27 August 2019

The reform of the Ghanaian power sector has suffered a setback after the Lease and Assignment Agreement between electricity distribution utility Electricity Company of Ghana (ECG) and new power retailer Power Distribution Services (PDS) was suspended in July following allegations of fraud.

Qatari insurer Al Koot, which provided PDS with its demand guarantee, is reported to have told ECG that the guarantee was signed by an employee without the authority to do so. Al Koot therefore declared the agreement null and void.

Following the allegation, the Energy Commission in July announced that an interim agreement is in place whereby ECG will reassume the role of electricity retailer pending an investigation.

The PDS concession, awarded to a consortium of local companies led by Philippines’ Meralco, was a key component of the £498.2m Millennium Challenge Compact II (MCC II), signed in 2014 between the Ghanaian government and the US’ Millennium Challenge Corporation.

Constrained power supply

Research carried out by African Energy for its Ghana Power Report 2019/20 shows that after years of insufficient generation capacity, the addition of emergency power plants, while costly, has led to an oversupply of almost 1.9GW at end-2018.

There are questions, however, as to whether this oversupply is felt. Inadequate gas infrastructure and technical losses across the transmission and distribution (T&D) networks are major constraints to generation. To address this, the African Development Bank (AfDB) and the World Bank Group have provided support (totalling around $88m) for programmes aimed at strengthening T&D infrastructure by 2022.

Continued reliance on natural gas

African Energy Live Data shows that the power sector will continue its reliance on natural gas and liquid fuels as the government looks to take advantage of upcoming upstream gas projects.

While gas production outstripped consumption in 2018, demand is expected to increase in 2019. Cenpower’s 340MW Kpone gas plant was fully operational as of March, while the 192MW Amandi Energy plant is due online in H2 19. The 450MW Karadeniz Osman Khan barge, which is currently fuelled by HFO, is in the process of being relocated to the Western Region to make use of natural gas from Three Cape Points.

To meet this expected growth in demand, the government has been canvassing for LNG import deals in recent years. Two in principle supply agreements are in place, 1.7mt/yr from Russia’s Rosneft and a 15-year deal using gas from Equatorial Guinea’s Fortuna field. Alongside these, two LNG import terminals are being built in Tema and Takoradi.

The ability of domestic gas infrastructure to cater to demand remains in question, with availability of gas-fired power plants standing at below 50%. Despite domestic production exceeding demand from the power sector, the lack of nationwide gas transmission pipelines means there are considerable hurdles for consistent gas-powered generation to overcome.

Economic and currency troubles are calming

Despite these challenges, Ghana’s general investability seems to be improving. The successful completion in 2019 of a four-year, $926m Extended Fund Facility programme with the International Monetary Fund has helped stabilise Ghana’s macroeconomic path and boosted its reputation as a rising star of sub-Saharan Africa.

Achievements of President Nana Akufo-Addo’s government include the taming of volatility in the cedi, GDP growth rates of above 6% and falling inflation, while the financial sector has been streamlined and national debt profiles reinterpreted by a substantial rebasing of the economy.

Akufo-Addo must accept that flagship economic promises have been oversold if tough lessons are to be learned from Ghana’s previous experiences of squandering economic potential – a task complicated by the rapidly approaching electoral campaign cycle.

Read more about African Energy's Ghana Power Report 2019/20

Download the report contents and Executive summary

 

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