Ghana: Respect Sanctity Of Power Purchase Agreements-Dr Apetorgbor Tells Gov’t

The Chief Executive Officer of the Independent Power Generators, Ghana Dr Elikplim Kwabla Apetorgbor, has advised the Government of Ghana to respect the sanctity of power contract to avoid unnecessary judgment debts.

According to him, Power Purchase Agreements are not mere formalities but essential components that drive investment, ensure energy security and support economic stability.

He argued that not only does failure to honour these agreements lead to financial liabilities but also damages Ghana’s reputation as a reliable partner in the global market.

Dr Apetorgbor’s advice follows the government of Ghana’s failure to fully pay the US$134 million judgment debt awarded to Ghana Power Generation Company (GPGC) owned by Commodity Trader Trafigura, which compelled the company to seize Regina House, Ghana’s commercial property, in the UK.

In an opinion piece, Dr Apetorgbor also advised Ghana to consider setting up a contingency fund specifically for managing judgment debt.

Below is Dr Elikplim Kwabla Apetorgbor’s write up

The Judgment Debt Against Ghana is avoidable

Ghana is now faced with a significant financial burden, following the award of a USD $134 million judgment debt in favor of Trafigura’s Power Generation Company.

This debt stems from the early termination of a Power Purchase Agreement (PPA) between Trafigura and the Government of Ghana, a decision that now has far-reaching consequences.

The situation serves as a stark reminder of the importance of respecting the sanctity of multinational and international agreements, especially within the project finance realm of the power sector.

The recent judgment debt highlights the critical need for Ghana to adhere to its contractual obligations.

International agreements, such as Power Purchase Agreements, are not mere formalities but essential components that drive investment, ensure energy security, and support economic stability.

Failure to honor these agreements not only leads to financial liabilities but also damages Ghana’s reputation as a reliable partner in the global market.

In 2018, the government’s decision to unilaterally convert all ‘take or pay’ PPAs to ‘take and pay’ agreements was widely criticized as a rash move that could have led to similar or even worse consequences.

Such actions undermine investor confidence and can lead to costly legal disputes, as evidenced by the current situation with Trafigura.

These are not mere administrative decisions; they carry the weight of legal obligations that, if ignored, result in significant financial and reputational damage.

The immediate financial impact of the judgment debt is severe, particularly as it comes at a time when the government is already grappling with overdue arrears to independent power generators (IPGs).

The requirement to pay USD $134 million to Trafigura strains the government’s resources and may further delay payments to IPGs, which are vital for maintaining the stability of Ghana’s power supply.

This delay not only risks power shortages but could also result in additional financial penalties, compounding the economic challenges facing the country.

The sustainability of Ghana’s power sector hinges on the timely and consistent payment to IPGs, which cannot be compromised if the country aims to maintain a reliable and efficient power supply.

To prevent such scenarios in the future, Ghana must adopt a more strategic and disciplined approach to its contractual engagements.

This includes a thorough legal review of all existing IPGs, ensuring that any amendments or terminations are handled with the utmost caution and respect for the agreements in place.

The inclusion of dispute resolution mechanisms, such as arbitration clauses, in future contracts can also provide a more structured and less adversarial means of addressing disagreements.

Furthermore, Ghana should consider setting up a contingency fund specifically for managing judgment debts and other unexpected liabilities.

This fund would provide a buffer, allowing the government to meet its financial obligations without jeopardizing payments to critical sectors such as energy.

Source: https://energynewsafrica.com