Power purchase agreements to be reviewed

26 January 2017

Power purchase agreements to be reviewed

The government has hinted of its plans to review emergency power purchase deals entered into by the previous administration as part of moves to address energy sector challenges.

Notable among these deals are the Karpower and the AMERI which were brought into the country to augment the shortfall in power production in 2015 and 2016, respectively. The two power plants were expected to add about 475 megawatts (MW) to the national grid.

The Energy Minister-designate, Mr Boakye Agyarko, who hinted of the review when he appeared before the Appointments Committee of Parliament, said the review would be done without prejudice and in the interest of Ghanaians.

"We will periodically review contracts. We acquired the aforementioned power plants under an emergency situation. As it is, we will go through a review of all the emergency power plants that we have acquired and the 48 power purchasing agreements that put us at 8,000 MW when we are actually looking at 4500 MW," he said.

He added, “These reviews will be done without prejudice and the national interest will dictate what we do therefrom.”

Conditions for emergency power

Mr Agyarko explained that the acquisition of an emergency power plant depended on the quick relief that it would deliver and the price at which it was delivered.

“Ideally, one would expect that if you are in an emergency situation, then there are two things you consider how quickly the relief can be delivered and how effective that relief is in terms of pricing,” he said.

He said instead of signing emergency deals for over a long period, a better option would have been to add it to the national infrastructure.

Studies, he explained, had showed that seven years would have sufficed for such emergency power contracts, a period conducive for the amortisation of the capital investments.

“All the studies I have seen indicate that a seven-year contractual obligation would have sufficed. That would have allowed for the amortisation of the capital investments of those two plants. If you are looking at a 20-year contract, then you might as well look at making it part of your national infrastructure,” he said.

Review, a right step

Energy think tank, the Africa Centre for Energy Policy (ACEP),has criticised the two deals, demanding a review because they did not represent value for money.

Its Energy Policy Advisor, Dr Ishmael Ackah, in an interview on January 23, said the review was very necessary and any economic gain to be obtained through the review should be passed on to consumers in terms of lower tariffs.

"The emergency plants need to be reviewed. One, the plants are relatively expensive and second they have high capacity charges. That is, the charges we pay, whether the plants are functioning or not. For instance, we pay US$9.9 million to Ameri as capacity charges every month, whether it is operating or not," he said.

In the case of Karpower, Dr Ackah explained that as far as the transfer of ownership to Ghana was concerned, Ghana would take no ownership after five years nor after 10 years when the agreement comes to an end.

"It is a power purchase agreement (PPA). Per the deal, Government Consent and Support Agreement (GCSA) is applicable and a breach of the GCSA and ECG’s default could lead to the suspension of services by Karpower," he said.

Source: Daily Graphic