Tesah Capital, an Asset Management Company (AMC) in the country has shared its outlook on the nation’s energy sector for 2021.
In a report that highlights government’s key initiatives in the 2021 Budget Statement, Tesah Capital, opines that Power Purchase Agreements (PPAs) between the government and Independent Power Producers (IPPs) will continue this year with negotiations unlikely to be completed by the end of 2021.
The assertion by Tesah Capital is despite the success chalked by government in securing new terms for an amended power purchase agreement (PPA) with CENIT Energy Limited (CEL) in 2020 which saved government some $200 million.
Ghana, through the energy sector, loses $1.5 billion 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 – last year, government made 50 percent payment of some $1.5 billion owed IPPs in the country.
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.
Ghana’s total installed capacity stands at 5,083MW and a peak demand of 2,700MW, but 2,300MW of the entire capacity has been contracted on a take or pay basis.
When it comes to gas, the Sankofa offshore gas project, a flagship public-private partnership (PPP) — which is backed by some $1.2 billion in World Bank Group guarantees and debt financing — is an increasing fiscal burden.
Under a ‘take or pay’ clause in the Sankofa contract between Ghana and private sector investors, the Ghana National Petroleum Corporation (GNPC) must purchase 90 percent of a predetermined quantity of gas produced, whether it is able to use it or not.
For instance, in 2019, government’s bill for unused gas primarily due to the take or pay clause in the Sankofa contract amounted to $250 million.
The terms of the Sankofa contract and others with foreign suppliers have been heavily criticised by civil society organisations like the African Centre for Energy Policy (ACEP), for having an undue burden on government finances.
Similarly, the International Monetary Fund’s 2019 debt sustainability analysis for Ghana highlighted the gas sector as a fiscal risk to the country, noting, “the off-take agreement for gas supply from the offshore Cape Three Points field requires Ghana to make monthly payments equivalent to 0.7 percent of GDP annually.”
The ‘take or pay’ clauses have resulted in indebtedness within the power sector. The indeptedness according to energy think tank, Institute for Energy Policies and Research (INSTEPR), could reach $12,524 million by 2023.
