Ghana has signed the the Millennium Challenge Compact II with the government of the United States of America.
The Ghana Power Compact invests up to $498.2 million to support the transformation of Ghana’s electricity sector and stimulate private investment. The five-year compact is designed to create a self-sustaining energy sector in Ghana by reforming laws and regulations needed to transform the country’s power sector and catalyze more than $4 billion in private energy investment and activity from American and global energy firms in the coming years.
The MCC will make an initial investment of up to $308.2 million, including funding to put the Electricity Company of Ghana, the country’s main distribution company, on a sustainable path, help the utility meet current electricity needs and upgrade infrastructure to reduce outages and improve service. A second tranche of up to $190 million in funds will be made available if Ghana accomplishes a set of reform targets set forth in the compact.
Even though this is welcome news, some players in the industry believe beyond the MCC, Ghana needs to do a lot more to secure the energy sector in the long term.
Currently, only about 1313 megawatts of electricity is produced by the various plants, which collectively have an installed capacity of 2884 megawatts.
Click here to read more about Ghana’s power sector
The Atuabo Gas Project is expected to provide lean gas to generate about 550 megawatts of power, and provide 75% of the natural Liquified Petroleum Gas (LPG) needs.
Ghana currently has an energy production target of 5000 megawatts by 2015. However, for the nation to industrialize, the energy per capita has to be increased to 500 watts per capita from the paltry 53watts per capita. This means that the nations strategic production target must be around 12500 megawatts, a target that requires billions of dollars to achieve.
The questions, therefore, are:
1. Are Ghanaians being told the actual state of the energy sector?
2. To what extent would the current the plans being executed mitigate the problems?
3. What is the way forward?
Fred Asamany, a leading power plant developer in Ghana, believes that power is the most important factor in Ghana’s development.
According to him, “if you look at the economic history of industrialized countries, it is palpably obvious that the underlying driver of economic activity is power.”
He shared his perspectives on the Citi Breakfast Show Thursday August 7.
Below are his perspectives on Ghana’s power sector, in a question and answer format.
WHAT IN YOUR VIEW ARE THE MAJOR CONSTRAINTS TO POWER AVAILABILITY, RELIABILITY AND STABILITY?
Lack of vision in the leadership of this country is the primary reason for the mediocre state of the electricity sub-sector.
Energy in all its forms is the engine of growth in any economy and all our past and present leaders, with the exception of Kwame Nkrumah, have tinkered with this issue without any clear cut initiatives from our leaders to solve this problem.
The lack of an implementable master electricity sector blue print backed by a credible investment plan over the years has resulted in weak and out-dated main systems, sub-systems and processes that should otherwise guarantee a high degree of system reliability and stability.
Lack of an entrepreneurial culture
The public utilities in the power sector such as VRA and ECG run purely as civil service organizations. These organisations have hoards of talented people who are well educated but are not challenged to drive businesses as entrepreneurs would. Accountability is weak and status matters a lot and there are very little productivity or incentives targets set for the civil servant who will of course be paid regardless of performance. Lack of performance does not result in any sanctions because by and large you are employed to serve your term.
Availability relates to the actual MWe (megawatt energy) that can be generated and made available for distribution to consumers at any point in time…It is different from the capacity of generation that is installed…As at 28th July 2014 the installed generation capacity in Ghana is 2844 MW however the Available Capacity is only 1313 MW yet we require 12,500 MW to industrialise.
The System is controlled to stay within acceptable limits during normal conditions;
The System performs acceptably after credible Contingencies;
The System limits the impact and scope of instability and cascading outages
WHAT ARE YOUR THOUGHTS ON THE CURRENT ARRANGEMENT BETWEEN VRA/GRIDCO & ECG?
As long as VRA/ECG/GRIDCO are run as purely civil service organizations, we cannot expect anything better from their financial operations. We must introduce private sector management attitudes into their operations.
The unbundling or disaggregation of transmission (GRIDCO) and distribution (ECG) from VRA was a very good idea. However the businesses are closely interdependent on each other for successful operations and quality of service…ECG relies on VRA and a small number of IPP’s for its generation. Without adequate generation ECG cannot physically supply all the electrical power needs of its customers..Currently there is not enough available generation capacity to meet the load requirements of ECG….Its a complex matrix of issues.
CONCERNS HAVE BEEN EXPRESSED ABOUT THE PSP CONDITION IN THE MILLENNIUM COMPACT AGREEMENT; WHAT IS YOUR VIEW ON PRIVATE PARTICIPATION IN THE POWER SECTOR? WHICH ASPECTS OF THE POWER SECTOR COULD BENEFIT FROM A PSP?
The passionate argument should be about establishing exceptional levels of uninterruptible service delivery of electricity to customers.
The Private Sector already works with ECG and the power sector throughout the value chain and the sector should capitalise on best practices and standards that can be imported from Private Sector Participation to achieve the desired levels of service required.
The injection of an entrepreneurial culture and commercial imperatives in the power sector is a sine qua non and can only be achieved by introducing some elements of organizational systems, culture, reward systems, processes and technologies that are more prevalent in the private sector. In this respect the 100% shareholder, GoG, should reduce its influence in the policy and decision making of these organizations whilst retaining a significant minority interest.
Private Sector Participation could support the following areas:
Establishment of a Credible Wholesale Offtaker
Creation of Power Park Infrastructure
Provision of Securities and Guarantees Backstop
Long Term Service Agreements (Management and Technology)
Metering and Revenue Collection
Pre-financing of Substation Upgrading and Expansion
SCADA Systems and New Technological Upgrades
Long Term Service Agreement
Capital Spare Parts
Public Private Power Projects
Development of Power Parks
Operations and Maintenance
Long Term Service Agreement
Capital Spare Parts
Gas to Power Infrastructure
HOW MUCH POWER DOES GHANA NEED TO INDUSTRIALIZE AND HOW CAN WE ATTAIN THAT POWER GENERATION LEVEL?
Ghana requires 500 watts/capita to take a significant step towards industrialization, equivalent to 12,500 MW (population of 25m X 500 watts).
Currently the installed generation capacity in Ghana is 2,844MW. The deficit for industrialised status is therefore 9,700 MW approx…Generation infrastructure is approximately $1.5m per MW therefore we need to invest $14.5bn to come up to speed. This is the scale of the challenge.
The solution for that level of generation required for industrialization is a systematic 200 year plan that is defined in a generation blue print that all governments will adhere here. This blue print must be driven from the Office of the President and not the bureaucratic Ministry of Energy.
GoG infrastructure fund, SSNIT and Industry must provide the seed funding to plant the required generation assets annually through building a minimum of 1000MW industrial power park complexes sponsored by GoG at a time. On completion the assets can be offloaded to private investors or through the equity stock markets.
GoG then gets its cash investment for the next round of planting. This is implementable and must be led by local content and not external agencies and will guarantee that the assets are put on the ground..The traditional route of project finance frameworks for investing in the power generation sector results in almost 10 years on average to build one power plant.
Global Comparisons of Industrialised Countries (Country Watts/capita)
USA – 3,170
Europe – 1,700
Malaysia – 813
South Africa – 900
Ghana – 53
HOW CAN GHANA GAIN MAXIMUM BENEFIT FROM THE MILLENNIUM CHALLENGE PROGRAM?
The MCC program will not result in a dramatic transformation of the sector that Ghana requires. Millennium challenge may give the sector a head start but is not sustainable unless it is back loaded by a credible programme of activities and investments when the MCC is over, that fits into a master blue print for the electricity sector created by Ghana for Ghana.
The millennium challenge program must allow the electric power industry to build on Local content capacity to manage all aspects of power generation, transmission, distribution and O&M. Locals investors must understand this industry and invest in it.
Throughout history there is no country in this world that has been developed to industrialized status by another country. We must do it ourselves!!!
By: Kojo Akoto Boateng/citifmonline.com/Ghana