The Chamber of Independent Power Producers, Distributors and Bulk Consumers (CIPDiB), the umbrella body of IPPs in the West African nation, Ghana, has called on government to stop demonising the current ‘Take or Pay’ contracts signed with IPPs in the previous government.
According to the chamber, it is not right for government to demonise what a ‘take or pay’ contract is, or portray the other side to those contracts as bad people or bad companies.
In a statement copied to energynewsafrica.com, the chamber explained that the current ‘take or pay’ contracts were carefully negotiated and entered into in good faith over many years with international advisors on all sides of the transaction, including for the government (Ministry of Finance, Ministry of Energy, Attorney General and ECG).
“The nature of the obligations assumed by GoG (Ministry of Finance, Ministry of Energy, Attorney General and ECG) is consistent with best practice not only in Africa but also in many other jurisdictions around the world.
“The same sort of ‘take or pay’ PPA is in place in many IPPs across Africa including in Nigeria, Cote d’Ivoire, South Africa, Kenya, Tanzania, Uganda, Zambia and across Asia / South America as well. The nature of a ‘take or pay’ arrangement is not, in itself, at all wrong.
“What always needs to be considered is which power projects are entered into by a state-owned off taker on such a take or pay basis, what the tariff is for the project and how risks in the project are all allocated.”
The Finance Minister, Ken Ofori-Atta, while presenting the mid-year budget review statement on the floor of Parliament on Monday, July 29, 2019, blamed the previous government for committing the country to ‘take or pay’ agreements in the energy sector.
He claimed the country was paying over GH¢2.5 billion annually for some 2,300MW in installed capacity, which the country does not consume.
“We shall, from August 1st 2019, with the support of parliament, make ‘take-or-pay’ contracts a beast of the past,” he stressed.
On August 26, 2019, the Finance Ministry, in a statement signed by the Chief Director, noted that government was going to commence collaborative consultation process with the IPPs and gas producers.
IPPs Welcomed The Process
The chamber, however, welcomed the approach by the government for a collaborative consultation process to address the challenges in the energy sector (which are not the offence of the IPPs and gas producers).
The chamber expressed its commitment to assisting all parties in creating a framework for the power sector, which allows the continuation of private sector involvement in the delivery of electricity to Ghana at least cost.
“It may be considered by some that the “right thing” is to blame a ‘take-or-pay’ contract or blame the private sector, which are the other side to those contracts–but that would be wrong and be a mistake.
“That will, at best, waste time and lead to an erosion of confidence in Ghana but at worst could lead to termination of the contracts with a vast termination sum being required to be paid by Ghana. What GoG should now do is to act reasonably and, yes, voice its concerns with certain issues and payment terms, but also listen to the other side, to advisors, to supporting agencies to ensure that the resulting path chosen is considered properly in a measured way.”
Caution
Whilst the chamber said it is sympathetic to government’s concerns about the energy sector and the macroeconomic stability of the country, it said a unilateral recalibration of the PPAs by GoG/ECG is not the way to address these concerns and would, in its opinion, be tantamount to a breach and/or repudiation of those agreements.
In addition, place IPPs in breach of their obligations to third parties and ultimately affect Ghana’s credibility internationally as an investment destination.
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