Business News of Wed, 3 Aug 201615
Why go for 400mw at $953m when you don’t need it? – ACEP
Energy policy think tank African Center for Energy Policy (ACEP) is questioning the rationale behind government’s decision to spend nearly $1 billion to procure 400mw which it claims is not needed.
Deputy Executive Director of ACEP, Benjamin Boakye says the new 400mw deal exceeds government’s own target of 5,000mw in generation capacity.
Ghana only needs 2,000 megawatts at peak demand, ACEP noted and wondered what government plans to do with the extra 3,000mw if all of Ghana's power plants are working.
Cabinet has approved a 20-year contract with Early Power Limited. If approved by Parliament, the Independent Power Producer (IPP) is expected to build, fuel and maintain the power plant.
Government is describing the power–producing deal as an emergency although it will not be ready until three years.
ACEP believes the deal is a big rush at a big cost and is likely to make little impact.
According to ACEP, if government focuses on at least 39 power purchase agreements with the IPPs and also works on keeping existing power plants fully functional, it would hit its 5,000megawatt target.
“If you are adding another 400mw where will that fix?,” Mr Boakye quizzed.
Government already signed a 450mw deal for nearly $1 billion, an AMERI power deal for $600m and a Cenpower deal for $900 million.
Cenpower deal is a 350MW combined cycle power plant whose construction started on January 29, 2015 and is expected to be handed over in September 2017.
The total project cost for the generation plant, transmission sub-station and fuel supply assets are $900 million.
ACEP has consistently criticized government for making huge expenditures which it says does not represent value-for-money.
The new 400mw deal is the latest contract under ACEP’s scrutiny. Highlighting the positives of the deal, Mr Boakye noted that government is moving away from buying fuel to the power producing company as was the case in the Karpower deal.
Government has also decided to share risk with IPPs. In recent times the IPPs sensing government’s desperation demanded an upfront payment from government if ECG is unable to pay for the power the IPPs generate.
In the 450megawatts deal with Karpower of Turkey, government was asked to cough up a $100million to shield Karpower from ECG’s financial woes.
But this will no longer be the case in the Consent and Support Agreement for the new plant, ACEP has observed.
The risks are expected to be shared, he said.
According to the agreement, government could offer to buy the plant or the company could offer to sell the plant if a party is not satisfied with the delivery targets.
The plant according to the agreement will pump in 144mw six months from the signing of the contract, which ACEP noted is fast.
Mr Boakye, however, doubts if this promise can materialize in view of similar pledges from other IPPs which were not honoured in time.
ACEP, however, worried by the price tag of the 400mw deal. Mr Boakye said Ghana pays between 20 to 30% higher for power from IPPs.
“The only way you can cure that it to ensure that there is competition,” he said while pointing out that inviting competitive bidding can beat the price down.
Government, the think tank said, has rubber stamped the deal at Cabinet and is pushing it through to Parliament.
“Why the rush”, Mr Boakye asked reiterating similar concerns of the Minority in Parliament and former Volta River Authority boss, Dr. Charles Wereko Brobbey.