John Peter Amewu – Energy Minister
FINANCE
MINISTER Ken Ofori-Atta yesterday mentioned that Ghana’s energy sector was
bedeviled with serious challenges that posed grave financial risks to the whole
economy.
“At
the heart of these challenges is the obnoxious take-or-pay contracts signed by
the NDC, which obligate us to pay for capacity we do not need. We must urgently
address these challenges to protect the hard-earned economic gains we have made
in the past two-and-a-half years and continue with our economic growth and jobs
agenda to improve the lives of Ghanaians,” he said.
Reading
the mid-year budget review he said “This Supplementary
Budget therefore proposes a number of bold measures to confront the issues to
ensure that the energy sector delivers the services required by Ghanaians,
while maintaining financial viability.”
Renegotiation
Starting
August 1, this year, Government is to pay for energy and gas that the country
actually consumes. This forms part of its determination to convert all
take-or-pay contracts into take-and-pay contracts.
“All
take-or-pay contracts will be renegotiated to convert to take-and-pay for both Power
Purchase Agreements (PPAs) and gas supply agreements (GSAs), Minister of
Finance, Ken Ofori-Atta, disclosed yesterday in Parliament.
Touching
on the two main issues that confronted the energy sector, Mr Ofori-Atta noted:
“Firstly, excess electricity generation which was procured during the NDC
regime from Independent Power Producers (IPPs), including Emergency Power
Producers, at exorbitant prices were under flawed take-or-pay contracts.
Wasteful generation
“Currently,
according to the Energy Commission, the country has installed power generation
capacity of 5,083 MW, dependable capacity of 4,593 MW and peak demand of around
2,700 MW. So, our installed capacity is almost double our peak demand. Notably,
2,300 MW of the installed capacity has been contracted on a take-or-pay basis.
On average, less than 40 per cent of the contracted take-or-pay capacity is
actually used, meaning that we are basically throwing away money by paying for
the remaining 60 per cent of excess capacity which we do not actually consume.
In monetary terms, what this means is that we are paying over half a billion
U.S. dollars or over GH¢2.5 billion annually for power generation capacity that
we do not need.”
Gas
On
the issue of gas, he said Ghana had contracted for around 750 mmscf per day by
2023 adding that current demand was around 250 mmscf per day. “This is
projected to rise to between 450 and 550 mmscf per day by 2023. All things
being equal, there is projected oversupply of 200 to 300 mmscf per day by 2023.
About 640 mmscf of the contracted gas supply is on a take-or-pay basis, meaning
we have to pay whether we use it or not.”
“From
2020, we will be facing annual excess gas capacity charges of between US$550
and US$850 million every year. Currently, for Sankofa Offshore Cape Three
Points gas alone, we pay over $51 million a month under a take-or-pay contract
for 154 mmscf per day even though we only actually take 60 mmscf per day on
average.”
Other challenges
He
said additionally, there were still other challenges in the energy sector, including
electricity tariffs that did not cover the costs of non-portfolio (PPAs); low
collection, high technical and commercial losses; absence of a proper system
for measuring and paying for the costs of power for street lighting; non-payment
of utility bills by MDAs; and a high level of net sector arrears of US$2.7
billion (GH¢14.04 billion) as of January 2019.
“Mr.
Speaker, the total costs in the energy sector that Government had to cover in
2018 amounted to US$520 million (GH¢2.7 billion). Moreover, by end- June this
year, Government had made total payments of US$604 million (GH¢3.14 billion),
and if we do not urgently address the problems in the sector, the projected
Government payments in 2019 will be at least US$1 billion, (GH¢5.2 billion).”
The
Minister highlighted that Ghana’s macroeconomic stability and the hard earned
economic gains it had made were at serious risk of being derailed if Government
did not immediately take drastic steps to arrest the reprehensible legacy
issues in the energy sector.
“Just to put this in context, the over US$1 billion (or over GH¢5 billion) extraordinary payment that Government is having to make in the energy sector this year and on an ongoing basis, if not addressed, is more than two times the amount of all of Government’s social expenditures on goods and services, which includes Free Senior High School, our School Feeding Programme and Livelihood Empowerment Against Poverty (LEAP).”
BY Samuel Boadi
