VRA puts house in order for bond

The Volta River Authority (VRA) says it is strengthening its financial standing before it issues its first foreign bond to finance power infrastructure.

The electricity producer mooted the bond sale last year and, among others, has adopted the International Financial Reporting Standards (IFRS) to improve its reporting as it prepares to face the stringent requirements of the international capital market.

Central to the Authority’s plan is the expected full implementation of the automatic tariff adjustment formula that kicked off in January and is aimed to ensure full cost recovery for producers of electricity and water.

While the VRA has invariably relied on debt and state support to finance investment in new power generation, tapping international capital will be one of its main options for executing projects in future, said acting Chief Executive Officer Kirk Koffi in an interview with the B&FT.

“We have been looking at the bond issue. But our balance sheet should be strong. We are waiting so that when our position is strong enough we will be able to go to the international market to issue bonds,” he said.

“Today our balance sheet is not strong. But we don’t think it is going to continue this way. As the automatic tariff adjustment formula kicks in, and as we get Ghana gas and more gas, we think we will be in a strong financial position to take care of some of these projects,” he added.

The VRA’s weak financial position stems from its rising production costs -- caused among others by increased fuel cost -- and the under-pricing of electricity during 2012 and 2013. From a profit of GH¢140.45million in 2011, the company’s operating income fell to a loss of GH¢82.22million in 2012.

For most of this period, including the first nine months of 2013, the VRA’s tariff was frozen even as its fuel cost surged as a result of increased reliance on light crude oil and the weak exchange rate. In 2012, the Authority’s cost of sales jumped by 105 percent.

Nevertheless, the company has tried to keep up its investment in new power generation to satisfy the rapidly-rising demand, estimated at close to 10 percent annually. Among its investments, it has secured a US$100million facility from Fidelity Bank for the completion of the first phase of the 220-megawatt Kpone Thermal Power Plant (KTPP).

“Some of these projects will pay for themselves because a lot of them are combined cycles, and if we are able to build and ring-fence all these projects we should be able to get more money on project finance basis to pay for them,” Mr. Koffi said, adding: “Today, there is a lot of money out there, and if we structure properly we should be able to get it.”

This year, the company will complete conversion of the 80-megawatt mines reserve plant that used to run on diesel to gas.

“We have spent US$11million to convert the plant to run on gas. It is at the commissioning stage now, and is expected to come on-stream by mid-February,” the acting Chief Executive said.

The 180-megawatt T4 project, which seeks to expand the existing T3 thermal plant, is also in the process of being awarded on contract, he added.

With around 2,100 megawatts of installed power, the VRA accounts for 83 percent of Ghana’s electricity generating capacity.