On Take or Pay Agreements: Why Ghanaians must blame NDC for electricity tariff hikes

Electricity Mining File photo

Wed, 28 Aug 2019 Source: Kwaku Badu

I cannot for a minute, venture to state somewhat anecdotally that every ‘Take or Pay Agreement’ is squeamishly inappropriate or unwarranted, far from it.

But that said, in the case of the erstwhile NDC government’s numerous Power Purchasing Agreements, the interests of Ghanaians were not taken into account when signing the seemingly extraneous and relatively expensive agreements which eventually spawned excess power amid needless expenses.

It was, indeed, extremely disappointing for Mahama administration to gleefully sign ‘de trop’ Power Purchasing Agreements (PPAs) in which Ghana is needlessly paying over $600 million per year for extra power we do not need.

The fact, therefore, is, by ambivalently signing the superfluous Power Purchasing Agreements and entering into ‘Take or Pay’ deal, Ghanaian consumers are unfairly being forced to pay exorbitant electricity tariffs as a result of the Mahama government’s negligence.

Besides, the seemingly impetuous argument by the exponents of the ‘Take or Pay’ agreement’s that we can sell the excess power to the neighbouring countries does not hold water, I must admit.

This is because according to the experts, among all the neighbouring African countries, Ghana has the most expensive power generation.

And there are those who contend somewhat temerariously that instead of paying over $600 million from our coffers, we can sell to the neighbouring countries at a reduced price.

Well, the proponents of the seemingly revoltingly ugly business proposal may have a point after all, given the financial strain on the country.

But the crucial question we should be asking the ‘Take or Pay’ ideologues is: does it make a business sense at all to deliberately purchase a product at a high price and sell at a loss?

Again, why must the Mahama government knowingly and fecklessly sign excessive and ostensibly expensive Power Purchasing Agreements with a view of selling the excess at a loss?

With all due respect with no attached condescension whatsoever, could that be counted as prudent and exceptional governance? I may ask.

Whichever way you may view the subject under discussion, let us be honest, no one can deny or hide the fact that for well over five years, dumsor regrettably crippled Ghanaian businesses under the erstwhile Mahama administration.

So it was absolutely necessary for any responsible leader to take the relevant steps to bring the situation under control.

Thus the operable solution back then, was for the Mahama administration to sign Power Purchasing Agreements to augment the existing power capacity.

However, the crucial question every discerning Ghanaian should be asking is: in our desperation to rectify the anomaly, do we actually have to pay for extra power we do not need?

Apparently, we have been informed by the experts that at present, Ghana needs around 2700 Mega Watts of power.

Truly, it is against such backdrop that some of us are extremely flabbergasted to find out that the erstwhile Mahama administration somehow deemed it fit to sign Power Purchasing Agreements in excess of 5080 Mega Watts.

If you may remember, somewhere last year, the Akufo-Addo’s government pragmatically terminated eleven out of the thirty Power Purchasing Agreements (PPAs) signed during the erstwhile Mahama administration (see: ‘Gov't terminates 11 Power Purchasing Agreements signed under Mahama’; Michael Creg Afful/ghanaweb.com, 21/09/2019)

The decision to cancel the copious agreements was as a result of the recommendation by a review committee assembled by the Ministry of Energy to review all the Power Purchasing Agreements signed by the Mahama government.

The Committee, therefore, recommended that eight Power Purchasing Agreements with a combined capacity of 2070 Mega Watts were to proceed without modification, whereas four of them with a combined capacity of 1,810 MW were to be deferred to 2025.

The Committee also propounded that three Power Purchasing Agreements with a combined capacity of 1,150MW be deferred beyond 2020.

Shockingly, the Energy Minister, John-Peter Amewu, revealed that it would have cost Ghana some US$402.39million if the eleven Power Purchasing Agreements had been kept.

John-Peter Amewu revealed: "Pursuant to the review exercise, Government stands to make significant savings from the deferment and /or termination of the reviewed PPAs. The estimated cost of the termination is US$402.39 million, compared to an average annual capacity cost of US$586million each year or a commutative cost of $7.217 billion from 2018 to 2030. This yields an estimated savings of $6.8billion over the 13 year period."

In fact, Mr Amewu was absolutely right for asserting that the Mahama administration was reckless in signing Power Purchasing Agreements without taking into consideration the financial implications on Ghanaians.

Interestingly, Mr John-Peter Amewu disclosed that if the 26 Power Purchasing Agreements with a combined capacity of 8116 MW were to be deployed in addition to the existing generation capacity from hydro, the VRA plants at Aboadze and Tema, and the TICO, it would have resulted in a total installed capacity of about 11,000 MW.

Mr Amewu thus asserted: "This will by far be more than the current peak demand of 2400MW. Even an annual growth in demand of 10%, our country will not be able to utilize this capacity in two decades (source: Michael Creg Afful/ghanaweb.com, 2018).”

The overarching question some of us will continue to pose is: was the decision by the Mahama government to sign the excess Power Purchasing Agreements borne out of negligence, recklessness or what?

I will dare stress that Mahama government’s irrational decision to sign supernumerary Power Purchasing Agreements which is costing us over $600 million was borne out of recklessness and sheer incompetence.

K. Badu, UK.


Columnist: Kwaku Badu