Ghana pays $454 million a year for generating excess power; plans to save cost

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Ghana’s plans to stop paying for power that it doesn’t consume may cost the country as much as $2 billion in upfront claims.

Private operators will not accept Finance Minister Ken Ofori-Atta’s proposal to renegotiate agreements and will demand the full payment of their contracts’ termination clauses, Elikplim Kwabla Apetorgbor, chief executive officer of the Chamber of Independent Power Producers, said in an interview.
The group represents nine members which generate about 1,500 megawatts of the country’s installed capacity of 4,889 megawatts. Peak demand is 2,525 megawatts.

 Oversupply

In July, Ofori-Atta said Ghana is paying about 2.5 billion cedis ($454 million) per year for power that it doesn’t need through so-called take-or-pay contracts, which typically compel buyers to compensate service providers regardless of whether they consume a service or not. In addition, Ghana will pay as much as $850 million from 2020 for excess gas, he said.

While the power deals were slated to be replaced from August by take-and-pay contracts, where a buyer is only responsible for what is consumed, Ofori-Atta later announced a three-month consultation period.

“What happens to the investor?” said Apetorgbor. “Who maintains that plant? You cannot just get up and say you want to remove the take-or-pay?”

Deputy Finance Minister Charles Adu Boahen declined to comment when contacted by text message.

Most of the deals were negotiated from 2013 to 2015 when Ghana experienced chronic power outages because the government didn’t have funds to pay for fuel while hydroplants were idled by insufficient rains. Lenders were hesitant to provide more finance for state-owned utilities, creating opportunities for private operators, of which some received government guarantees.

Private producers are already frustrated by late payments, transmission losses and the government’s indebtedness to power distribution utility, Electricity Co. of Ghana, exacerbating the risk of negotiating new terms, said Apetorgbor.

“There are things to tackle,” Apetorgbor said. “Then we can come to negotiate.”

Bloomberg


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