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Payment system suffocates VRA

The Senior Staff Association of the Volta River Authority (VRA) says an arrangement that remits $43 million to Independent Power Producers (IPPs) every month is threatening the operational capacity of state-owned energy generation facilities.

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The group further stated that State-Owned Enterprises (SOEs) in the energy value chain, especially VRA, were disadvantaged by the arrangement as they were not fully paid, and where some payments were made they were not adequate to compensate for foreign exchange losses.

The staff contend that it is time to review the arrangement, given that the IPPs combined, currently generated just more than one-third of what VRA generates for the system. "As of May 10, 2024, the IPPs have 2,150 megawatts (MW) available capacity, but generating only 856MW, representing 39.8 per cent of their available capacity, while VRA, with 2,165MW of available capacity, is generating 1,777MW, representing 82 per cent of its available capacity”.

“This means that the IPPs are contributing 32.5 per cent to the national grid, while VRA is contributing 67.5 per cent onto the grid," the leadership of the association said in a document obtained exclusively by the Daily Graphic. 

Cash Waterfall Mechanism

The $43 million standing order payment to IPPs is an arrangement under the Cash Waterfall Mechanism intended to address financial issues within the energy sector. The association said the arrangement made the IPPs more viable at the expense of the VRA and other SOEs in the energy sector.

The document said the mechanism had only fed the IPPs at the expense of the state-owned facilities, leaving them in dire straits for survival. "The irony of this situation is that even the IPPs who are not generating any megawatt onto the (national) grid now are also paid," the document, signed by members of the National Executive Council officers said.

"What is the basis of paying the IPPs a fixed amount of $43 million monthly," the document quizzed. It said, for instance, that between August 2023 and March 2024, VRA billed the Electricity Company of Ghana (ECG) GH¢1.09 billion, but only GH¢354.38 million, representing 32 per cent of the bill, was considered under the CWM. The remaining amount of GH¢741.98 million was not considered.

It said as of March 2024, ECG still owed VRA GH¢147,585,482.08 from the GH¢354.38 million acknowledged under the mechanism. “This arrangement has significantly created liquidity challenges for VRA,” the document stated.

It said the revised CWM required ECG to pay energy sales revenue of a minimum of GH¢1 billion into the CWM every month to be shared among players in the sector. "The revised CWM ensures the payment of a fixed amount of $43 million (equivalent to GH¢587.38 million at the exchange rate of GH¢13.66 to the dollar to the ECG-contracted IPPs monthly," it added.

The group said the challenges bedevilling the country's energy sector were far beyond the privatisation of VRA, its assets or some other state facility, stressing that similar measures in the past did not deliver the desired solution.

The leadership of the association said it had become imperative to "speak out" amid the challenges in the power sector and the attendant calls from some quarters for the privatisation of the state-owned power generation and transmission system.

The association comprises senior officers of VRA working under the separate arms of the authority, namely Aboadze Thermal Plant at Takoradi, Northern Electricity Distribution Company (NEDCo), VRA-Akosombo, VRA-Kpong (Akuse), VRA-Accra and VRA-Tema.

Auditing revelation

Auditing firm, PricewaterhouseCoopers (PwC), according to the document, had identified a net difference of GH¢690 million between total collection declared by ECG on the CWM approved schedules and the inflows consolidated from the account statements of ECG, with total collections from the CWM being lower than cash inflows.

"This has resulted in huge under-recoveries for VRA and threatening the financial survival of the authority. These under-recoveries are due to ECG’s failure to declare full payment into the CWM," the document said.

It said that notwithstanding, "VRA has never relented on its mandate to provide reliable and sustainable electric power to Ghanaians", and asked whether a private entity operating as VRA would tolerate similar conditions.

"The CWM, in its present form and shape favours the IPPs to the disadvantage of VRA and the other SOEs in the electricity sector, hence requires major reforms as soon as possible to enable the mechanism to achieve its set objectives," the document said.

It alleged that there were efforts to force the hand of government to trade off a strategic national asset such as VRA, and claimed also that the same IPPs whose primary objective was profit, were among those leading the campaign.

"We are aware of the efforts of some IPPs to take over VRA’s export market and thermal assets; therefore, we are not the least surprised at some outbursts from the representatives of our partners," it said. 

VRA Act

The document made reference to the creation of VRA in 1961 through the Volta River Development Act, 1961 (Act 46) as amended, with the mandate to generate electric power through hydro and other sources.

It justified the export of electricity to Ghana's neighbours, referencing separate bilateral arrangements between Ghana and Togo, Benin and Burkina Faso. It said the environmental impact assessment carried out during the feasibility studies phase of the Akosombo Dam project indicated that the construction of the dam would cause an inundation of the north-western plains of Togo and Benin.

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"This situation caused the government of Ghana/VRA to sign a bilateral agreement with these two countries to supply them with electric power from the Akosombo Dam when the project was completed," it said.

In the case of Burkina Faso, it said the country restricted the development of the Bagre Dam to mainly agricultural activities "instead of power generation in line with the bilateral arrangement with Ghana for power supply".

"These arrangements have significantly enhanced energy and sub-regional security," the senior staff of VRA said, and added that any attempt to renege on those agreements could have financial and/or some other consequences for the country.

Resource utilisation

The Chairman of the association, Theophilus Tetteh, further explained that the authority usually utilised resources from power export to procure parts and components for repairs, maintenance and the payment of fuel bills to support some IPPs to ensure the country's power distribution infrastructure was not compromised.

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Beyond these, the document said VRA’s tariffs were relatively lower compared to that of the IPPs. "It is worth noting that VRA provides the most affordable power to ECG at 2.5 cents/kwh, as against the IPPs who sell power to ECG at 10 cents/kwh,” it stated.

It said with a far cheaper generation cost to the public, VRA needed to be protected from being divested into the hands of private entities who could relocate, quit or even hold the nation to ransom.

"The staff of VRA and our colleagues in the other SOEs shall fearlessly resist and use all legitimate means at our disposal to ensure that the people of Ghana are not robbed of affordable electric power under the guise of privatisation. We believe that Ghanaians must be advised by the lessons learnt in the privatisation of SOEs”.  

"We wish to advise all individuals and groups discrediting the importance of VRA aimed at decimating the authority in order to sell it to their kith and kin that they shall not succeed and that posterity will surely call for accountability one day," the document concluded.  

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