Former Chief Executive Officer of the Volta River Authority (VRA), Kweku Awotwe says Ghana will be able to save more money if the country learns to negotiate better deals in the energy sector.
According to him, although investors are out to make profit and therefore will appreciate some guarantee from government, the country could put in place “a competitive least-cost procurement plan” and go through with it.
“I don’t disagree with the World Bank in the sense that some of them are expensive. I mean, it is unlikely that any investor who brings five hundred million dollars will not want to have some guarantee for getting paid back. I don’t think you can fault any investor for that and that is where a lot of these take or pay comes in but I think where our problem has been as a country is we have not ever followed a competitive least cost procurement plan that says over the next five to ten years this is the amount of power that we need, bid in, we take the least cost and go from there,” he said.
His comment follows assertions by Pierre Frank Laporte, the World Bank Country Director, that the deficiencies in the energy sector characterized by the tariff systems and management issues coupled with expensive power purchases by the state in addition to transmission losses, were the major cause of Ghana’s debts.
Explaining further, Mr. Laporte said the Power Purchasing Agreements (PPAs) the Government has signed were expensive. In addition to the exorbitant power purchases the country was paying for energy, it does not use the energy due to the “take or pay contracts.”
“In the case of Ghana, those contracts that have been signed as PPAs are just expensive and the kind of PPAs signed are take or pay. You pay although you do not use it. The fact is that in the past few years, Ghana entered into an agreement at the wrong rate and the wrong price, and it has impacted the debt situation,” he stressed.
Backing this stance, Mr. Awotwe said some contracts described as emergencies and entered into by government could have been avoided.
“These emergencies, some of them are no longer emergencies. They have been around for five to ten years and they may end up being around for another five to ten years. So I do think that the take or pay gets a bad rap and it is not always understood.”
On his part, Deputy Energy Minister, Andrew Egyapa Mercer said ECG has been tasked to renegotiate contracts with power plants nearing expiration but under a new regime that discourages the “take or pay” system.
“(The) new transaction is not a take or pay, it is a take and pay. Seeing that there is a bit of commitment to dispatch about 40% of their capacity year on year and also that tarrif was reduced from the 13 cent or so to under 10.
“We have had excess capacity for the past five, six, seven years, but is it static? Obviously not?
“So because your demand is growing year on year your excess capacity is reducing and so ECG has taken the view that ‘look, in 2026, 2027, there may be a need for us to add some capacity and if the decommission provision in their transaction and the facility is here, then can we renegotiate under the new guidelines that have been issued by the Ministry of Energy to the effect that going forward any new power plant that is coming in to Ghana will not be on the take or pay bases that we know, that there will be no government guarantees and that we are going to buy energy,” he said.
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