Parliament approves ECG take over

Parliament has ratified the concession agreement between the government of Ghana and the consortium of investors led by the Manila Electric Company (Meralco) for private sector participation in the Electricity Company of Ghana (ECG) within the terms of the second millennium challenge compact.

Presenting a joint committee report of the Finance and Mines & Energy on the concession agreement, Dr.Mark Assibey-Yeboah, whose chairs the Finance Committee, said the agreement represented the best deal for the country since it will help turn around the fortunes of the ECG and return the company to financial and operational viability.

According to the report, the concession agreement comprises three different sub agreements: lease and assignment agreement, bulk supply agreement and government consent and support agreement.

The Lease and Assignment Agreement (LAA) between the ECG and the Concessionaire is the primary document governing the 20-year relationship between ECG and the Concessionaire with regards to ECG’s distribution system. It also protects the interest and rights of the current staff of ECG.

Furthermore, the report indicates that the Concessionaire would be required under to inject an amount of US$580m into the distribution system during the first five years of the agreement period.

The Bulk Supply Agreement between ECG and the Concessionaire deals with the back-to-back purchase by the Concessionaire of the capacity and energy made available to ECG under the Power Purchase Agreements (PPAs) to which ECG is a party. The Concessionaire would do nominations and ECG would supply the power to be paid for by the Concessionaire.

ECG will sell all capacity and energy made available under the Portfolio PPAs to the Concessionaire in exchange for the payment by the company of all capacity and energy payments on a back-to-back basis.

Minister for Energy, Boakye Agyarko, informed the Joint Committee that as part of government’s plan to restructure power sector institutions, an arrangement is being made for ECG to be custodian of all PPAs in the country.

He also indicated that the current arrangement makes it quite difficult to dedicate certain cheaper hydro sources of energy to power critical industries such as the refinery and smelting in the aluminium industry.

In this regard, the current PPAs held by Volta River Authority would be transferred to ECG.

With regard to Government Support Agreement, it involves the government providing a sovereign guarantee to indemnify the Concessionaire for any substantial breach by ECG of the terms and conditions under the Lease and Assignment Agreement and the Bulk Supply Agreement.

The areas where the sovereign guarantee is being provided include payment of electricity bills supplied to Ministries, Departments and Agencies (MDAs) and Buy-Out Price after the expiration of the 20-year concession period.

The Committee was informed that ECG experienced approximately 23percent aggregate Technical and Commercial Losses in 2017.

This figure was said to be high compared to worldwide industry standards that presently stand at about 8-9percent. ECG’s loss rate is also slightly above the average for the sub-saharan countries of about 22percent.

The Committee also observed that the Concession approach is advantageous to government partly because the Concessionaire is responsible for all major new investments. This will help to minimize the impacts of such investments on the national budget.

Again, the Concessionaire takes responsibility for the delivery and operation of ECG’s power distribution and services infrastructure, thereby transferring the inherent risks from government to the concessionaire.

Background

On August 5, 2014, the Republic of Ghana and the United States of America, acting through the Millennium Challenge Corporation (MCC), entered into a Millennium Challenge Compact.

The Compact provides for a grant of up to US$498,200,000.00 to advance economic growth and reduce poverty in Ghana and commit Ghana and the MCC to a five-year economic development programme that will fund investments in the power sector of Ghana.

The programme consists of six projects namely: ECG Financial and Operational Turnaround Project, NEDCO Financial and Operational Turnaround Project, Regulatory Strengthening and Capacity Building Project, Access Project, Power Generation Sector Improvement Project and Energy Efficiency and Demand Side Management Project.