Govt engages lenders over PPAs renegotiation

Government has directly engaged lenders of independent power producers (IPPs) as part of efforts to renegotiate IPPs’ current power purchase agreements (PPAs), and has also offered to refinance IPPs’ outstanding debts at a discount through a designated energy fund.

The PPA renegotiations are being done as part of the Energy Sector Recovery Programme (ESRP), a five-year reform plan aimed at restoring the financial sustainability of Ghana’s energy sector.

Since 2019, the government has been holding talks with about 12 IPPs in a bid to convert their PPAs, which are based on take-or-pay arrangements, to more favourable terms.

In doing so, the government says it believes the lenders of IPPs have a crucial role to play in alleviating the debilitating financial strains on itself arising from the unbalanced legacy energy sector contracts.

“Government urges lenders to take a sensible and pragmatic approach and urgently consider the refinancing proposals to conclude negotiations as quickly as possible.

“Globally, financial institutions are having to reconsider their positions in light of the impact of the COVID-19 pandemic and its devastating impact on national economies, including triggering defaults and credit downgrades,” a statement from the Finance Ministry said.

The government has bemoaned the situation where it paid nearly US$1bn for unused power in the last two years due to excess electricity contracted on a take-or-pay basis with IPPs. Take-or-pay power generation contracts are common in the energy industry and oblige the off-taker (government, in this case) to pay for power supplied by the producer irrespective of available demand.

Government has already secured an agreement with two IPPs—CENIT Energy and Cenpower—in the past couple of weeks to adjust their current PPAs to realise cost savings.

While CENIT Energy agreed to amend its PPA to a tolling structure, Cenpower has agreed to switch to natural gas as primary fuel, a move the government says will deliver substantial cost savings, estimated at US$3bn, over the remaining term of the PPA.

Finance Minister Ken Ofori-Atta said the government welcomes Cenpower’s commitment to Ghana and recognises Cenpower’s conversion to gas as a significant step in helping regenerate the country’s energy sector.

“In recent weeks, there has been increased momentum under the ESRP Consultation Process towards resolving some extremely challenging legacy issues inherited from the previous administration.

“We encourage all other IPPs to engage constructively with the government negotiating team to conclude negotiations as soon as possible. IPPs have a vested interest and a significant role to play in providing a stable energy supply as well as ensuring a fair, balanced and sustainable energy sector for the people of Ghana

“As ever, this government is committed to building a competitive and dynamic energy sector, where private investments can thrive and the interests of the Ghanaian people and businesses continue to flourish,” Mr. Ofori-Atta said.