- Plant relocation cost leaps 40%
- Energy debt hits US$1.2bn
The Africa Centre for Energy Policy (ACEP) has raised concerns over the cost of relocating the AMERI Plant from Aboadze in the Western Region to Kumasi in the Ashanti Region.
It said rather than the proposed value of US$25.48 million by the contractor, Mytilineos SA, the Ministry of Energy is quoting the cost of moving the plant at US$35.6 million, a move it warns could compound the financial woes of the energy sector. “The Minister quotes US$35.6 million as the cost of the relocation in his December 17, 2021 letter to Volta River Authority (VRA),” it said.
However, ACEP said it has sighted the original proposal from Mytilineos SA dated March 22, 2021 to the Ministry, quoting US$25.48 million for the same.
“Instead of negotiating the proposal of the sole-sourced offer downwards, the contract cost has instead increased by 40 percent. It is unclear what accounts for such a quantum leap from the proposal amount by Mytilineos SA,” its Policy Lead, Petroleum and Conventional Energy, Kodzo Yaotse, said.
The contract also grants the Operation and Maintenance (O&M) to Mytilineos SA for three years at the cost of US$36 million, bringing the total cost of the relocation and maintenance of the plant to US$71.6 million barring any unforeseen upward adjustments. “ACEP is emphatic on the contract costs even though the Ministry denies it is conclusive,” Mr. Yaotse, added.
He spoke at a press briefing in Accra and noted that this does not even question the US$25.48 million proposed by Mytilineos SA as the true cost of the relocation of the plant, analysis of which will be concluded after receipt of all documents requested under the Right To Information (RTI) from the Minister, the Attorney General’s Office and the Public Procurement Authority (PPA).
At the end of June this year, government owed Independent Power Producers and gas suppliers over US$1.2 billion, with ACEP warning that the sector’s financial troubles could be made worse by the cost of the AMERI Plant relocation, if due diligence is not done. It said the debt which accrued from January to June this year, could reach US$3 billion if government fails to promptly settle the outstanding and prudently relocate the AMERI Plant from Takoradi to Kumasi in a cost-effective way.
Meanwhile, the energy think-tank also questioned why the government, through the Minister of Energy signed an agreement relieving AMERI Energy despite the need for independent assessment of the plant to ascertain if there is need for maintenance and rectification works per the Build, Own, Operate, and Transfer (BOOT) terms, before the government through VRA officially took over management and maintenance of the plant.
Interestingly, prior to the appointment of WSP to do the condition assessment, ACEP said it sighted an October 14, 2021 letter from the Ministry of Energy, on behalf of Government of Ghana (GoG), relieving AMERI of its obligations to undertake any rectification works as required by Section 26 and 27 of the BOOT Agreement.
The same letter ACEP noted, stated that Metka/PPR/Mytilineos had agreed to undertake the rectification works without stating the nature of the agreement between GoG and Metka/PPR/Mytilineos, particularly when the BOOT Agreement is between GoG and AMERI as approved by Parliament.
It is interesting to note that Metka/PPR/Mytilineos was AMERI’s Engineering, Procurement and Construction (EPC) and Operations, Maintenance, and Management (OM&M) contractor within the period of the BOOT agreement.
Subsequently, a Transfer of Title Agreement was signed among GoG, AMERI and PPR to novate the existing contract terms from AMERI to PPR and transfer the AMERI plant to GoG on 21st December 2021. “We note that the Hot Section Exchanges maintenance for units 9 and 10 has been completed, with units 1 and 2 outstanding,” ACEP said.
Additionally, the ancillary equipment used to transport the plant was poorly maintained and deteriorated.
Per the BOOT agreement, all these works were supposed to be carried out by AMERI Energy, before it handed over the plant to government.
ACEP added that it remains unclear in all the documents available so far who bears the responsibility for replacing this equipment, as they would be essential for relocating the plant per government plans.
VRA has capacity to manage AMERI Plant
Mr. Yaotse questioned why the government is deviating from the initial plan to give the plant to VRA to manage after the end of the BOOT, rather than allowing Mytilineos SA to do so.
“ACEP notes that VRA has the capacity to operate the single cycle Ameri plant, having operated combined cycle plants since the 1990s. Additionally, Section 8(h) of the BOOT Agreement mandated Ameri to provide onsite practical training to designated officers six months to the expiration of the agreement. The BOOT agreement also envisages the capacity to monitor the plant’s operations throughout the agreement’s life through a biannual inspection of maintenance records kept by AMERI,” he said.
Beyond these contractual arrangements, ACEP said it is aware that VRA staff were attached to the operations team to manage the plant.
The capacity of VRA is captured much more graphically in a 1st February 2022 letter from the Senior Staff Association (SSA) of VRA appealing to the Minister of Energy to allow VRA to operate the plant in the national interest.
Parts of the letter made available by ACEP read: “As concerned citizens of Ghana and workers of VRA, we think that the decision to entrust the O &M activities to Mytilineos SA instead of VRA is not in the best interest of VRA and the nation.”
The US$510 million Build, Own, Operate, and Transfer (BOOT) agreement between AMERI Energy and the Government of Ghana (GoG) for installing 10 new GE TM 2500+ aero-derivative gas turbines and all related equipment ended in December 2021.
The contract was scheduled to terminate in 2020 after five years, post the recovery of investments by AMERI. However, following a 2018 renegotiation, the fiscal tenor of the contract was extended for an additional year.
This meant that the operation of the plant (technical transfer) should have been handed to VRA in 2020, while the outstanding payments were completed within the extension period before the transfer of title to the plant. However, due to the persistent payment defaults, the technical transfer could not happen until the end of 2021.
Contractual requirements for handing over the plant
The BOOT Agreement requires GoG to meet its financial obligations in exchange for a well-maintained plant per the Original Equipment Manufacturer (OEM) standards, certified by independent assessment. Section 26 of the BOOT Agreement required the appointment of an independent assessor three months to the agreement’s expiration at a cost to GoG.
The contract further specifies that if the plant is in poor working condition per the assessment, AMERI is required to put it in good working condition at its own cost.
In respect of 26 of the BOOT Agreement, the following events happened:
i) In November 2021, WSP, a condition assessment company, was appointed to undertake an independent assessment of the AMERI equipment. The assessment recommended rectification works for the Hot Section Exchanges on four of the plant’s 10 units (units 1, 2, 9 and 10). These rectification works were to be done by AMERI per section 26 of the BOOT Agreement before the agreement’s expiration and transfer of the plant to the government.
ii) Interestingly, prior to the appointment of WSP to do the condition assessment, ACEP has sighted a 14th October 2021 letter from the Ministry of Energy, on behalf of GoG, relieving AMERI of its obligations to undertake any rectification works as required by the deal.