Ghana renegotiates unfair energy deal to tackle rising debt

Dec 08, 2020 News

Ghana’s Finance Minister, Ken Ofori-Atta.

Kaieteur News – The Republic of Ghana successfully renegotiated an energy deal in September, to make the terms more competitive and to tackle rising debt. Ghana’s Ministry of Finance reported that the Government managed to secure improved terms, including a reduced capital recovery tariff, resulting in savings to the government of US$200 million over the remaining life of the agreement.
“The tariffs agreed were not competitive and have contributed significantly to the build-up of debt in the sector and oversupply of energy,” the Government said in a statement.
“We are committed to building a competitive and dynamic energy sector where private investments can thrive, and the interests of the Ghanaian people and businesses continue to flourish,” Ghana’s Finance Minister, Ken Ofori-Atta said.
The contract between the independent power producer, CENIT Energy Limited, and the Government of Ghana, is one of several power purchase agreements (PPA) which oversupply Ghana with power and threaten the financial stability of the energy sector. Ghana said that that the new terms will produce a favourable outcome for both parties and result in reduced electricity costs for the people of Ghana.
The Minister encouraged other independent power producers to collaborate with the government to help bring down crippling debts and ensure Ghanaians have a stable power supply.
“At present,” the Finance Ministry said, “Ghana pays over US$500M a year for unused electricity. Most of the PPAs are legacy agreements, entered into under the previous administration in an uncoordinated and hasty attempt to end dumsor.”
Dumsor means ‘off-on’ in the Akan language. In Ghana, it is used to refer to frequent blackouts.
Ghana had worked to bring reliable power to its millions of citizens. However, it ended up hastily signing poor deals which oversupplied electricity to the country and forced the government to pay hundreds of millions every year for unused gas.
In response to this issue, the current administration was forced to create the Energy Sector Recovery Task Force to execute a programme that would make the energy sector financially sustainable, get better deals, and find uses for the excess gas.
The World Bank has come under scrutiny for the role it played in Ghana’s energy sector, especially for its funding and endorsement of the Sankofa gas project.
The Bretton Woods Project, a UK based non-governmental organization, said in a 2018 article that Ghana’s offshore gas is rapidly becoming a fiscal burden amidst the country’s debt crisis, and that this raises questions about the role of the World Bank in the country’s gas development.
It said that the public-private partnership (PPP) for the project is backed by a total of US$1.2 billion in World Bank guarantees and debt financing. As early as 2015, Ghana Civil Society Organizations (CSOs), like the African Centre for Energy Policy, criticized the contract’s terms as unfavourable.
The Bank noted the considerable criticism in the media, and pointed to the need for a communications strategy ahead of major resource projects so the public understands the benefits of intended developments.
Oil governance advocates, including international lawyer, Melinda Janki, have written to the World Bank, challenging it to prove that Guyana’s project will not end up like Ghana’s. The World Bank is assisting Guyana with the development of its petroleum sector, through a US$20M loan.

Discover more from Kaieteur News

Subscribe to get the latest posts sent to your email.

Latest News