Government wins victory in IPP talks, but more battles ahead

Business news for Monday, September 28, 2020

Source: Business 24

2020-09-28

The government has announced that it has successfully secured the terms of a modified Power Purchase Agreement (PPA) with CENIT Energy Limited (CEL), one of the Independent Power Producers (IPP) with whom they are currently negotiating to renegotiate their PPAs. .

Under the new terms, CEL, which is owned by the Social Security and National Insurance Trust (SSNIT) through a special purpose investment vehicle, has agreed to convert its PPA into a toll structure and transfer all cost savings resulting to your power buyer. the Ghana Electricity Company (ECG).

A toll agreement, as it is generally used in the global energy industry, means that the government or ECG would provide fuel to CEL’s power plant and would also determine the amount of power to be produced, while CEL retains operational control of the plant.

In addition, the government said that CEL has agreed to a further reduction in its capital recovery fee of 38.9 percent, resulting in a total savings to the state of more than US $ 200 million over the remaining life of the PPA.

Since 2019, the government has been holding talks with around 12 IPPs in the energy sector in an attempt to convert their PPAs, which are based on take-or-pay terms, into terms that are less costly for ECG and the government.

This was after Finance Minister Ken Ofori-Atta revealed that the government pays more than $ 500 million a year for unused electricity, which arises from purchase or purchase PPAs that force the government to pay for the energy produced by IPPs regardless of need or demand.

Most of the PPAs were signed during the previous administration amid a protracted energy crisis that the then government was eager to resolve. According to the Ministry of Finance, the rates agreed in those PPAs were not competitive and have contributed significantly to the accumulation of debt and the excess supply of energy in the energy sector.

“The commitment made by CEL is crucial to reinforce the government’s efforts to build a balanced and sustainable energy sector,” said a press release from the Finance Ministry on Friday.

“The terms agreed between the government and CEL will produce a more favorable situation for both parties and ultimately reduce the cost of electricity for the people of Ghana,” the statement added.

The statement encouraged other IPPs to emulate CENIT to help the government reduce the debt hangover in the energy sector.

However, the signals given by the IPPs suggest that the government would not find it easy to renegotiate the other PPAs. Just last week, a report in the press said that the IPPs had threatened to close their plants in late September if the government did not pay off the debts owed to them.

The PPA renegotiations are being carried out as part of the Energy Sector Recovery Program (ESRP), which is a five-year reform plan aimed at restoring the financial sustainability of Ghana’s energy sector.

The government said it has demonstrated its commitment to the ESRP by actively developing sector-wide initiatives and reforms, including the implementation of the Cash Cascade Mechanism (CWM) in April 2020, which allows ECG revenues to be distributed in a more transparent way, and manage arrears payments despite the difficult fiscal situation that has been aggravated by the COVID-19 pandemic.