Ghana to pay $400m for cancelling power agreements

Ghana will be paying over $400 million for cancelling some Power Purchase Agreements (PPAs) signed by the Electricity Company of Ghana (ECG) in the heat of the power crises during the John Mahama administration.

Following a review of some 28 of such contracts signed in recent years, cabinet has given approval for some to be cancelled and others deferred to 2025 and 2030. Others such as Cen Power and Early power projects have been given the go ahead to start production.

The Akufo-Addo administration sanctioned an audit of all agreements signed in the heat of the power crises which they described as costly and unnecessary.

Deputy Minister for Energy, Dr. Mohammed Amin Adam, who disclosed this to Starr Business, failed to give a breakdown of the projects which are to be deferred and those to be cancelled.

“We have been able to review the non-renewable energy agreements, close to 28 of them and cabinet has directed what we do with that. We allow some to come on, we defer others until 2025, others will be deferred further until 2030 and there are others that are going to be cancelled”, he said.

He explained that the decision to review these PPAs was to ensure that the country is not paying for power it does not need or use.

According to the minister, “these agreements are take or pay agreements which means that once they build the plants and begin to produce power, whether you use the power or not, you’ll pay for it”.

Dr. Adams, who spoke on the side lines of the 3rd Renewable Energy Fair, under the theme; “RENEWABLE ENERGY: AN ENGINE FOR DISTRIBUTED WEALTH CREATION”, said the cancellation of these contracts could come at a cost of $400 million.

In his defense, however, he said that would be a small cost to pay considering the amount Ghana could be losing if all those plants are allowed to produce power.

“Our peak demand is around 2000 MW but then you have up to 28 power purchasing agreements which give you more than 10,000 MW. And so if you decided to stop all the plants currently producing from producing, and you allow these power purchase agreements to come into force, we’ll have 8,000 MW in excess and that we will pay for whether we use it or not”, he elucidated.

In pushing forward his argument, the co-founder and former Executive Director of the Africa Center for Energy Policy wondered “why do we have to pay liabilities for cancelling these projects? A liability that will cost us about $400million. But which one is better, to cancel and pay liabilities of 400 million or allow them to produce and then you have billions of dollars you have to pay even though you don’t use the power”.

However, Dr. Kwabena Donkor, who was appointed to head a newly created ministry of Power at the peak of the energy crises in 2015, told Starr Business, the contracts which received cabinet, ministerial and parliamentary approval under his tenure were  less than 10.

He therefore concluded that the agreements being referred to by the Energy Ministry could be those initiated by ECG as a company.

“When the ministry was set up, I inherited assets and liabilities in terms of responsibilities and obligations and there were no agreements in parliament at the time that we did not continue or which were abandoned.  Therefore the 28 they are talking about could be draft agreements in my opinion that ECG was engaged in. It would have been work in progress”, he explained.

In April this year, the Vice President Dr. Mahamudu Bawumia announced that government had saved the country some $300m through the cancellation of 20 PPAs.

He revealed at the time that four others had been reviewed. The president had indicated his preparedness to review a total of 43 PPAs entered into by the ECG in 2016.

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