Business News Tue, 3 Feb 2015

ECG privatisation: 10 out of 30 firms express interest

Ten out of 30 potential private investors/operators have expressed interest to become private sector partners (PSP) of the under fire Electricity Company of Ghana (ECG), Starrfmonline.com can confirm.

A questionnaire was sent to these firms both local and abroad by the International Finance Corporation (IFC) who has been contracted by the Millennium Challenge Corporation (MCC) on behalf of the Government of Ghana (GoG) to provide technical assistance to the GoG as it determines the most suitable option for PSP in ECG.

Of the 10 companies who responded to the questionnaire about their willingness to join the privatisation process, eight were international, and the remaining two are local.

The GoG is considering two privatisation preferences – partial privatisation or a concession contract – as it weighs measures to attract investment in the state-owned power distribution company.

A detailed report by the IFC titled: Ghana Power Compact Private Sector Participation Options Study of ECG, said both options are feasible under the legal framework of Ghana. By March 2016, the takeover should be completed under the partial privatisation choice, but should government opt for a concession contract the takeover deadline has been fixed for June 2016.

The classified document, which has been intercepted by Starrfmonline.com, noted that “all firms expressed an interest in the project, and a few common threads emerged through the questionnaires:

“Nine out of 10 firms expressed their willingness to invest in Ghana’s power distribution sector.

“Top 4 aspects considered the most relevant to enter into a power distribution PSP project: stable regulatory framework and clear allocation of responsibilities among in the electricity business stakeholders; robust legal system and adherence to the rule of law; sustainability of the sector with the current tariffs and financial sustainability of the overall electricity sector (not just power distribution); and long-term equity rate of return.

“Top 4 aspects deterring firms from investing in a country’s power distribution PSP project: regulatory risk; current financial situation of the power distribution company; high financial deficit in the overall electricity sector; and high collection losses from end-users of electricity “The average equity rate of return a company would require to invest in the project: most respondents fell within the 15-20% range (real in USD).

“Labour feedback included: existing staff levels would be accepted on the assumption that the staff would be assessed, reskilled and reorganized as appropriate; a definite plan for voluntary redundancies would be agreed between the stakeholder, and great care must be taken to ensure that actions comply with Ghanaian labour law.”

The government of Ghana, according to Starrfmonline.com’s highly placed sources in the corridors of power, is more likely to opt for partial privatisation since a concession contract can take two years or more to complete and “with election next year the government would not want to drag this beyond that.”

ECG is one of the largest power distribution utilities in Sub-Saharan Africa with over 2.5 million registered customers and approximately 6,000 GWh of electricity sold per annum. ECG purchases power from VRA and other IPPs.
Source: starrfmonline.com