Government aborts PDS deal after brouhaha

Government has finally terminated the much-talked-about concession agreement with Power Distribution Services (PDS).

The announcement was contained in a lengthy correspondence authored by the Finance Minister, Ken Ofori-Atta, and addressed to Sean Cairncross, the Executive Officer of the Millennium Challenge Corporation (MCC) in Washington DC, United States.

Lengthy Content

The long correspondence laid out all the segments of the agreement, the genesis and factors that informed the decision to terminate the concession.

It has been a brief but momentous journey as government on one side and the managers of the PDS engaged in what has largely been a corporate governance confusion over the takeover of the strategic assets of Electricity Company of Ghana (ECG) which is estimated to be some $3 billion.

Corporate Governance

Scholars in corporate governance could not but make references to the rule book on such concessions seeking appropriate premises to spice up their arguments.

Social media stories about the development could not convince victims of fake news that what they were reading was authentic until the Finance Minister gave finality to their doubts.

Short Journey

The journey started in March this year with the ECG letting go its traditional role of power supply to the PDS as per the arrangement after the private sector participation was introduced by then Mahama-led National Democratic Congress (NDC) government to enable it to access cash from the MCA account set up by the US government.

When the reality of the deal dawned on many Ghanaians as the ECG took a backstage, they began to question the integrity of the arrangement and wished a reversal would be a better option but for the legalities entailed in the contract.

Crucial Meeting

According to the Finance Minister, “the development followed when a meeting between the Secretary to the President, Nana Bediatuo Asante, and I, on the one hand and the Principal Vice President of the Millennium Challenge Corporation (MCC) Kyeh Kim and the Resident Country Director-Ghana of MCC, Kenneth Miller on the other hand was held in Washington DC on Friday October 18th, 2019.”

The minister pointed out that the aforementioned meeting following which the correspondence was issued “produced an understanding that the existing concession would be discontinued and a concession restoration and restructuring plan executed within existing timelines and in any event before December 31, 2019.”

The minister said, “It is worth recalling that following this understanding Mr. Cairncross and President Akufo-Addo shook hands and committed to expeditiously putting the understandings into effect.”

The minister observed that the implementation plan sent from MCC in Washington did not reflect the substance of the agreement reached in New York.

NDC Propaganda

One of the sources of heat for the subject has been the position of the opposition NDC which bizarrely started this whole ECG privatization process and was even prepared to give more than 50 per cent of one of Ghana’s strategic assets (ECG) to foreigners had Nana Akufo-Addo not won the 2016 election and reversed the whole shareholding arrangement.

New Shareholding

A Ghanaian local consortium was holding the 51% of the shares while the remaining 49% shares were for two foreign companies, Manila Electric Company Limited (Meralco), a Filipino company with 30% shares, and Aenergia, an Angolan company with 19%.

Meridian Angle

Meralco offloaded its shares to Meridian Power Ventures Ltd; it emerged during the continuous explanations by interest parties on the issue.

The opposition considered the offloading of Meralco’s shares as a pointer to an underhand dealing by the government to access the assets of the ECG.

They even propagated without any proof that it was the President and his cronies who were seeking to take ECG assets from PDS.

Government’s position that the agreement was flawed with fraud informed its persistence to have the whole deal rethought out and the necessary action taken, the outcome of which is the termination.

Internal Consultations

The minister recalled making a request for time to complete internal consultations regarding the implementation letter through Monday, 21st October.

The MCC team he noted indicated that the government of Ghana “needed to execute the enclosed implementation letter (principles and action steps to move forward on the Ghana Power Compact) by midnight of the 18th October if the Compact was to move forward.”

De-Obligation Letter

He said, according to the team, failure to adhere to the foregone, a “De-obligation Letter” would be issued effectively ending the Compact.

Akufo-Addo, MCC

The minister reiterated in the letter that “the position communicated to the CEO of the MCC by the President of Ghana during their meeting on the sidelines of the United Nations General Assembly in New York on 23rd September to the effect that the current concession had to be terminated in view of the facts uncovered regarding the failure by PDS to satisfy conditions precedent under the relevant transaction documents AND, however, that every effort would be employed to ensure a suitable replacement within the relevant timelines in order to complete the Compact.”

Concessionaire

The minister made reference to a key condition under the private sector arrangement which was the introduction of a concessionaire into the distribution sector. The concessionaire, he said, would by the terms of the arrangement “inject private capital into the operations of the ECG.”

Philippines Meralco

Meralco of the Philippines, the correspondence said, was selected through an international competitive tender.

Continuing, the minister explained that in order to satisfy the local content requirement under the transaction, a special purpose vehicle, Power Distribution Services (PDS), was incorporated in Ghana to be the operator.

PDS Shareholding

He mentioned that the PDS has the following shareholding: i. Meralco (Philippines) – thirty percent (30%) shares ii. Aenergia S.A (Angola) – nineteen percent (19%) shares iii. GTS Engineering Services of Ghana, Santa Baron Ventures of Ghana and TG Energy of Ghana – together fifty one percent (51%) shares; in consequence thereof, the Transaction Agreements were executed.

Conditions Precedent

Over forty (40) Conditions Precedent, five (5) of them considered critical and essential, were required to be fulfilled by PDS under the LAA and BSA, the Finance Minister pointed out.

He said two of the essential and critical Conditions Precedent were the provision of a BSA Payment Security and an LAA Payment Security (Conditions Precedent 24 and 31 respectively).

These he said “were preconditions to the occurrence of the Transfer Date and the exercise of the rights and obligations of the parties, and in terms of the Transaction Agreements, constituted security for PDS” obligations under the BSA and LAA. Conditions Precedent 24 and 31 required PDS to furnish to ECG payment securities in the form of either a Demand Guarantee or a Letter of Credit issued by a Qualified Bank.

Bank Guarantee

Owing to difficulties experienced with raising a bank guarantee, PDS formally requested MiDA to accept a demand guarantee issued by an A-rated insurance company, the letter recalled.

FTI Investigation

FTI Consulting, the auditors chosen by MiDA to undertake the forensic audit requested by the MCC, had completed its exercise and presented a Summary of Findings Report (Final Report), the minister said.

Continuing, he recalled how the FTI’s Final Report, which was prepared after a study of the documentation given to the Ghanaian delegation which travelled to Qatar, confirms the position of Al Koot on the purported Demand Guarantees as having been issued without due authorisation and in excess of the mandate of the firm.

The FTI made damning observations in its report.

Untenable Arrangement

As a result, the position of PDS as a PSP in the private sector enterprise which constitutes the driving factor for the Compact, the minister observed, “has become untenable.”

“It is our respectful view that the Government of the United States of America should be seriously concerned about the lack of security for a transaction involving the commitment of funds of the American people as colossal as the amounts in question, as well as the general unethical and unprofessional conduct of PDS. ECG and the Government of Ghana have no option but to terminate the LAA and BSA as well as the GSA respectively dated 3rd July, 2018.”

New Arrangement

The minister said there shall be a tender process to replace PDS, a restricted arrangement which the minister noted “shall be undertaken timeously by fast-tracking some of the processes without compromising the integrity and transparency of the procurement process.”

Final Decision

Concluding, the minister said “government of Ghana acknowledges the challenge that privatization of ECG has faced. However, this does not in any way diminish the Government of Ghana’s commitment to work with the MCC in private sector participation in Ghana’s energy.”

He added that “government intends to see this process through in a manner that follows due process and protects the interests of all parties.”

Initial Announcement

On Tuesday, 30th July 2019, through the Ministry of Finance and the ECG, the government announced the suspension of the concession agreement with the PDS and said it was initiating an enquiry into the circumstances leading to the non-fulfillment of conditions precedent to the full operationalisation of the agreement by the PDS.

PDS Fight Back

The embattled power supply company has dismissed any foul play in its contract to distribute power and its Board Chairman, Philip Ayesu, told DAILY GUIDE last Sunday that the outcome of the investigations commissioned by the government would clear them of any wrongdoing.

Mr. Ayesu was unfazed about the hullaballoo that had greeted the transaction, saying the PDS had been following the terms of the contract signed to operate ECG facilities.

He ruled out claims that the PDS played a fast one on the government with the alleged breaches in the demand guarantee (insurance cover).

ECG Privatization

In August 2014, Ghana and United States of America – acting through the Millennium Challenge Corporation (MCC) – entered into a Millennium Challenge Compact.

The Compact provided for a grant of up to US$498,200,000 to advance economic growth and reduce poverty in Ghana, and commits Ghana and the MCC to a five-year economic development programme that would fund investments in the country’s power sector and as part of the deal, the government agreed to put ECG in private hands to be supervised by the Millennium Development Authority (MiDA).

Per the Mahama-led initial agreement, the concessionaire was to hold 80% stake and manage ECG for 25 years, while the Ghanaian ownership was to hold the remaining 20% stake.

However, President Akufo-Addo, upon assumption of office and through the then Energy Minister Boakye Agyarko, got the US government to review the terms where the Ghanaian ownership now stands at 51% share with the foreign investor taking the remaining 49%.

The Ghanaian local consortia holding the 51% of the shares in PDS include TG Energy Solutions Limited (TG), with 18%; Santa Baron Ventures Limited (Santa), with 13%; as well as GTS Engineering Services Limited (GTS) and TBK Ghana Limited (TBK), with 10% each.

The remaining 49% are for Pilipino consortia (foreigners) including Manila Electric Company Limited (Meralco), with 30% shares and Aenergia, an Angolan company, with 19% shares.