Account for $1 billion meant for re-financing of Power Purchase Agreements – CSO Budget Forum to government
The CSO Budget Forum – a group of Civil Society Organisations with interest in influencing the national budget – has called on the government to account for the $1 billion of the $3 billion Eurobond issued in 2020, which was meant to refinance the renegotiated power purchase agreements in the energy sector.
The call by the CSO Budget Forum made in the lead to the presentation of the 2022 Budget by the Finance Minister, follows government’s continuous assertions of wanting to refinance the renegotiated PPAs despite the $1 billion allocation.
According to the Forum, the allocation created the impression that the government had concluded the renegotiation for which the $1 billion debt was procured, but government’s posture on the refinancing of the PPAs indicates otherwise.
The Forum, therefore, wants government to account for the $1 billion procured for the purpose of refinancing the renegotiated PPAs.
“Government has consistently indicated over the last four years that it is reviewing the PPAs that have occasioned the excess capacity charges within the sector with the objective of reducing the associated payments.
“It is noted that $1 billion of the $3 billion Eurobond issued by government in 2020 was to support the Ghana Investment Infrastructure Fund (GIIF) to refinance the renegotiated PPAs.
“This allocation created an impression that government had concluded on the renegotiation for which the debt was procured. This, therefore, raises significant concerns about the definite timelines for the renegotiations and the cost implications for the delays,” noted the group.
Adding that, “After one year, estimated interest payments on the $1 billion bond amount to about $80 million. If negotiations delay till the end of 2021, an additional $80 million will be paid bringing the total interest payments to about $160 million for no work done.”
Ghana, through the energy sector, loses $500 million yearly in payments for excess power capacity and gas which it does not use.
The $1.5 billion is the result of existing power purchasing agreements (PPA) and gas deals contracted on a pay or take basis, which the country is obliged to pay for, regardless of whether it uses it or not.
Of the total cost, excess power, mainly from Independent Power Producers (IPPs) accounts for around $500 million, with the remaining amount coming from gas deals with local producers and foreign suppliers.
In 2020, government is said to have made 50 percent payment of some $1.5 billion owed IPPs in the country with the remaining amount renegotiated.
For instance, government last year secured new terms for an amended power purchase agreement (PPA) with CENIT Energy Limited (CEL) which saved government some $200 million in payments.
The amount saved was due to the fact that CEL agreed to convert their power plant into a tolling structure which will result in cost savings to ECG and also agreeing to a further reduction in the capital recovery tariff of 38.9 per cent and also switching its primary fuel from light crude oil (LCO) to natural gas.
Speaking on the amended terms with CEL, the Finance Minister last year noted, “We welcome Cenpower’s commitment to Ghana and recognize Cenpower’s conversion to gas as a significant step in helping regenerate Ghana’s energy sector.
In recent weeks, there has been increased momentum under the ESRP Consultation Process towards resolving some extremely challenging legacy issues inherited from the previous administration.
We encourage all other IPPs to engage constructively with the Government negotiating team to conclude negotiations as soon as possible. IPPs have a vested interest and a significant role to play in providing a stable energy supply as well as ensuring a fair, balanced and sustainable energy sector for the people of Ghana.
As ever, this Government is committed to building a competitive and dynamic energy sector, where private investments can thrive and the interests of the Ghanaian people and businesses continue to flourish.”