Page 40 - Vol 32 Issue 33 2121

energy analysis

The result is that the government is paying • A lack of flexibility in contracts. The secretly and only become visible when
over US$500m (almost Ghana Cedis 2.5 terms and conditions are often difficult there is a change of government.
billion) annually for power generation to change once purchase power As the Public Services International
capacity that’s not being used. agreements are signed because of a Research Unit puts it: “Establishing
fear of putting off future investors. power generation in excess of the
• Fixing prices in foreign currency country’s requirements is a feature
There is also an overhang exchange, typically US dollars. associated with corruption ... .if the
for gas. And because the • Threatening competition. According process provides an income source for
government contracted gas to a World Bank report, independent those negotiating the contracts”.
supply on a take-or-pay power producers often suffocate • Political expediency. According to
basis, it must pay whether competition once in operation. There a Business Insurance report “the
fundamental problem with creating
the gas is utilised or not. is huge potential for inefficiencies if independent power producers in
Thus, from 2020, if nothing the independent power producers developing countries is that initially it
changes, Ghana will face meet a large share of the load. is based on political expediency. These
annual excess gas capacity • Inflated prices: the World Bank report things sometimes bear no relation to
charges of between US$550 argues that independent power economic reality.”
and US$850 million yearly. producers often inflate supply prices Independent power producers have
for utilities, which raises end-user
This is even after the current prices. contributed immensely to Ghana’s quest
government terminated two to meet its power generational capacity.
other liquefied natural gas • Currency risk protection: unlike other But lessons from Ghana’s excess electricity
foreign investments, investors in
contracts in 2017. independent power producers are challenges show that unless negotiations
are done with utmost transparency and
often shielded from currency risk. care, agreements that are struck can pose
Most negotiate take-or-pay contracts financial risks and breed corruption.
Independent power producers where all the power generated must
Ghana’s excess electricity problem - be bought whether needed or not. This precautionary principles would save
many countries from experiencing the
and its solution - boils down to the Because payments are made in dollars,
arrangements made with independent this becomes more like international same fate as Ghana. (Supplied by the
conversation Africa)
power producers. debt than equity investment.
The contracting process failed to avoid a • Corruption. This often creeps in
number of pitfalls. These included: when the stakes are high in contract Samuel Asumadu Sarkodie
negotiations. They are often done Research fellow, Nord University

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