Ghana's Energy Crisis-Politics and VRA Mismanagement

The finger pointing and the blame game in Ghana’s current energy crisis have reached a crescendo. Let’s call a time out and let level headedness prevail and examine what’s really going on. Secure and reliable electric power supply is so crucial to Ghana’s economy that politicians should desist from playing politics with Ghana’s energy woes.

The statement issued on April 4, 2007 by the NDC and its Flag bearer, John Atta Mills, blaming President Kufour personally for the current crisis in the electric power sector is therefore unfortunate. But who is really to blame for the mess?

Let’s carefully examine the relevant facts.


The NDC statement said “the President should be personally held responsible for the drawing down of the Akosombo reservoir below the allowed minimum level of 240 ft. to the current precarious level of 237.78 ft”. I agree that the buck stops at President Kufour’s desk. and the President is ultimately held accountable for anything that happens under his watch.


However, the NDC statement is not supported by the facts and earns it a berth in the hall of shame of political cheap shots for its outlandishness

Fact

Available public records indicate that “Ghana’s present total electricity requirement stands at 1,300 megawatts (MW)”. As against this, the nation had by 2003, a total available capacity of 1, 930 MW which comprised three types of generation: 1,180 MW Hydro (Akosombo 1020 MW, and Kpong 160 MW) ; 550 MW Thermal at Aboasze (Tapco 330 MW and Tico 220 MW); and contracted import capability of 200 MW from the Cote D’Ivoire. This 1,930 MW available capacity could have been effectively managed to supply Ghana’s total electricity requirement of 1,300 MW without drawing down on the Volta Lake.

Volatility of Global Crude Oil Market

A crucial part of the equation in operating this power system is the cost of crude oil for running the thermal plants at Aboadze. Fuelled by crude oil, these plants proved expensive to run given the volatility of the global crude oil market, which led to the cost rising from about US $30 to a peak of $70 per barrel in the past couple of years. As part of a broad based energy policy and a long term solution to this perennial problem, the Kufour administration on assumption of office in 2001, initiated action to raise US $40 million, being Ghana’s equity, for the construction of the West African Gas Pipeline project.

Indeed, VRA found it cheaper to import electricity generated with natural gas as fuel from Cote D’Ivoire than to operate the Aboadze thermal plants. In 2004, three types of generation contributed to the total electricity supply of 6,917 GWh as follows: 76.3 % Hydro; 11.0 % Thermal at Aboadze; and 12.7 % imports from Cote D’Ivoire. These figures imply that VRA operated the 550 MW Aboadze thermal plants at less than 25 % of their available capacity to contribute 11 % of the electricity supply but relied more on the 200 MW import capability from the Cote D’Ivoire to make up for 12.7 % of the supply for that year. What VRA needed most was not additional thermal capacity but cheaper natural gas to fuel the existing Aboadze thermal plants.

VRA’s Corporate Interests at the Expense of National Economy?

It is equally important to observe from the above figures on the contribution of each of the three types of generation to the total supply in 2004 that the VRA drew excessively on the cheaper hydro generation to contribute 76.3% (5281 GWh) of the electricity supply for that year. At a slightly higher average generation cost, the VRA could have reduced the pressure on the cheaper hydro generation to avoid gradually drawing down on the Volta Lake by utilizing more than 25 % of the expensive 550 MW thermal capacity available at Aboadze. This was not in VRA’s corporate interest since it would have resulted in slightly increased generation cost; but from the national standpoint, this increased generation cost is small compared with the direct and indirect costs of the impact of load shedding on the economy.

VRA Mismanagement of the Volta Lake?

Planning and managing how much electricity to generate from hydro, thermal and imports to serve electricity demand and ensure that water level in the Volta Lake is maintained within the allowable limits even under low inflow condition is the responsibility of the VRA. These plans are normally made by VRA at the beginning of each year. Thus, if the VRA, being the institution responsible for managing the electricity generation system, has made the judgment based on their corporate cost and other considerations to rely excessively on the cheaper hydro and this has led to “the drawing down of the Akosombo reservoir below the allowed minimum level of 240 ft. to the current precarious level of 237.78 ft”, why is it that the NDC and its Flag bearer wish to hold the President personally responsible instead of the VRA? Political cheap shot, I guess.

Playing Politics

The NDC statement also noted that, ”not only did government force VRA to run down the Volta Lake but government also forced VRA to sell power to VALCO far below VRA’s average cost of production, a situation that has put VRA in serious financial distress and hardly able to meet its commitments”. The issue of the appropriate tariff to be paid by Valco raised here is under the statutory responsibility of the Public Utilities Regulatory Commission (PURC), which was established by the NDC government as an independent body to set and regulate water and electricity tariffs. If indeed the VRA is in “financial distress” because it is not receiving sufficient revenue to cover its costs, the right step to take is for the utility to go back to the PURC for redress. It is most likely that government, being the majority share holder of Valco, would intervene to make up promptly for any short falls in revenue due to VRA. Thus, it is not in accordance with the existing regulatory framework that government would force VRA to sell power to Valco at an arbitrary price to cripple it financially. After all, Valco and VRA are both owned by government and so how would it benefit her to destroy one through the other?

NDC and Political Cheap Shots

The NDC statement also noted that the new Valco would be in operation at the expense of the rest of the economy. “The decision to deplete the reservoir was to enable VALCO be in operation and satisfy President Kufuor’s claim to be establishing an Integrated Aluminium Industry without caring about the safety of the Akosombo dam and at the expense of the rest of the economy”. It is important to appreciate that the new Valco is different from the old one in terms of the contract for the purchase of electricity from VRA and its contributions to the national economy. The old Valco was a foreign company which purchased about 60 % of the electricity generated by Akosombo hydro at a rate considered to be too low and in effect implied a subsidy by Ghana. The new Valco is owned 90 % by Ghana and will purchase power under terms approved by PURC, an independent body established to set electricity tariff and regulate related issues. The new Valco will first serve the needs of the local aluminum industry which would otherwise have to import their requirements. Thus, the new Valco is a part of the industrial sector of the Ghanaian economy and must be treated as such in the supply of electric power. Its expansion into an Integrated Aluminium Industry will depend on the new electricity generation capacity currently at various stages of planning and implementation. The goals is to double the existing capacity by 2012 to fuel the economic growth of the country. Thus, the new Valco is expected to strengthen rather than be in operation at the expense of the rest of the economy.

Issues in the energy sector require sober analysis and clear plans of action. As has been noted above, the VRA makes annual operational plans at the beginning of each year. But my understanding is that it was as late as June or July, 2006, when the level of Volta Lake had almost dropped to about 240 feet that the problem was first brought to the attention of government. This did not leave government sufficient time to review soberly what had gone wrong, but immediately set to work to find solutions to the problem. Was the inflow in 2006 so unusually low that this situation was never anticipated in VRA’s planning for that year or some other things went wrong? The answer, my friends, could be due to VRA’s mismanagement. Here in the US, load shedding by utilities that operate hydro plants is a rarity because they manage their reservoirs in order to be able to accommodate even the worst dry season; why is it that the VRA is not able to manage the Volta Lake in the same way? For example, the Tennessee Valley Authority (TVA) in the US maintains twenty- nine conventional hydroelectric dams but when did you hear of any announcements for load-shedding by TVA?

House Cleaning

As soon as the crisis is brought under control, government should constitute a body or committee, independent of VRA and PURC, with the relevant technical, financial and regulatory expertise to take a hard look at the core issue underlying the Volta Lake low water level problem and recommend measures to avoid a recurrence of load shedding in the future. This committee should also examine the adequacy of the current plans in various stages of implementation to provide an assurance of secure and reliable electric power supply in Ghana not only in the short term and but also in the long term. The committee should expose those elements at VRA or elsewhere whose incompetence created the crisis in the first place. Anyone found culpable, should be dismissed. This should put an end to accusations such as have been raised in the said NDC statement and restore investor confidence in the future of the economy.