands at about 4,500megawatts, while effective demand is about 2,100MW.

The Boakye Agyarko-led Energy Ministry has had to renegotiate and spread various power projects – which were sought at the height of the half-a-decade of power rationing – over a ten-year period to avoid incurring costs [capacity charges].

Energy Minister Boakye Agyarko, in November, told Parliament that government has cancelled 11 Power Purchase Agreements (PPAs) at a cost of US$402million – given their precarious nature and total cost of US$7.6billion that would have accrued in capacity charges over a 13-year period.

He told the 275-member Legislature that four PPAs with a combined capacity of 1,810MW have been deferred to 2018-2025. Three other PPAs, with a combined capacity of 1150MW, have also been deferred to beyond 2025.

Kweku Andoh Awotwi, the VRA Board Chairman and energy expert – while endorsing rescheduling of the projects – believes that more importantly the actions which led to incurring the decade-old energy debt still persist and ought to be addressed immediately.

“We are raising the money to address the past, but we have got to put in place the right things to prevent this from happening again. The situation is dynamic. They identified this amount of money a year ago, so 12 months later, maybe, the numbers are now GH¢10.5m or GH¢10.6m.

“The idea is definitely raising the money to solve 90 percent or the bulk of our problem, with the idea that once that is done the utilities will be in a strong enough place to take the rest by themselves. The point is, let’s help you get to a point where you can stand on your own, ” he told the B&FT in an interview.

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Legacy problems

Government indebtedness to utility companies is one of the major problems facing the energy sector, and a key cause for the huge legacy debts for which reason ELSA Plc was established.

Metropolitan, Municipal and District Assemblies (MMDAs) consume hundreds of cedis in power and wait on central government to settle their bills. The Electricity distributor, Electricity Company of Ghana (ECG), is unable in many instances to collect the revenue due it from the MMDAs.

Security services, government-owned and operated hospitals and schools collectively owe millions in power consumed. Given their essential nature, the ECG is in some cases unable to disconnect these highly indebted institutions – and thus continue to supply power.

As Mr. Awotwi notes: “One of the factors that contributes to the problem we have is government itself doesn’t pay its bills; and gov’t itself has admitted it doesn’t pay its bills. This has been a big part of ECG’s problems. Gov’t doesn’t pay its bills, so ECG doesn’t pay VRA [power producer], and so VRA doesn’t pay GRIDCo [power transmitter]. So, those things have to be addressed”.

The solution, he notes, lies in sustaining the initial attempt at changing all post-paid meters at various MMDAs into pre-paid meters.

“Prepaid meters for the ministries, police, army. If gov’t can move forward with its own commitment to do so, it will make a difference. We can see some action with the prepaid meters installation. The key is not to do one, but go from one to two then three. We have got to sustain these corrective actions,” he said.

ECG under private care?

Ghana signed the Power Compact with the Millennium Challenge Corporation (MCC), an independent United States government agency, on August 5, 2014.

The agreement is expected to provide the country with a grant of about US$498million to turn around the power sector’s fortunes. An estimated US$350million of the grant is to be invested in the ECG to make the power distributor run efficiently and profitably.

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Six companies have been shortlisted for the concessionaire arrangement. They are: Tata Power Company Limited, India; Manila Electric Company, Philippines; Ch Group Ghana with EDF and Veola Sa with Ghanaian address – Engie Services; SA from France, BXC Company Ghana Limited, registered and operating in Ghana; and Enel S. P. A. of Italy.

Mr. Awotwi said: “ECG must run efficiently. Gov’t through the MCC is looking for the ways in which ECG can run efficiently. Every other utility must run efficiently; but if the people who collect the money don’t collect it, there is no money for anyone – so they are very important.

“I believe the millennium exercise is a good way to make ECG efficient. Is it the only way? No! But if we had come up with a way, we wouldn’t need someone else to tell us a way. It is what we have in front of us. We have signed up for it, and we have got to make sure the terms and conditions are not harmful to us. If we design it properly, that private partner concessionaire will have the proper incentive to make ECG run efficiently.”

Gas price rationalisation

The price of gas delivered to Ghana from Nigeria via the West African Gas Pipeline, and the price of the commodity delivered to the VRA and other Independent Power Producers (IPP) by Ghana Gas, is comparatively between 50-100 percent more expensive than the world price.

Nigeria gas and gas delivered by Ghana gas is sold to power producer for about US$9 per million Btu; the gas price on the international market is about US$5.5-6 as at Friday, January 26, 2018.

Going forward, experts believe that the price of the commodity in-country and from Nigeria must be reduced to about US$5-6 to enable power producers be competitive.

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