Policy think tank, IMANI Africa, has said it disagrees with calls by some critics, including the Minority in Parliament, that the directors of Power Distribution Services Ghana Limited (PDS) be prosecuted following the cancellation of their concession agreement with the government of Ghana and the Electricity Company of Ghana (ECG).
Those calling for the prosecution of the PDS directors argue that they have perpetrated fraud against the state with regard to the concession deal which saw them run Ghana’s power distribution sector for about six months.
In a statement, however, IMANI said those calls are not supported by the facts of the matter.
“We also don’t accept the view that PDS principals should be prosecuted. It is obvious that their problem was a lack of capacity and resources, which led them to rely on insurance brokers and other advisors of rather questionable quality. That’s not a crime per se. It was the government that should have ensured that this did not happen in the first place,” IMANI stated.
The think tank also said the government of Ghana must be blamed for the PDS brouhaha that has led to Ghana losing a $190-million funding from the United States government.
"We fault the government's role in anointing PDS following a shambolic local content 'farm-in' process that it supported throughout when it shouldn't have. We are just saying, at this point, that having got to this messy place as a result of the government's actions, the termination was the least problematic of the options available," the statement stated.
Below is the full IMANI statement:
IMANI's Assessment of the PDS Debacle & Way Forward
1. We disagree with the American Government’s position that contract sanctity should be the primary concern in the ongoing PDS debacle, or that it should trump other critical matters of governance and administrative propriety. But we fault the Government of Ghana for the processes that led to the formation of PDS after Meralco won the tender. That process was opaque, poorly thought through and badly regulated/governed. If we wanted 51% local participation in the Special Purpose Vehicle (SPV) set up to manage the concession, we should have ensured a quality, transparent and well-thought-through process subsequent to the international competitive tender.
2. The $190m MCC money supposedly lost as a result of the PDS termination was not free money for Ghana to spend as it pleases. It was meant for investment into the electricity grid under a particular regime. With the termination of the extant arrangement, Ghana simply needs to find other partners willing to invest substantial resources in the grid. The problem was that the current PDS group have no capacity to invest the $650 million needed to ensure appreciable improvements to the quality of service and loss minimization in the electricity distribution system.
So what is the point of $190 million when the bulk of investment resources required remain inaccessible? Meanwhile, privity of contract principles constrains the government from getting involved in PDS reorganisation matters.
Consequently, reports that Aenergy SA is proposing restructuring of the SPV to bring onboard better-resourced promoters, or that Ghanaian institutional investors are interested in participation, cannot be the basis of public policy. So long as the SPV endures, Government of Ghana is limited in its options to exercise strong oversight in the restructuring process as it is not a party to the shareholding instruments that set up the vehicle.
3. What is required at this stage is a strategic partner with the muscle to invest roughly $650 million to truly modernise the grid, maybe even more (estimates differ). Staying with PDS in the hope of securing $190 million from the US-controlled MCC does not help us achieve that goal.
4. This is however not to endorse the government of Ghana's actions as a whole. We fault the government's role in anointing PDS following a shambolic local content “farm-in” process that it supported throughout when it shouldn't have. We are just saying at this point that having got to this messy place as a result of the government's actions, the termination was the least problematic of the options available.
5. We also don't accept the view that PDS principals should be prosecuted. It is obvious that their problem was a lack of capacity and resources, which led them to rely on insurance brokers and other advisors of rather questionable quality. That's not a crime per se. It was the Government that should have ensured that this not happen in the first place.
6. Devolving the responsibility to the IFC is no defence since the IFC's terms of reference did not include assessment of the quality and propriety of the local content policy the government instituted in seeking to broaden local participation from 20% to 51%. They – the IFC - were limited to technical analysis of the structure of the deal. And whilst we don’t believe that the advice proffered by the IFC was stellar or excellent, ultimate responsibility for designing the local content farm-in strategy and policy completely lies with the government of Ghana. The Government was not constrained in scrutinising the proposed equity participants prior to closing, or the fund-raising strategies of the proposed SPV.
7. It is important to also point out that so long as the PURC remains a politicised institution packed with government-friendly appointees instead of a highly professionalised, technocratic, regime that is charged with, and focused *solely* on, technical standards regulation, consumer rights, dispute resolution and adjudication within the energy value chain, anti-competitive behavior, and corporate governance, with tariff setting based on a transparent technical formula, we shall not find a strategic partner willing to put in the considerable investment required to modernise the grid.
8. If we also want high local content, then we need to institute a competitive and transparent process for all local investors to participate in a process of price discovery.
9. The government's preference for backroom dealing, exemplified by its proposal to use restricted tendering to select new partners, after all that has happened, is completely needless. This posture should change completely. We are tired of botched utility reform projects in this country.
The government of the United States of America withdrew some $190 million advanced to Ghana under the Compact II programme of the Millennium Challenge Corporation following Ghana government’s termination of a 20-year concession deal with private firm Power Distribution Services Ghana Limited upon the detection of fraud.
A letter dated 18 October 2019 signed by Ghana’s Finance Minister Mr Ken Ofori-Atta said: “Following consultations with Government, we wish to emphasise that the government remains strongly committed to the Compact and the private sector participation in the Electricity Company of Ghana.
“We also wish to reiterate the position communicated to the CEO of the MCC by the President of Ghana during their meeting on the sidelines of the United Nations General Assembly in New York on September 23rd to the effect that, the current concession had to be terminated in view of the facts uncovered regarding the failure by PDS to satisfy conditions precedent under the relevant transaction documents AND, however, that every effort would be employed to ensure a suitable replacement within the relevant timelines in order to complete the Compact.
“The Government decision to terminate the PDS concession and find a replacement in a timely manner to successfully conclude the Compact is based on two key points: First of all, it is Government’s view that the meeting between the CEO of MCC and the President of Ghana produced an understanding that the existing concession would be discontinued and a concession restoration and restructuring plan executed within existing timelines and in any event before December 31, 2019. It is worth recalling that following this understanding Mr Cairncross and President Akufo-Addo shook hands and committed to expeditiously putting the understandings into effect. Following the meeting, however, MCC sent an implementation plan, which in our opinion did not accurately reflect the outcome of the New York meeting.
“Secondly, the facts detailed below clearly justify the discontinuance of the current concession which, it should once again be emphasised, does not in any way diminish the Government of Ghana’s commitment to private sector participation in Ghana’s energy sector. Indeed, the Government intends to see this PSP through in a manner that respects due process and fidelity to the relevant transaction documents and underlying Compact”.
In a statement responding to the termination, however, the US Embassy in Ghana said: “On October 19, 2019, the Government of Ghana (GoG) informed the Millennium Challenge Corporation (MCC) in Washington, D.C. of its decision to terminate the concession agreement between Electricity Company of Ghana (ECG) and private operator Power Distribution Services Ghana Ltd (PDS).
“The United States of America notes this decision with regret. Based upon the conclusions of the independent forensic investigation, the U.S. position is that the transfer of operations, maintenance, and management of the Southern Distribution Network to the private concessionaire on March 1, 2019, was valid, and, therefore, the termination is unwarranted”.
The American Embassy said: “As such, MCC has confirmed that the $190 million funds granted to Ghana at the March 1 transfer to the 20-year concession from ECG to PDS are no longer available”, adding: “The United States underscores the importance of contract sanctity as essential to a conducive investment climate and a pre-condition for inclusive economic growth”.
In this spirit, the Embassy said: “The United States has worked with the Government of Ghana since the latter’s July 30 suspension of the concession in the hopes of finding a mutually acceptable solution that respected contract sanctity and the Government of Ghana’s interest in restructuring the concession”, and noted: “Moving forward, the U.S. Government, through MCC, will continue to implement the Tranche I funds of $308 million with the Millennium Development Authority (MiDA)”.
It said: “This funding will continue to support important improvements to the infrastructure of Ghana’s southern distribution network, increase reliability and power access to key markets, and advance energy efficiency programs directly benefiting the people of Ghana.
“The U.S. Government is a committed partner and has full confidence in MiDA to lead the joint effort to deliver the projects funded through the $308 million remaining under the MCC Ghana Power Compact.
“The U.S. Government looks forward to continuing to work together with MiDA and the Government of Ghana to implement the remainder of the Power Compact”.
On March 1, 2019, Ghana Power Distribution Services, Ltd. (PDS) assumed operation and management of the staff and assets of the Electricity Company of Ghana (ECG) under a 20-year concession agreement. Private sector participation is a central reform under MCC’s Ghana Power Compact.
This is critical to the long-term sustainability of related infrastructure investments and the financial recovery of the energy sector in Ghana.
The Compact comprised two tranches of funding: $308 million available upon the official start of the current Compact, and a second tranche of $190 million, which was available upon a successfully executed concession agreement, which the United States maintains occurred on March 1, 2019.