Ghana’s Power Sector: Insights Into ECG’s Concession Agreement With The Private Sector
Goodman AMC embarked on a study into Ghana’s power sector to find
out how the Government of Ghana is dealing with the current power crisis in
Ghana. The research findings in parts of Accra and Kumasi on the Electricity Company
of Ghana (ECG) has made it clear on how the Government of Ghana has decided to
operate ECG.
The following findings were developed as a result of Goodman AMC’s interactions
and interrogations with some ECG staff and access to documents which proves and
ascertains these findings as a valid document.
From our interactions with staff of ECG, Goodman AMC has also been
able to identify the stand of ECG workers on the Government of Ghana’s decision
to award ECG on concessionary basis to a private entity
Background
Background
The Government of Ghana has decided to give out the Electricity
Company of Ghana (ECG) on concession, to a private entity for over a 20 year period.
This is part of activities under the Millennium Challenge Corporation (MCC) of
the USA’s second compact with the Republic of Ghana. This follows
recommendations made by the international Finance Corporation (IFC) of the World
Bank that the best option to address the challenges in the energy sector in
Ghana is to introduce private sector participation in the distribution section
of the sector.
They provided the Government of Ghana with two options which were;
1. To enter into a concession agreement with a private entity or
2. To partially privatize ECG.
2. To partially privatize ECG.
The Government of Ghana has therefore decided to give out ECG on a
concession agreement.
The Concession
Agreement
This is an arrangement where Ghana enters into a contract with a
private partner. The private partner or concessionaire will have total
responsibility for operating and maintaining assets of ECG during an agreed
period of time which is between 20 to 30 years. The concessionaire will also be
responsible for all capital investments as well as operation and maintenance
costs of the Electricity Company of Ghana and the Northern Electricity Distribution
Company (NEDCo).
Under the arrangement;
1. Assets will still be 100% owned by the state. ECG will become an
asset holding company.
2. Electricity market will still be regulated by technical and
economic regulation.
3. PURC will still ensures quality of service and customer
satisfaction and will still set tariffs.
Merits of Concession
Agreement
1. This deal will allow the concessionaire to be able to adopt
innovative solutions to problems and enhance strong incentives to make
efficient investments to enhance revenue.
2. Ghana’s power companies will still be owned by the government.
3. It will also reduce political interference in the sector which will
lead to a better and stable service delivery and will help in attracting
private capital in the sector.
The Millennium
Challenge Compact II
This is called the Power Compact and it’s under the Theme- ‘Powering
Ghana for accelerated and sustainable growth’. As approved by the Ghanaian Parliament,
it is an international agreement and has the force of international law and
supersedes any local laws.
The Government of Ghana has therefore delegated some (not all) of
its responsibilities to the Millennium Development Authority (MiDA).
It involves a United States Government grant of $498.2 million and
a Government of Ghana contribution of $37.4 million which will all amount to
$535.6 million. The duration of this compact is 5 years from its entry into
force (EIF).
Goals and Objectives
of the Millennium Challenge Compact
1. Increase private sector investment and the productivity and
profitability of micro, small and large scale businesses.
2. Increase employment opportunities for men and women.
2. Increase employment opportunities for men and women.
3. Raise earning potential from self-employment and improved social
outcomes for men and women.
The Millennium
Development Authority (MiDA)
The MiDA is a statutory organization established in 2006 under Acts
702 and 709 as it was amended. It has a board, a management team, staff and
stakeholder committees. It is the primary agent to implement the Power Compact program
and to perform the Government of Ghana’s right to and obligation to oversee,
manage and implement the program.
The Authority’s responsibilities include managing the
implementation of the projects and their activities, allocating resources and
managing procurements
Powers of MiDA
1. Perform designated rights and responsibilities and to bind the
government to the program.
2. Make its own budget and implement decisions of its board.
3. Expend MCC Funding.
4. Acquire own, possess and dispose of property in its name.
5. Sue and be sued in its name.
6. Enter into, be bound by and enforce contracts in its own name.
7. Open bank accounts in its own name.
8. Engage implementing entities.
9. Insure against all normal commercial risks.
MiDA Compact II Project
Listing Tranche 1
ECG Financial and operational turnaround project.
NEDCo Financial and operational turnaround project.
Regulatory Strengthening and capacity building project.
Access Project.
Power Generation Sector Improvement Project.
Energy Efficiency and Demand Side Management.
The ECG Financial
and Operational Turnaround Project: This project consists of five activities to be executed with the
results geared towards the reduction in implicit subsidies (created by losses,
under-pricing and under billing), ensure ECG is commercially viable, ensure ECG
recovers its costs and invests in maintenance and expansion without requiring
regular financial support from the government. The five activities to be
undertaken are:
1. Private sector participation (PSP) activity
2. Modernizing utility operations activity
3. Reduction in commercial losses and improvement of revenue
collection rates activity
4. Technical loss reduction activity
5. Outage reduction activity.
The NEDCo Financial
and Operational Turnaround Project: This is similar to that of ECG above
The Regulatory
Strengthening and Capacity Building Project: This project consists of two activities.
These are:
1.Capacity building of the sector's performance monitoring
capabilities to ensure better accountability and reporting.
2. Tariff review and regulation activity.
The Access Project: This project is to help
improve access to reliable electricity among micro, small and medium
enterprises in selected markets and economic enclaves in urban and rural
areas in the ECG and NEDCo target regions.
The Power Generation
Sector Improvement Project: This project will support measures with the aim of opening up the
power sector and making it lucrative to private investment in order to reach
the Government's goals to have adequate installed generation capacity to meet
demand.
The Energy
Efficiency and Demand Side Management Project: Energy efficiency
and demand side management project will implement policies and investments that
represent a cost-effective means to bridge the electricity demand and supply gap.
The Electricity
Company of Ghana (ECG)
This is wholly owned by the Government of Ghana and operating under
the Ministry of Power. The Company was incorporated under the Companies Code,
1963 in February 1997. It began as the Electricity Department on 1st April 1947
and later became the Electricity Division in 1962. It was subsequently
converted into the Electricity Corporation of Ghana by NLC Decree 125 in 1967.
Until July 1987, the responsibility for distributing and supplying power in the
country rested on ECG. The Government of Ghana created the Northern Electricity
Department (NED) as a subsidiary of Volta River Authority (VRA) in 1987 which
took over from ECG the responsibility for the running and development of
electric power systems in Brong Ahafo, Northern, Upper East and Upper West
Regions. The Company is responsible for the distribution of electricity in the
southern part of Ghana namely, Ashanti, Central, Eastern, Greater Accra, Volta
and Western Regions.
ECG requires about $200 million every year to address its investment gap in order to meet annual power demand growth rate of about 10 percent.
Functions of ECG
1.To transmit, supply and distribute electricity.
2.To purchase electricity energy in bulk (from the Volta River
Authority) or any other supplier for distribution.
3.To construct, reconstruct, install, assemble, repair, maintain,
operate or remove sub-transmission stations, electrical appliances, fittings
and installations.
4.To execute national electrification programs on behalf of
Government.
5.To carry out any other activity incidental or conducive to the
attainment of the objectives specified in the instruction above.
Government of
Ghana’s Indebtedness to ECG
The Ghanaian Government and its public institutions are ECG’s
biggest debtors. 40% of ECG’s monthly bills go to the Government of Ghana.
According to a statement put out jointly by the workers of ECG, VRA and GRIDCO
in January 2015, the total Government indebtedness to ECG was GHC1,
247,597,280.51 as at the end of October 2014. This constituted more than 62% of
debts owed to ECG.
ECG Workers Position
on the Concession Agreement
75% of workers of ECG sampled for this Goodman AMC report are not
in favour of the Ghanaian Government’s decision to give the company to a
private entity for a concession agreement. They believe, the objectives and
rationale for Government’s decision could be achieved without a private
concession agreement. The major problem facing the company is the inadequate
power given them for distribution to Ghanaians.
Majority of the workers are not happy with the situation with them
being at the receiving end of insults and abuse from Ghanaians. ECG placed
third on Goodman AMC’s annual list of the Top 20 Worst Places to Work in Ghana.
Concerns of ECG Workers
There is the fear that, the concession agreement will result in a
massive layoff in their ranks and it is a major concern to them. Apart from
this concern the workers blame the Government of Ghana for most of their woes.
They do not understand why successive Governments fail to pay debts owed the
company but instead the Government of Ghana is willing to pay the
concessionaire as a condition for their agreement. They also rue the political
interference in their work from Government which includes:
Government through the PURC not setting realistic tariffs and the
non-payment of Government subsidies which all add up to their losses.
The constant changes of their Managing Directors by government.
They voiced their displeasure when the then Director; Hutton-Mensah was removed
in 2014.
Government/Political interference in their procurements and service
delivery. Contracts are awarded to individuals who do not merit them. An
example is in the procurement of sub-standard metres by these companies for
ECG. The company currently has different metres for different jurisdictions.
They also cited the Self Help Electrification Project (SHEP) metres meant for
rural areas which are found in some urban areas. This they say affects the
stability of the ECG network and denies the company revenues.
Government should concentrate on increasing the power generation
capacity of the country. They do not understand why they should be blamed, when
they only distribute the inadequate power given them.
Under the tenure of Hutton-Mensah, ECG has initiated some changes
in the course of their service delivery which were not apparent when the
company was being assessed by the IFC in 2012.This they believe makes the data
used in advising the Government obsolete. These changes their fear will be apparent
in a period of 5 years by which time the concession agreement will have
commenced and credit for the transformation given to the concessionaire.
An example is the Strategic Business Unit (SBU) concept which is
currently being piloted on a 2 year duration in the Ashanti Region. The
investment of US$7,494,587.15 is aimed at enhancing operational efficiency and
profitability.
ECG Workers
Alternatives to the Concession Agreement
Government should eliminate any form of interference in the work of
ECG.
Government should source funds within the country instead of always
looking to the outside world. They suggested, accessing pension funds from
SSNIT and Second Tier Pension Funds as it’s done in other countries.
Government should list the ECG on the Ghana Stock Exchange to raise
capital to support the company’s operations.
Entry Into Force
(EIF)
The Government of Ghana is to proceed in a timely manner to
complete all of its domestic requirements for the Compact to enter into force.
Conditions Precedent to Entry into Force (EIF)
Before this Compact enters into force;
1. The Program Implementation Agreement must have been signed by
the parties thereto,
2. The Government must have delivered to MCC;
- a letter signed and dated by the Principal Representative of the Government, or such other duly authorized representative of the Government acceptable to MCC, confirming that the Government has completed its domestic requirements necessary for this Compact to enter into force and that the other conditions precedent to entry into force have been met
- a signed legal opinion from the Attorney General of Ghana (or such
other legal representative of the Government acceptable to MCC), in form and
substance satisfactory to MCC
- complete, certified copies of all decrees, legislation, regulations
or other governmental documents relating to the Government’s domestic
requirements necessary for the Compact and the PIA to enter into force, which
MCC may post on its website or otherwise make publicly available.
3. MCC shall not have determined, at the time of the Compact’s
entry into force, which the Government has engaged in a pattern of actions
inconsistent with the eligibility criteria for MCC Funding;
4. The Government must have delivered to MCC evidence;
- that the tender documents for an Acceptable ECG Private Sector Participation
(PSP) Transaction have been released for competitive selection through an open
and transparent process acceptable to MCC;
- of substantial compliance
with the Gas Action Plan, including providing copies of the executed agreements
required in accordance with the Gas Action Plan;
- that a long term Gas Sector Master Plan, acceptable to MCC, has
been approved by the Government;
- of substantial compliance with the Electric Distribution Utility
Payment Action Plan; and
- of approval and implementation of quarterly tariff adjustments in
accordance with the existing formula for each of the calendar quarters between
the initial CIF Disbursement and entry into force of this Compact.
Date of Entry Into
Force
This Compact will enter into force on the date of the letter from
MCC to the Government in an exchange of letters confirming that MCC has
completed its domestic requirements for entry into force of this Compact and
that the conditions precedent to entry into force have been met to MCC’s
satisfaction. The Compact will remain in force for five (5) years after its
entry into force, unless terminated.
Acceptable ECG - Private
Sector Participation (PSP) Provider
Acceptable ECG - Private Sector Participation (PSP) Provider means
a competitively selected private sector entity which meets the following
criteria, as determined by MCC:
1. has relevant technical
experience and a proven track record of helping electricity distribution
companies of similar size and scope as ECG to become profitable;
2. has relevant experience in developing countries;
3. has adequate financial capacity as evidenced by the ability to
satisfy the minimum equity threshold and tangible net worth requirement set
forth in the tender documents released by the Government for the Acceptable ECG
PSP Transaction; and
4. is selected through a
bidding process based upon parameters to be designed to maximize value for the
Government of Ghana and meet Government objectives.
Acceptable ECG PSP
Transaction
Acceptable ECG PSP Transaction means the long-term concession
agreement among the Government and an Acceptable ECG PSP Provider that
leverages private capital to address operational and commercial competencies
necessary for the specific challenges of ECG’s operation which meets the
following criteria, as determined by MCC;
1. includes a strategic partner meeting the requirements of the
Acceptable ECG PSP Provider;
2. results from an open, competitive, and transparent process;
3. encourages local participation at both the ownership and
operational levels;
is sensitive to local customs and conditions;
4. ensures the equitable treatment of ECG staff; and
5. applies a corporate-wide approach with respect to operations,
management and governance of ECG.
Conditions Precedent
to Initial Tranche II Funding Disbursement
Each of the following conditions must be met to MCC’s satisfaction
prior to the initial Tranche II Funding Disbursement:
1. The Government must provide evidence that an Acceptable ECG PSP
Transaction has achieved Financial Close and, if necessary, received approval
from the Ghanaian Parliament to execute such Acceptable ECG PSP Transaction;
2. The Government must provide evidence of substantial compliance
with the Tariff Plan; and
3. The Government must
provide evidence of substantial compliance with the Electric Distribution
Utility Payment Action Plan.
Timeline Till Concession
Commences
June 2015: MiDA/GoG sign contract with IFC for transaction advisory
services.
November 2015: Launching of Request for Proposal (RFP) for PSP.
November/December 2015: Entry into Force (EIF) of Ghana Compact II.
May/June 2016: Receiving of Proposals for PSP.
October/November 2016: Negotiations and Signing of Contract.
April/May 2017: Concession commences.
Conclusions
1. ECG is undergoing changes and the concession agreement will come on
between the company and a private entity.
2. Ghanaians will pay more for electricity in anticipation of removal of Government subsidies and the payment of higher tariffs than what is currently happening.
3. About 30% to 40% of ECG staff will gradually be laid off before and after the concession agreement takes off in order to make the company lean.
4. Political interference in the affairs of ECG will lessen when the agreement takes off.
By: goodmanamcllc.com
Kudos Goodman AMC!!,but have you read about what the ranking member of finance in parliament said about their inability to scrutinised the MCC document before it was passed, interesting 275 MP's, check again on what former diplomat Craig Murray said on this DEAL.
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