Ghana power sector stumbles

Not too long ago, Ghana was a frontrunner in African energy. The country boasts an average access to electricity rate of 74 percent — far above the average rate of 47 percent for West Africa.

But in recent years, Ghana’s progress has stalled, as it wrestles with power outages and struggles to install more power generation capacity as the population booms. The energy sector is heavily indebted and the government is generally unable to offer guarantees to power investors.

“For Ghana, it has been a long journey in the power sector,” said Eyram Adadevoh, Senior Associate Attorney for Centurion Law Group. “In terms of electrification and pervasiveness of access, Ghana is ahead of some of its counterparts in Sub-Saharan Africa. However, from 1965 to today, Ghana’s population has quadrupled. One of the major issues we are facing is planning,”

Ghana is overly dependent on its first installed power plant – the Akosombo Hydroelectric Power Station – constructed in1965, and the plant is vulnerable to fluctuations in rainfall. Ghana is also lacking sufficient fuel to supply the power sector, and is buying gas from Nigeria and power from Côte d’Ivoire, but it owes both countries for the imports.

In total, the Ghana electricity sector is $2.4 billion in debt. “Satisfying those debts is going to be a problem,” said Adadevoh. “Another issue in relation to debt is that the government agencies have not been good about making payments to the Electricity Company of Ghana, so it is not able to pay the Volta River Authority. It is a cycle of indebtedness. Right now in Ghana, everyone owes everyone.”

There are efforts, however, to lift the country out debt.

Turning to the private sector

Power Africa, a development initiative from the United States, is trying to get Ghana out of this cycle. For example, a $500 million facility has been promised to Ghana on the condition that the country privatize ECG for the next 25 years.

“It will be like a 25-year lease to private investors in the hope that they will improve the management,” said Adadevoh. “It is all well and good to talk about widening Ghana’s power portfolio, but if the country isn’t liquid enough to do that, it won’t matter. It is a huge issue, because the government isn’t even sure they can pay off existing loans, much less new ones.”

Additionally, the government is turning to independent power producers to light up the country. The government recently signed an agreement with Amandi IPP to build a combined cycle, dual-fuel power plant of 200 MW with a $552 million investment. The company has already started construction on the plant.

But while the regulatory framework is open to IPPs, government guarantees or consent and support agreements are hard to come by, which is a challenge for investors. Or, when an investor is willing to take the risk of building a power project without such agreements in place, the power produced is often more expensive — a big problem for a country that already has some of the highest energy costs in West Africa.

“It does make power expensive. It is logical — the higher your risk, the higher you expect your return to be,” said Adadevoh. “And I think that is why Ghanaians have been bemoaning transparency, because they feel that when sitting at the table across from investors, they are on the losing end. And the result of the negotiations may not be what citizens require.”

A key development moving the sector forward, especially from the private sector, could be investment in renewable energy. “Oil and natural gas will be paramount — we can’t do without them. But in terms of resolving the solution in the earliest time possible timeframe, I think renewable energy is the way to go and the government has acknowledged that,” said Adadevoh.

Renewables, like solar, are often cheaper, don’t depend on an expensive fuel source and can be deployed without access to the national grid. Already, the government is partnering with Germany on renewable projects, and there is great potential for solar parks in northern Ghana.

“In terms of a silver lining, there is going to be a lot of push for renewable energy, because it is more affordable and you are able to deploy it in a vast range of areas. I see a lot of opportunity for local players to begin to take an even greater participation in the energy sector.”

The promise of a new government 

In December 2016 Ghana elected a new president, Nana Akufo-Addo of the New Patriotic Party. Akufo-Addo has made addressing the power outages a priority, and has been aggressively pursuing answers. Already, his administration has launched a review of current power agreements entered into by the previous administration and plans to “prioritize, renegotiate, defer or cancel outright” contracts.

While there are certainly obstacles to his success, Akufo-Addo does have some advantages over his predecessor.

First, Ghana passed the new Petroleum Law in September 2016. Long overdue, the act was debated in parliament for four years and certainly hamstringed the development of the upstream oil and gas sector in Ghana, thereby impacting potential fuel supplies for the power generation sector. The law especially tackles transparency.

“While Ghana is not the worst of offenders, corruption and a lack of transparency in the energy sector have been identified as a reason why Ghana has not reaped the full benefits of the oil and gas sector, which is what is going to feed the power sector, ultimately,” she said. “Gas supply is very important to Ghana because it is the gas that is fueling our hydro electric power stations and it is gas that is being used by the IPPs that are coming on board. Ghana having its own reliable supply of gas is very important, but unfortunately, it has not been the case so far.”

The development of these upstream projects include Eni’s Cape Three Points project, which is a multi-phase project by Eni to develop fields estimated to hold 1.5 trillion cubic feet of gas and approximately 500 million barrels of oil. The World Bank has already provided $500 million in partial risk guarantees for development of the Sankofa field. Gas obtained from the project could create 1,000 MW of domestic power generation. Production is planned for 2018.

Ghana has already created many business-friendly policies, including providing customs exemptions for machinery and other products for qualifying companies; guarantees for the full repatriation of dividends and net profits; guarantees against expropriation; and guarantees for the remittance of proceeds from a sale of assets. Tax free zones have also been established.

“It is a huge risk for an IPP to come in and not know that the government can afford the power they are producing,” said Adadevoh. “But that doesn’t mean it has stopped companies from making investments, because we do see a lot of interest.”