World Bank clarifies its support to the Energy Sector Recovery Plan

World Bank

An attempt by the National Democratic Congress (NDC) to justify the costly Power Purchase Agreements (PPA) imposed on Ghana under take-or-pay agreements offered Independent Power Procurers (IPPs) which has cost the nation over $2 billion (GH¢12 billion) for power Ghanaians did not consume between 2017 and 2020 has backfired.

The World Bank has sharply debunked allegations suggestion it imposed four IPPs on Ghana during the era of former President John Mahama as alleged by former Chief Executive Officer (CEO) of the Ghana National Petroleum Corporation (GNPC), Mr Alex Mould.

World Bank never made financing or guarantees to IPPs
The Briton Woods institution also said it had not made financing or guarantees to IPPs to cover Power Purchase Agreements with the Electricity Company of Ghana during the (Dumsor) energy crisis between 2014 and 2016.

Alleged World Bank condition in respect of IPPs
Mr Mould in an interview last week claimed that four IPPs constructed under the Mahama government were in fulfillment of a World Bank condition for the $750 million World Bank guarantee in respect of the ENI-led Sankofa-Gye Nyame gas project.

Would be off-takers of ENI-Sankofa-Gye Nyame gas
According to Mr Mould, one of the conditions for the $750 million World Bank guarantee was that the Mahama government would either build a pipeline or do the convertibility so that the gas can go from the west to the east and there would be off-takers – IPPs that are ready to take the gas.

The former GNPC CEO alleged that the World Bank therefore supported the government of Ghana to support four IPPs to be built mainly because the World Bank needed guarantees for the off-takers of the ENI-Sankofa-Gye Nyame gas.

Alleged Ghana govt guarantee backed by the World Bank

“And, as such, they supported Ghana to give what we call a Government Support and Consent Agreement to these IPPs for them to be able to take to their financial institutions to say that: ‘We have a guarantee from the Ghana government which is backed by the World Bank; and, as such, they were able to get the financial decision to build these plants.”

“That is what we have to understand; that there was a reason for these plants to be built.”

“It wasn’t like these guys came willy-nilly, they had a PPA, they went to their banks, they got financial [support] and now we are saddled with that. No”, he stated.

GH¢12bn paid in 4 years for power not used
In the 2021 Expenditure in Advance of Appropriation for January to March 2021 government paid GH¢12 billion in excess energy capacity charges between 2017 and 2020.

In an attempt to justify the take-or-pay PPAs that have imposed huge debts on Ghana, Mr Mould tried to blame the World Bank for backing four of the IPPs.

However, Mr Mould did not name the said four IPPs and capacities of each plant.

But, in a swift rebuttal, the World Bank in a statement stated categorically that it has not provided any financing or guarantees to IPPs to cover Power Purchase Agreements with the Government of Ghana.

World Bank supported the Energy Sector Recovery Plan (ESRP)
It explained that to secure Ghana’s energy future, the World Bank rather supported the Energy Sector Recovery Plan (ESRP) of the Government of Ghana for affordable and reliable electricity supply and enhance the accountability in the energy sector.

Rationalization of gas and power purchase costs
It said the ESRP mandated the rationalization of gas and power purchase costs in line with the demand and approved the procurement of energy supply and service contracts in a competitive manner.

Cost-effectiveness of new power generation capacity
“The implementation of this policy will be essential to ensure that new power generation capacity is procured competitively and transparently based on the most cost-effective basis,” it said.

Prevent recurrence of over-supply of generation capacity
“This will prevent a recurrence of over-supply of generation capacity in future,” the World Bank stated.

It indicated that the World Bank Group provided financing and a guarantee to the Sankofa Gas Project, which since 2019 had increased the availability of natural gas for power generation by leveraging private capital investment and promoting a cleaner energy mix.

“The World Bank is committed to support Ghana in its efforts to sustain economic growth, accelerate poverty reduction, and enhance shared prosperity in a sustainable manner,” according the statement.

26 out of 30 PPAs reviewed
The current government reviewed 26 out of 30 Power Purchase Agreements (PPAs) the Electricity Company of Ghana (ECG) had initiated.

Four PPA not reviewed
The other four were not reviewed because they were already operational.

7,838MW for 26 reviewed PPAs
The combined generation capacity of the 26 PPAs reviewed amounted to 7,838MW”.

The review recommended that:

8 PPAs proceed without modification
I. 8 PPAs with a combined capacity of 2070 were to proceed without modification.

4 PPAs to be deferred to 2018-2025
II. 4 PPAs with a combined capacity of 1,810MW were to be deferred to 2018-2025.

3 PPAs to be deferred beyond 202
III. 3 PPAs with a combined capacity of 1,150MW were to be deferred beyond 2025.

11 PPAs to be terminated
IIII. 11 PPAs with a combined capacity of 2,808MW were to be terminated.

Capacity charges
The review noted that the projected capacity additions from the PPAs were far in excess of the required additions inclusive of a 20% system reserve margin from 2018 to 2030 and would result in the payment of capacity charges for the dispatched plants.

$402.39m is cost of termination
The estimated cost for the termination is $402.39 million.

$7.217bn capacity cost from 2018 to 2030
This compares to an average annual capacity cost of $586 million each year or a cumulative cost of $7.217 billion from 2018 to 2030.

$6.8bn savings for 13 years
This yields an estimated savings of $6.8 billion over the 13 year period

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