US government withdraws $190m MCC fund, says PDS termination 'unwarranted'

The government of the United States of America has withdrawn some $190 million advanced to Ghana under the Compact II programme of the Millennium Challenge Corporation following Ghana government’s termination of a 20-year concession deal with private firm Power Distribution Services Ghana Limited upon the detection of fraud.

A letter dated 18 October 2019 signed by Ghana’s Finance Minister Mr Ken Ofori-Atta, said: “Following consultations with Government, we wish to emphasise that the government remains strongly committed to the Compact and the private sector participation in the Electricity Company of Ghana.

“We also wish to reiterate 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 September 23rd 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.

“The Government decision to terminate the PDS concession and find a replacement in a timely manner to successfully conclude the Compact is based on two key points: First of all, it is Government’s view that the meeting between the CEO of MCC and the President of Ghana 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. 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. Following the meeting, however, MCC sent an implementation plan, which in our opinion did not accurately reflect the outcome of the New York meeting.

“Secondly, the facts detailed below clearly justify the discontinuance of the current concession which, it should once again be emphasised, does not in any way diminish the Government of Ghana’s commitment to private sector participation in Ghana’s energy sector. Indeed, the Government intends to see this PSP through in a manner that respects due process and fidelity to the relevant transaction documents and underlying Compact”.

In a statement responding to the termination, however, the US Embassy in Ghana said: “On October 19, 2019, the Government of Ghana (GoG) informed the Millennium Challenge Corporation (MCC) in Washington, D.C. of its decision to terminate the concession agreement between Electricity Company of Ghana (ECG) and private operator Power Distribution Services Ghana Ltd (PDS).

“The United States of America notes this decision with regret. Based upon the conclusions of the independent forensic investigation, the U.S. position is that the transfer of operations, maintenance, and management of the Southern Distribution Network to the private concessionaire on March 1, 2019, was valid, and, therefore, the termination is unwarranted”.

The American Embassy said: “As such, MCC has confirmed that the $190 million funds granted to Ghana at the March 1 transfer to the 20-year concession from ECG to PDS are no longer available”, adding: “The United States underscores the importance of contract sanctity as essential to a conducive investment climate and a pre-condition for inclusive economic growth”.

In this spirit, the Embassy said: “The United States has worked with the Government of Ghana since the latter’s July 30 suspension of the concession in the hopes of finding a mutually acceptable solution that respected contract sanctity and the Government of Ghana’s interest in restructuring the concession”, and noted: “Moving forward, the U.S. Government, through MCC, will continue to implement the Tranche I funds of $308 million with the Millennium Development Authority (MiDA)”.

It said: “This funding will continue to support important improvements to the infrastructure of Ghana’s southern distribution network, increase reliability and power access to key markets, and advance energy efficiency programs directly benefiting the people of Ghana.

“The U.S. Government is a committed partner and has full confidence in MiDA to lead the joint effort to deliver the projects funded through the $308 million remaining under the MCC Ghana Power Compact.

“The U.S. Government looks forward to continuing to work together with MiDA and the Government of Ghana to implement the remainder of the Power Compact”.

Background:

On March 1, 2019, Ghana Power Distribution Services, Ltd. (PDS) assumed operation and management of the staff and assets of the Electricity Company of Ghana (ECG) under a 20-year concession agreement. Private sector participation is a central reform under MCC’s Ghana Power Compact.

This is critical to the long-term sustainability of related infrastructure investments and the financial recovery of the energy sector in Ghana.

The Compact comprised two tranches of funding: $308 million available upon the official start of the current Compact, and a second tranche of $190 million, which was available upon a successfully executed concession agreement, which the United States maintains occurred on March 1, 2019.