Government begins power contract renegotiations

The government has started consultations with independent power producers (IPPs) and gas producers to resolve the take-or-pay obligations crippling the country’s energy sector.

The meeting yesterday marked the start of three months of broad consultations with the IPPs and natural gas producers to discuss ways of reforming the current take-or-pay structure and excess power supply, both of which pose serious financial risks to the economy.

The government was represented by officials from the ministries of Finance and Energy, led by their respective ministers, Messrs Ken Ofori-Atta and John Peter Amewu.

“The consultation will provide a forum for stakeholders to contribute to the government’s energy strategy,” a release issued by the Ministry of Information said.

The three-month engagement will involve direct discussions with each of Ghana’s IPPs and gas suppliers, among other stakeholders.

Meeting

At a meeting with the stakeholders in Accra, Mr Ofori-Atta reminded them that a stable and growing economy was in the interest of businesses and investors.

The statement said the collaborative consultation process had been welcomed by the international investor community and was expected to “provide a forum for stakeholders to contribute to government’s energy strategy”.

The Finance Minister emphasised the importance of the Energy sector and its private sector operators and investors to the country’s energy future.

“Fundamental to achieving a sustainable future and industrialisation is the all-important goal of having reliable and affordable power.

“This is how important your investment is to us and that is why it is crucial for all of us to get this right, together,” he told the stakeholders.

“Moving Ghana Beyond Aid means the government is committed to achieving security of electricity supply and sustainable generating capacity that offers reliable and affordable power to Ghanaian people and businesses, while providing investors with attractive opportunities,” Mr Ofori-Atta added.

Assurance

“As a result, the government continues to promote policies to deliver a regime of competitive tariffs, growth of strategic industries and universal access to power,” the release added.

It added that a long-term sustainable strategy aimed at creating a competitive and dynamic energy sector that would guarantee reliable and affordable power for the country and businesses would be rolled out.

The release gave an assurance that the government would release more details on the consultation process in the coming days.

Background

A month ago, the government declared a state of emergency in the energy sector and indicated that drastic measures would be taken to resuscitate the sector.

While presenting the Mid-year Fiscal Policy Review of the 2019 Budget Statement and Economic Policy Supplementary Estimates to Parliament on June 31, this year, Mr Ofori-Atta said the challenges in the energy sector were dire and posed serious financial risks to the economy.

He stressed that at the heart of those challenges was what he described as the “obnoxious take-or-pay contracts signed by the National Democratic Congress (NDC) government which obligate us to pay for capacity we do not need”.

Mr Ofori-Atta added that Ghana’s installed capacity of 5,080 megawatts (MW) was almost double its demand of around 2,700MW.

He indicated that 2,300MW of the installed capacity had been contracted on a take-or-pay basis, which meant that the country was contractually obliged to “throw away money for the excess capacity” which was not needed.