Yesterday October 26, 2023, most parts of the country were thrown into darkness because of a power generation deficit. Our understanding from the Ghana Grid Company Limited was that there was a limited supply of gas to Tema occasioning the power supply gap of 550MW. This obviously inconvenienced a lot of citizens and social media was awash with Ghanaians venting their frustrations on the handles. Keen observers of the energy sector knew that this was a disaster waiting to happen since the non-operationalization of the Cash Waterfall Mechanism (CWM).
The Cash Waterfall Mechanism (CWM) was instituted to prevent the growth of the sector-wide indebtedness as government services what has come to be known as legacy debts in the energy sector. A cash waterfall payment system is a method used to allocate and distribute cash flows from an investment or project (in this case the energy sector) among various stakeholders, following a predetermined hierarchy and set of rules.
A waterfall payment system allows debtors to pay higher-tiered creditors their full interest and principal first before lower-tiered creditors receive their own principal and interest payment. Debtors usually structure this mechanism into tranches in order to prioritise and finance the loans with the highest debt obligations, principal and interest inclusive. The idea is that the most expensive debts should be serviced first. This mechanism is part of a wider strategy to ensure equitable distribution of energy sector revenues to all stakeholders in the value chain.
In July 2017 the the CWM which had been introduced by the NDC government in late 2016 was again approved for implementation by the New NPP government. This was to ensure an equitable and transparent distribution of energy sector revenues amongst all stakeholders in the sector’s value chain. The CWM became effective for companies and entities servicing more than one loan.
After initially proving to be relatively effective in controlling the sector’s debt, the mechanism is increasingly becoming unavailing, as it is unable to pay for 80 per cent of power sold to ECG. The CWM pays for only 20 per cent of delivered energy invoices. The remaining 80 per cent keeps adding to the arrears which has resulted in ECG owing the IPPs alone about $2 billion. The same can be said about the accumulation of debt as a result of fuel used by the power generators and the transmission of same.
The latest effect of the non-functioning of the Cash Waterfall Mechanism is what was experienced yesterday October 26, 2023, when about 30 per cent of more of ECG customers had no lights. The Ghana Grid Company (Gridco) in a statement stated “The Ghana Grid Company Ltd (GRIDCo), the ‘operator’ of the National Interconnected Transmission System (NITS) informs the general public that due to limited gas supply supply to Tema. There will be a supply gap of 550MW at peak time. This will affect power supply to customers in some parts of the country,”
As part of the Gas Transportation Agreement between the Electricity Company of Ghana (ECG) and the West Africa Gas Pipeline Company (WAPCo) to transport gas from Aboadze to power plants in Tema, WAPCo demanded that the government of Ghana put up a guarantee against failure by ECG to pay for gas transportation. This was because WAPCo was wary of the financial challenges of the power off-taker and were thus unsure they will be paid anytime ECG was invoiced. Government elected the Ghana National Petroleum Corporation (GNPC) to serve as the guarantor. It was therefore not surprising that when ECG defaulted in its payments WAPCo wrote letters to the guarantor for payment.
GNPC subsequently wrote a series of letters to ECG regarding the non-payment of transportation invoices to the West African Gas Pipeline Company (WAPCo). In these letters, GNPC informed ECG about the intention of WAPCo to suspend gas transportation services on October 17, 2023, if the minimum expected payment of $8.31 million was not paid by the close of business on October 17, 2023. The total cumulative outstanding invoices currently stand at US$17.13 million after GNPC paid an amount of $2.00 million. All attempts to get ECG to make the required minimum payments have been unsuccessful. So yesterday WAPCo carried out their threat and curtailed the flow of gas from the Western Region to Tema hence the limited supply of gas to the Tema enclave causing a supply gap of 550MW at peak time.
Government must as a matter of urgency intervene as the shareholder of ECG and make the minimum expected payment of $8.31 million so that Ghanaians would not have to sleep in darkness again. In the medium to long term, government must make arrangements to pay off the total indebtedness of ECG to WAPCo and immediately re-institute the Cash Waterfall Mechanism.
This is because very soon the IPPs will also be on the neck of ECG for their accumulated arrears and government must be ready to intervene to avoid DUMSOR. The time to act is now.
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The writer is the Bongo MP and a member of the Mines and Energy Committee.
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