header('Content-type: text/html; charset=ISO-8859-1'); Gov’t should publish renegotiated ‘Take or Pay’ power contracts – energy expert - News Guide Africa

Gov’t should publish renegotiated ‘Take or Pay’ power contracts – energy expert


Adnan Adams Mohammed


An energy expert is calling on the government to be transparent with the power sector contracts by publishing all the ‘Take Or Pay’ contracts it claims has renegotiated to ‘Take And Pay’.


The Ministry of Energy has for some time now claimed it has renegotiated all the ‘Take Or Pay’ power contracts the erstwhile NDC administration signed with Independent Power Producers to ‘Take And Pay’ saving the country some hundreds of millions of U.S dollars. Yet, a former top government official in the energy sector believes there existed no more ‘Take Or Pay (TOP)’ contracts justifying that, most of the active IPPs have violated their TOPs terms of the contract.     


The Blomberg reported that Ghana’s debt owed to the power companies have grown, rising to US$1.4 billion at the end of June, more than doubling from US$600 million in July last year, according to the Chamber of Independent Power Producers, Distributors and Bulk Consumers noting that, its members may be forced to shut their operations, it said last month. Ghana lured investors to its power industry to end chronic electricity shortages, which lessened in 2016, with deals it can no longer afford. The deals’ terms required the government to pay for electricity generated even if there’s no demand for it. Those emergency power interventions helped the country to boost its generation to about 4,600 megawatts, well above national peak demand of 2,700 megawatts. 


“The lack of transparency about these so-called ‘Take or Pay’ contracts are interesting. It only seems to come up only when NPP wants to blame the NDC for the challenges in the power sector”, the former CEO of National Petroleum Authority and GNPC, Alex Mould reacted to a Blomberg publication on the power sector debt.


“Government should simply show which IPPs are being paid for not producing”, he further challenged the government, explaining that, “As far as I can tell we have no real ‘Take Or Pay (TOP)’ contracts still in existence except for those that are producing, that is, most of the recent IPPs. Many of the old IPPs, with so-called TOP contracts, have violated various covenants of these TOP contracts and as such they should not be paid under the violated ToP contracts.”


However, Samantha Singh, a Johannesburg-based Africa strategist at Absa Bank believes the country’s power sector “Debt levels could rise even further”. 


“The potential increase in these liabilities could hurt government finances even further in a time it is already strained due to Covid-19”, he said in an email.



When President Nana Akufo-Addo came to power in 2017, he started the sale of so-called energy bonds on the back of fuel levies to clear the outstanding liabilities. This helped cut the debt by half by early 2018, though more bonds haven’t been sold because there isn’t enough revenue to support them.



State-owned Electricity Co. of Ghana Ltd. has suffered an estimated annual revenue loss of US$580 million due mainly to transmission leakages, illegal connections and unpaid bills. Plans to tackle the problem by introducing private investors under a U.S.-funded aid program failed to win approval. The company’s managing director, Kwame Agyeman-Budu, could not comment immediately when he was reached on phone.



Much help isn’t coming either from the West African Power Pool project, under which member countries could sell their excess power to neighbors. While Ghana was a net exporter of 967 megawatts of electricity to other countries in 2019, further exchange is hindered until 2023, when current interconnection projects will be completed.



The coronavirus pandemic pushed Ghana further into financial straits. It responded with more than 3 billion cedis ($519 million) in unplanned spending that included providing free electricity and water to citizens, tax waivers and credit to small businesses, a situation that made it difficult to keep up with the debt repayments, according to Finance Minister Ken Ofori-Atta.



“When you have limited resources in a COVID-19 environment you have to be specific about what you’re paying and how much you pay,” Ofori-Atta said in a phone interview. “We’ve tried to keep the lights on for these four years.”


Ghana’s public debt increased to GHC258 billion by the end of June, equivalent to 67% of gross domestic product, from 61% at the end of March. The government previously said it will use US$1 billion of the US$3 billion raised from the sale of a Eurobond in February to help producers refinance their commercial loans.



The country’s dollar bonds made returns of 2.9% for investors this quarter, compared with 4.4% in emerging markets, according to Bloomberg Barclays indexes.



The potential constraints on Ghana’s creditworthiness make it imperative that the government attends to the debt problem in the power industry urgently, according to Gregory Smith, a fixed income strategist at M&G Ltd. in London.



“Responding to the immediate threat of the pandemic became essential,” Smith said. “Once the pandemic is beaten the focus and finances should shift back to ensuring the financial viability of the electricity sector.”

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