Ghana: GPGC $164M Judgment Debt: The Inside Story (Part I)

The news of recent $164 million judgment debt awarded in favour of GPGC Limited by the International Court of Arbitration against Ghana, a West African nation, for terminating an Emergency Power Agreement with the former has stirred controversy among Ghanaians.

While a section of Ghanaians especially the opposition NDC Minority, led by former Deputy Minister for Power, John Jinapor believes Mr. Boakye Agyarko should be blamed for the termination of the contract leading to the judgment debt. Others also believe the former Power Minister under whose watch the dubious contract was signed should be made to answer questions on why he signed the contract.

Addressing a press conference last week, the Yapei-Kusawgu MP, Hon. Jinapor, in one breath, alleged that Mr. Boakye Agyarko terminated the GPGC Agreement. In another breath, he claimed that the government ignored the experts’ advice of paying GPCG $18 million for early termination.

Speaking on an Accra-based Oman FM recently, Mr. Agyarko, a former Energy Minister under the current government, denied taking a unilateral decision to terminate GPGC’s Emergency Power Agreement.

He clarified that he only acted on the decision of Cabinet.

“It was during my tenure [but] don’t say I cancelled the contract. Let me say emphatically that I, Boakye Kyeremanteng Agyarko, did not use my will or power to cancel anyone’s contract.

“The decision was that we should negotiate them out. We sent the report to Cabinet who accepted it with all recommendations. I was asked as sector Minister to implement the report,” he said.

Facts

The Ministry of Power, which was created under the erstwhile National Democratic Congress (NDC), signed an Emergency Power Agreement with GPGC Limited for the procurement of 107MW power plant.

The agreement was signed on June 3, 2015, and was expected to be executed within a period of one month ending August 3, 2015.

The plant was to operate for a period of four years if it was procured.

Per the terms of the EPA, the Government of Ghana was supposed to pay ground rent for the period of construction and operations of the plant estimated at four years plus 18 months, provide fuel (natural gas) required for the operations of the plant for the said period. This included the construction of a gas pipeline to the plant as well as provide water required to operate the plant which included the construction of water pipelines from the nearest GWCL pipeline for the supply of clean water and sea water for cooling.

Energynewsafrica.com understands GPGC also wanted the Government of Ghana to wave taxes on equipment it intended to ship into the country.

Unfortunately, GPGC could not meet the timeline and the ruling NDC lost power in 2016.

Committee

In 2016, the Ministry of Energy under the erstwhile National Democratic Congress administration formed a committee to examine the various power purchase agreements.

The 17-member committee was headed by Mr. Michael Opam, who was working at the Ministry of Energy.

When the NPP took over governance in 2017 and Boakye Agyarko was appointed Minister for Energy, he reconstituted the committee by appointing Executive Secretary of Energy Commission as chairman of the committee based on the campaign promise of the NPP to review all the PPAs signed by the previous administration.

Membership of the Committee

1. Dr. Alfred Ofosu Ahenkorah—Executive Secretary of Energy Commission, Chairman
2. George Tettey- Ministry of Energy
3. Dr. Joseph Asenso- Ministry of Finance
4. William Sam -Appiah- —-Ministry of Energy
5. Mark Baah—-Ghana Grid Company
6. Anthony Bleboo—Energy Commission
7. Solomon Sarpong-Energy Commission
8. Grace Oppong——Attorney General’s Department
9. Amerley Amarteifio——Ministry of Finance
10. Solomon Adjetey—-Ministry of Energy
11. Hawa. T. Ajei—–Ministry of Energy
12. Leonardo Lamptey——Ministry of Energy
13. Richard Agbotame—-Ministry of Energy
14. Seyram Adabla——–Ministry of Energy
15. Anita Lokko——-Ministry of Energy
16. Ebenezer Baiden —-Electricity Company of Ghana
17. Cephas Galley—–Electricity Company of Ghana
18. Aminu Quadir—-Electricity Company of Ghana

The Committee’s Terms Of Reference Were As Follows:

The Terms of Reference (TOR) of the Committee were as follows:
1. Review and recommend for action, ECG executed PPAs that may be terminated with minimum or no collateral damage to Government and/or ECG;
2. Review and recommend for action, PPAs executed by ECG that may be deferred for later implementation; and
3. Develop a Model PPA and also procedures for future use in the procurement of power.

The committee worked under two sub-committees: Legal and Fiscal/Technical and reviewed a total of fifteen PPAs.

The committee categorised the PPAs into Group A (Committed Projects) and Group B (Candidate Projects).

The Legal Sub-committee reviewed the legal implications of terminating of the PPAs made available while the Fiscal/technical sub-committee assessed the capacity balance of the country from 2018-2030 based on the 2017 Electricity Supply Plan with some key variations arising from information available to the committee.

Findings Of The Committee

A total of thirteen (13) executed PPAs made up of 7 Committed Projects and 6 Candidate Projects were reviewed by the Committee. In addition ECG provided some information on two (2) other Candidate Projects with executed PPAs.

The Committee was made to understand by the Electricity Company of Ghana that, there were other PPAs under discussions. These projects were however not considered by the Committee.

The Committee subjected the PPAs to legal, Technical and Financial scrutiny.

From the Electricity Supply and Demand Plans that were reviewed and adapted by the Committee, Ghana would require generation capacity ranging from 3,170 MW in 2018 to 5,407 MW in 2030. This scenario assumes that, there would be adequate fuel to power the plants which are all thermal power plants.

Recommendations

Based on the analysis and conclusions arrived at, we wish to make the following recommendations:
1. Government should communicate its decision on whether or not it is prepared to grant support to the Candidate Projects as a precursor to action being taken on the PPAs. The decision to terminate or modify should be guided by the proposed capacity addition schedule in this report. Based on the responses from the proponents regarding any proposed changes to their PPAs, the necessary action on their PPAs could be taken.

2. Government should direct ECG to meet all proponents of power projects with executed PPAs for them to confirm or modify, where necessary:
(a.) Actual Capacity to be injected;
(b.) COD; and
(c.) Schedule of Capacity Injection at COD.

3. If the capacities and COD of the various PPAs indicated in this report are confirmed, then the following proposed actions (termination, deferment or downsizing) on the PPAs reviewed may be implemented by ECG in accordance with tables 8.3a, 8.3b, 8.3c and 8.3d summarised below:

i. Government may consider terminating the PPA of GPGC (executed between Government and GPGC) with an installed capacity of 107 MW at an estimated cost of USD 18 Million or else pay excess capacity charge of USD24.90 Million per annum over the contract period of 4 years.

ii. ECG may consider terminating the PPAs of ASG and Chrispod Hydro Power Ltd with a combined installed capacity of 585MW at an estimated cost of USD 39 Million or else pay excess capacity charges of USD 91.64 Million per annum for ASG and USD124.52 Million per annum for Chrispod over the period under consideration (2020 – 2030)

iii. PPAs of Amandi Energy, Cenpower Generation, and Marinus Energy with combined installed capacity of 578.5MW should be allowed to proceed without any modification;

iv. PPAs of Jacobsen Jelco, Early Power, Rotan Power, and AKSA Power, with a combined capacity of 1800 MW should be modified (deferred or downsized) but come online within 2018 and 2025 based on negotiation by the contracting parties. The estimated total cost of termination is USD200.37 Million should parties not agree on proposed modifications.

v. PPAs of Astro Power, KATT Power and Corks Energy, with a combined total capacity of 1,110 MW should be modified (deferred or downsized) and come online after 2025 based on negotiation with contracting parties or be terminated at a total estimated cost of USD72.72 Million if the modification is not acceptable to developers.
vi. No action is required on PPA of BXC which is a take-and-pay contract and does not attract any termination charges.

4. All development cost of power projects should be verified to ensure only prudent ones are included in termination costs. The negotiation on termination cost should cover all transferrable assets to the off-taker.

5. Only existing projects identified (and have been negotiated) for deferment shall be eligible to participate in the competitive tendering process until the projects are fully operational or terminated.

6. The ECG should be instructed not to sign any new PPAs under the current circumstances and all PPAs under discussion should be put on hold until bids are solicited for the procurement of additional capacity.

7. The Ghana Grid Company Limited (GRIDCo) should also be instructed not to sign any new Grid Connection Agreement with developers of power projects and all such agreements under discussion should be put on hold until bids are solicited for the procurement of additional capacity.

8. A committee be tasked to review all the seventeen (17) PPAs executed by ECG for Renewable Energy Projects totaling 890.5 MW and in the interim, ECG be instructed not to sign any additional Renewable Energy PPAs.

9. It is further recommended that all future procurement of power by distribution utilities in Ghana should be made through a competitive public bidding process.

10. The procedure for competitive procurement of electricity which was developed by Energy Commission in 2010, should be reviewed and adopted for implementation.
11. The model PPA already developed the Energy Commission as a guide to IPPs, should be reviewed by a committee for adoption.

Stay tuned for the part II