Ofori-Atta’s rant on ‘take or pay’ contracts out of ignorance – Kwabena Donkor

Wed, 27 Nov 2019 Source: Starr FM

Former Power Minister Dr Kwabena Donkor has hit hard at Finance Minister Ken Ofori-Atta over his claim that the ‘take or pay’ power purchase agreements signed by the Mahama administration are saddling the Akufo-Addo government with needless debts.

The minister in his 2020 budget presentation for the umpteenth time, blamed the development for the debts the energy sector is grappling with. He announced a committee has been put together to review the said agreements to make them take and pay.

But speaking to Starr News after his contribution to the budget debate in parliament, Dr Donkor said the ‘take or pay’ agreements are normal industry practice. According to him the position of the Mr Ofori-Atta is born out of ignorance.

“It’s a standard in the energy industry that take or pay contracts are executed. Because of the high overhead cost of energy infrastructural projects, in Ghana to do a 330MW plant, you’re going to need around $500 million and therefore which investor will sink $500m into a facility without the guarantee of an off-taker? Are you going to invest in a $500m dollars in an energy plant for 20, 25 years without being assured that the energy generated will be bought? And that’s why in the energy terrain we have these take or pay contracts,” he stated

He further explained practice does not oblige the government to pay the full cost of the energy generated even if it is not utilized.

“The off-taker commits to utilise the energy, to take the energy and in a situation where he or she is unable to utilize he pays a certain percentage which we call the capacity charge because the investment is amortised over a period of time. If you’re unable to offtake the energy produced, you’re not paying the full value. You’re paying a fraction which will enable the investor meet repayment requirements to the bankers”.

The Pru East Member of Parliament argued plants built by former presidents Rawlings, Kufour, Mills, Mahama had ‘take or pay’ conditions in the contract.

According to the former minister, the best way given the current prevailing conditions of energy sufficiency is to expand the existing plants and review the terms of the contracts

“What we need to do is that today having achieved a level of sufficiency, we can then encourage the same companies that are already in Ghana to expand their existing plants. Because a lot of the plants are modular, you only add to it. In adding to it the cost is lower and therefore for the new modular additions you can then do those take and pay. That was how Turkey went about it. So take or pay is not unique to Ghana”.

He accused the government of seeking to paint the Mahama administration black by misinforming the public on the take or pay agreements.

“Unfortunately instead of explaining the issues and building a consensus, it has suited one faction the NPP government of Nana Akufo-Addo to demonize take or pay. And it looks like the finance minister has a difficulty understanding that this is an energy sector practice. And so we’ve gotten to a stage where I think we’re mainstreaming ignorance as a public policy option. And that’s extremely serious”.

Touching on the excess capacity, which government says is lying idle, Dr Donkor asked for the power to be subsidized for Valco to utilize. This, according to him, will enable the company operate at full capacity creating jobs and generating revenue for the government.

Source: Starr FM
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