The Ministry of Energy has commenced an arrangement to make the Electricity Company of Ghana (ECG) the custodian of all Power Purchase Agreements (PPA) in the country.
In this regard, the current PPAs held by the Volta River Authority (VRA) would be transferred to the ECG to allow the VRA concentrate on generations from hydro.
The new arrangement forms part of the government’s restructuring process in power sector institutions.
This was disclosed by the Minister of Energy, Mr Boakye Agyarko when he appeared before the Parliament’s Joint Committee on Finance and Mines and Energy in relation to the concession agreement between Ghana and the consortium of investors led by the Manila Electric Company for the private sector participation in the ECG within the terms of the second millennium challenges compact.
He indicated that the current arrangement where the VRA held some of the PPAs made it difficult for the government to dedicate certain cheaper hydro sources of energy to power critical industries such as the refinery and smelting industry.
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Lease and assignment agreement
The joint committee in its report on the concession agreement noted that the lease and assignment agreement between the ECG and the concessionaire was the primary document governing their 20 years relationship with regards to the ECG’s distribution system.
Under the concession arrangement, the ECG would lease its distribution system assets to the concessionaire and grant it the right to use and make the necessary modifications to the leased assets over a 20 year contract period beginning from the date when the transfer is executed.
In addition to the transfer, some ongoing contracts being executed by the ECG would also be transferred to the concessionaire.
The lease and assignment agreement also protects the interest and rights of the current staff of ECG and as such the concessionaire is required to accept the transfer of employment contracts of all the employees that were employed by ECG as of the effective date of the transfer.
The agreement also provides that the terms and conditions of service for the engagement of the transferred staff should be equal or better than the terms and conditions on which the employees were employed under ECG.
It also prohibits the concessionaire from undertaking any involuntary reduction in respect of the employee that will be transferred from ECG unless there is sufficient cause to do so.
Government supports agreement
The joint committee also noted that the government was providing a sovereign guarantee to indemnify the concessionaire for any substantial breach by the ECG of the terms and conditions under the agreement.
The areas where the sovereign guarantee is being provided include the payment of electricity bills supplied Ministries, Departments and Agencies (MDA) and buy-out price after the expiration of the 20 year concession period.
Schedule of investments by the concessionaire
The committee also pointed out that the concessionaire was committed to making critical investments of at least US$580 million within the first five years to achieve the turn-around priorities of the agreement.
It was further explained that the investment strategy of the concessionaire was aimed at improving the quality of service to consumers, while at the same time making tariffs affordable.
Additionally, the approval and execution of the concession arrangement was a condition precedent to the release of about US$480 million grant under the millennium challenge compact.
Mr Boakye Agyarko informed the committee that prior to the coming into office of the present administration, the stipulated local participation was at least 20 per cent.
He said the present government, however, directed that local participation in the consortium should not be less than 51 per cent, meaning 51 per cent or more of the issued and outstanding shares in the consortium must be held directly or indirectly by individuals who are citizens of Ghana.
Consequent to the above, the shareholding structure of the successful consortium is constituted as; the Manila Electric of Philippines (30 per cent),the Aenergia SA of Angola (19 per cent),the Santa Baron Ventures Ghana (13 per cent), the TG Energy Solutions Ghana (18 per cent),the GTS Engineering Ghana Limited (10 per cent ) and the TBK Ghana Limited (10 per cent).
Put together, the Ghanaian shareholding in the venture total 51 per cent. — GB