Government, Cenpower agree Gas Supply Agreement to Secure Cost Savings of up to $3.0 billion

The Ministry of Finance has said that Cenpower has agreed to switch to natural gas as primary fuel, committing itself to using Ghana’s abundant natural resources.

A statement ny the Ministry said the conversion to natural gas by Cenpower, which will provide cost savings of approximately $3.0 billion, demonstrates significant momentum in this administration’s implementation of the Energy Sector Recovery Programme (ESRP).

Government of Ghana calls on all Independent Power Producers to emulate Cenpower and CENIT in advancing solutions to ensure the long term sustainability of the energy sector.

Below is the full statement;

This week, Cenpower Generation Company Limited (Cenpower) has committed to switching its primary fuel from light crude oil (LCO) to natural gas and signed a gas supply agreement (GSA) with the Ghana National Petroleum Corporation (GNPC). Gas operations are expected to begin by the end of this week.

Government welcomes this significant milestone and commitment from Cenpower. The GSA is a key part of the proposal put forward by Government during negotiations with Cenpower and will deliver substantial cost savings, estimated at $3.0 billion over the remaining term of the Cenpower PPA.

Furthermore, conversion to natural gas will have important environmental benefits, as emissions will be lowered and Ghana’s abundant natural gas resources effectively utilised for the benefit of the Ghanaian people and business community.

Additionally, the move to natural gas will alleviate the considerable pressure on Government from its take-or-pay commitments with fuel suppliers and allow

for the substitution of imported fuels with locally available natural gas, thus positively impacting the capital account.

Cenpower is a major power producer in Ghana, providing approximately 10% of Ghana’s total electricity generation. This project is an excellent example of the public and private sectors working together in Ghana to attract private investment while ensuring sustainable development.

Presently, Ghana pays over US$500 million a year for unused electricity. Most of the power PPAs are legacy agreements, entered into under the previous administration in an uncoordinated and short-sighted attempt to end dumsor. The tariffs agreed were not competitive and have contributed significantly to the build-up of debt in the sector and oversupply of energy.

This Government, in collaboration with the World Bank, established the Energy Sector Recovery Programme (ESRP), identifying the policies and actions needed for financial recovery in the energy sector over a five-year horizon (2019-2023). As part of these reforms, Government is taking steps to institute competitive bidding for future additional capacity, so as to ensure that future tariffs are fair and in line with expected pricing benchmarks.

Government has demonstrated its commitment to the ESRP by actively developing whole-of-sector initiatives and reforms, including implementation of the Cash Waterfall Mechanism (CWM) in April 2020, which allows tariff revenues of the Electricity Company of Ghana (ECG) to be distributed in a more transparent manner. As well, Government is managing payment of energy sector arrears, despite the challenging fiscal situation, which has been exacerbated by the COVID-19 pandemic.

The Government negotiating team, established under the Energy Sector Recovery Task Force (ESRTF), which is helmed by the Senior Minister, is working bilaterally with independent power producers (IPPs) and gas suppliers (GSs) under the ESRP Consultation Process, to secure more favourable agreements for both parties and achieve a balanced energy sector capable of delivering fair, long-term energy

partnerships and solutions. Government has undertaken these discussions in good faith and urges all IPPs to continue working closely with the Government negotiating team to conclude negotiations as soon as possible. In September, Government successfully secured terms for an amended PPA with CENIT Power Limited.