No new contracts in the energy sector — 2020 budget

Government has placed a complete moratorium on signing of new contracts in the energy sector, restricting key institutions operating in the sector from entering into any new agreements until further notice.

It has also subsequently instructed sector Ministries, Departments and Agencies (MDAs) to suspend with immediate effect all ongoing negotiations on Power Purchase Agreements (PPAs), Gas Sales Agreements (GSAs), LNG Sale and Purchase Agreements (LNG SPAs), or any other long term Take–or-Pay contracts for power or gas (Long Term Take-or-Pay Contracts) until further notice.

The placement of the moratorium forms part of efforts to rationalise commercial agreements in the country’s energy sector to establish a managed transition to overcome the unsustainable excess supply situation that continues to pose a grave risk to the country’s economic progress.

The Finance Minister, Mr Ken Ofori-Atta, announced this when he presented the Budget Statement and Economic Policy of Government for the 2020 financial year to Parliament on November 13. The 2020 budget was on the theme, ‘Consolidating the Gains for Growth, Jobs and Prosperity for all.”

“Government has placed a complete moratorium on the signing of new PPAs, GSAs, and Put-Call Option Agreements (PCOAs), and hereby instructs Electricity Company of
Ghana (ECG), Ghana National Petroleum Corporation (GNPC), Ghana National Gas Company (GNGC) and the Volta River Authority (VRA) to abstain from entering into any new PPAs, GSAs, LNG SPAs, Long Term Take or Pay Contracts and PCOAs until further notice.

“That all future PPAs, GSAs, LNG SPAs and Long Term Take or Pay Contracts shall be subject to competitive and transparent procurement procedures, and Government will, henceforth, not entertain or accept any unsolicited proposals,” he said.

He explained that the government intended to enforce these interventions and also expected to strict compliance by all affected MDAs and potential investors.

He added, in this regard, government would notify MDAs on a case by case basis of any applicable exceptions with regard to the objectives of the Energy Sector Recovery Programme (ESRP), a roadmap jointly developed by the Government of Ghana and the World Bank which delineated immediate, near-term and medium-term actions needed to achieve government’s aim of bringing the sector into balance in the medium- term.

“Indeed, unlike in the past, this government recognises that a focused, disciplined and coordinated approach is required to resolve the substantial challenges in the energy sector,” he said.

Consultation

Mr Ofori-Atta noted that the Ministry of Finance and the Ministry of Energy on August 26, 2019, hosted Ghana’s Independent Power Producers (IPPs) and Gas Suppliers at a stakeholder forum, during which government reiterated the urgent need for energy sector interventions and outlined its intended approach to implementing them.

He said government invited IPPs and Gas Suppliers to partner and collaborate with them in this crucial exercise, as it sought a thoughtful and managed transition from the onerous Take-or-Pay paradigm towards a balanced contractual relationship capable of delivering fair, enduring energy solutions that reflect reality and offer long-term sustainability for Power Purchase Agreements (PPAs) and Gas Supply Agreements (GSAs) in Ghana.

“Subsequently, on October 28, 2019, government inaugurated a Steering Committee under the Energy Sector Recovery Task Force, whose purpose it is to take responsibility for the collaborative, bilateral consultation process between government and each Independent Power Producer (IPP) and Gas Supplier (GS), designed to help Government and its energy sector partners achieve a managed transition towards more balanced, long-term relationships and sustainable energy partnerships,” he said.

He added that in this regard, government aimed, through the consultation process, to, among other things, create a standardised, sustainable framework for future PPA and GSA contracting, which all new IPPs and Gas Suppliers who wished to participate in Ghana’s energy sector would be required to adopt in the future.

ECG/PDS

He said on July 30, 2019, the Power Distribution Service (PDS) concession was suspended following government’s detection of fundamental and material breaches of PDS’s obligations in the provision of payment securities for the transaction and related matters.

He added that after further investigations and extensive consultations with relevant stakeholders, government, on October 19, 2019 announced its decision to terminate the PDS concession.

Mr Ofori-Atta said government was fully committed to private sector participation in ECG and is focused on moving forward with urgency to find a suitable replacement for the PDS arrangements.

“Moreover, we are prepared to review the transaction structure and indeed, recognize the need to improve significantly the management of ECG, by bringing in world-class private sector expertise and attracting adequate private capital,” he said.