The Energy Ministry has said government is not interested in operating thermal power plants hence its decision to review a 5-year power-purchase agreement with Dubai-based company AMERI to 15 years.
The response comes after independent energy experts wondered why government would not allow the $510m Ameri deal to run out with barely two and a half years left.
Government would assume ownership of the power plants after paying $339million which will end the Build Own, Operate and Transfer (BOOST) deal signed by the Mahama government in 2015.
But the New Patriotic Party (NPP) government which called the deal fraudulent and over-priced while in opposition, is touting the benefits of the reviewed deal which it says will save the taxpayer $405m.
This is because instead of paying the original tariff of 14.5918 cents/KWh under the AMERI deal, consumers will pay a new tariff of 11.7125 cents/KWh over the 15 year period.
It has agreed to a deal with the new company, Mytilineos International Trading Company Ltd subject to parliamentary approval.
Government is more comfortable with paying this company $75 million every year over 15 years instead of $102 million it is to pay Ameri each year over five years, the Africa Center for Energy Policy (ACEP), which has criticised the review as senseless, has revealed.
But Head of Communications at the Energy Ministry, Nana Kofi Damoah, says ACEP's analysis is lopsided. He said ACEP assumes that once the AMERI deal ends and government takes over, "the cost of operations of the plant will come to zero."
Nana Damoah said government will have to shoulder the burden of running the expensive power plants. But government's policy direction is to leave the thermal energy generation space largely based at the Volta River Authority (VRA).
"We want to free VRA of these thermal assets for VRA to concentrate on the hydro side of power generation".
An Independent Power company like Mytilineos will do the work that VRA would have to do once the AMERI deal ends he said.
The Head of Communications said Ghanaians ought to focus on whether power supply is consistent and also cheaper.
Under the Akufo-Addo government, tariffs have been reduced by about 30%. Under the NDC government, all its power-purchase agreements including AMERI shot up tariffs by at least 42%.
For more on the disagreements over the reviewed AMERI deal, read the statements below:
ACEP’S COMMENTS ON THE AMERI RENEGOTIATED CONTRACT 27th July, 2018
The Africa Centre for Energy Policy (ACEP) takes notice of the Novation and Amendments to the AMERI contract presented to parliament for ratification. The AMERI contract has been on the public radar for the past three years for an obvious position that the contract was overpriced, depriving the Ghanaian public value for money in a $510 million deal. The commitment of the current government was to renegotiate the contract to bring relief to the public through the electricity tariffs. Sadly, the proposed amendment to the contract appears more burdensome than the existing contract.
Status of the existing contract
The first year of the contract was fully paid for by the NDC government before it exited power. This translates to $102 million, which is the full value of the required payments for the 250MW plant at an availability rating of 90%. The AMERI Company presented invoice to the tune of $151.66 million to the NPP government between February 2017 and June 2018. Out of this amount, $69million has been paid by the NPP government, leaving an outstanding balance of $82.66 million. An invoice to the tune of $8.5 million shall be due and submitted to government by 31st July, 2018. This will bring the total outstanding invoiced amount to $91.16 million. It is important to mention that the total settlement to date (under both NDC and NPP government) therefore is about $171 million. Under the $510 million contract, government has about two and half years left to own the 250MW plant, conditioned on the payment of the outstanding balance of $339million.
Agreed settlement terms for Novation and Amendment of the AMERI contract
Government, in the proposed amendment, commits to pay $39 million of the $91.16 million outstanding amount for the executed part of the original AMERI contract, which will bring direct government payments to AMERI to $210million. The new company, Mytilineos International Trading Company Ltd, has pledges to settle part of government’s outstanding indebtedness, the sum of $52 million to AMERI. In exchange the existing AMERI contract is novated to Mytilineos with amendments for a new tenure of 15 years. This means that $300 million is the liability assumed by Mytilineos in return for the 15 years deal.
What does Mytilineos Get in return
For the 15 years deal Mytilineos will be paid $75 million every year. This will amount to $1.125 billion over the period. This translates to $825 million gains to the company in exchange for the assumption of the government’s $300 million outstanding liability under the existing AMERI contract.
What does AMERI lose?
Nothing. The Ministry of Energy insisted, in agreement with public opinion, that AMERI was making $150 million under the original contract which it did not deserve for just playing a middleman role. The Committee established by the Ministry recommended that the agreement be renegotiated or abrogated if AMERI fails to negotiate to save Ghana money. However, the new agreement does not in any way suggest that AMERI would not make the $150 million from Ghanaians. Mytilineos has agreed to settle AMERI’s interest under the proposed amendment. In fact AMERI has communicated to the public that it has divested its interest.
This means that the savings anticipated by the Minister’s committee will not be made. As evidence, the full entitlement to AMERI for the executed period of the existing contract will be paid by government ($47.5 million) and Mytilineos ($52 million) under the proposed amendment. It is safe to say that this is influencing the high cost of the new deal because Mytilineos will have to cover the full cost of the outstanding contract with AMERI and the upfront payment of $52million to AMERI on behalf of Ghana.
METKA in transition to Mytilineos
METKA, which is the EPC contractor to AMERI, is owned by the same person who owns Mytilineos – the contractor under the proposed amendment. Under the original AMERI contract, METKA was entitled to $72 million for five years as the EPC contractor to AMERI. For this amount METKA wholly financed and delivered the plant, and was supposed to manage the plant for five years. Now METKA has brought in a sister company to take over the AMERI contract at $75 million for 15 years. This is even more than the 72 million under AMERI for 5 years. What this means is that METKA’s entitlement in the AMERI deal is prolonged for 13 more years.
Government’s claim of $405.06 million savings under the proposed amendment to the existing AMERI contract.
Government tagged as savings the difference between the original tariff of 14.5918 cents/KWh under the existing contract and the new tariff of 11.7125 cents/KWh under the proposed amendment. This computation is not reflective of the true savings to the State of the renegotiated deal. This is because government’s renegotiation ought to be in relation to capacity charges component of the tariff only. ACEP’s analysis of the data in the Minister’s memo to parliament reveals that, government’s renegotiation would lead to a reduction in capacity charges by 1.8201 cents/kWh (the difference between 5.6253 cents/kWh of capacity charges in the existing contract and 3.8052 cents/kWh of capacity charges in the proposed amendment).
But this would be the savings for the remaining 2.5 years of the existing contract, translating to $89.69 million. From 2020, government would pay $937.5 million for 12.5 years at 3.8052 cents/kWh under the proposed amendment as against savings of $89.69 million over the remaining 2.5 years under the existing agreement. Overall, the government will incur cost of $937.5 million under the proposed amendment. Government’s calculation of alleged savings of $405.06 Million based on the 2.8793 cents/kWh savings on tariff is therefore inaccurate and misleading.
The existing AMERI contract that was seen to be very expensive at 510 million cashflow over 5 years, was expected to be renegotiated to achieve better terms for the country. But from ACEP’s analysis, the proposed amendment to the AMERI agreement brings greater cost to government than the existing deal. The total cash flow for the renegotiated deal is 1,125,007,380. Given that half of the AMERI contract has been executed government would be paying a total of $1.375 billion for the AMERI power plant over approximately 18 years instead of the original $510 million. We have discounted the number in the annex table which shows that discounted or not the renegotiated contract is not better than the original contract.
SOME USEFUL FACTS FOR US ON THE NOVATION AND AMENDMENT AGREEMENT:
1. The agreement is a novation and amendment to the existing BOOT agreement.
2. This basically means that a new investor has stepped into Ameri's shoes and Ameri has left as Govt promised.
3. Govt in accordance with its election promise to Ghanaians has not paid Ameri a penny since January 2017.
4. Everything it owes Ameri under the existing BOOT agreement will be written off and will cease to be GoG's liability from the date the New agreement enters into force. The new investor has agreed to resolve all such matters with Ameri directly. GoG is not a party to whatever agreement was entered into with Ameri. Govt's only interest is to ensure that all it's liabilities which were inherited from the NDC administration are waived and cancelled without any come back by Ameri.
5. The current Govt debt to Ameri is about $90m. Govt is only paying $39m. That money is NOT being paid to Ameri. It is arrrears we owe to the actual operator of the plant which must be cleared before the new company takes over.
6. The tariffs are also the lowest in the country.
7. Regarding the length of the term there are a couple of the reasons for the extension: a. No new investor will take on a plant for a 2 year term. Typically IPPs have agreements of 15 or 20 years. b. In monetary terms, it is also not strictly correct to look at the remainder of the term as two and a half years. Because we have only paid a year. So to let the current contract run we would need to pay the two and a half year unexpired portion of the term plus the one year arrears we owe plus interest. The current yearly payment is $102m. There is also a variable charge in addition which averages out around $6-8m ish annually and c. The other thing worth noting in combating the "pay them for the two and a half term" argument is that if we were to pay them for the remainder of the term plus the arrears plus interest we would need to hire a brand new entity to run the plant ie to provide operation and maintenance services since the plant can't run itself. That would cost a lot.
8. Govt has taken a cabinet decision to divest VRA of all its thermal plants so we would def need to hire a third party to run it in any event and their services will not be free.
9. So the NDC must compare apples with apples and not apples with pears by simply multiplying the new monthly rate by 15 years and comparing the figure with $510. It is a simplistic and ridiculous approach which does not take the O&M costs into consideration from year 6 onwards ie after their 5-year term expires.
10. We must remind them that under their own BOOT agreement the O&M part of the cost was $6m plus the variable charge (please see above). So they must also multiply that element by 120 months and add that plus the variable element to the $510 to get a real comparison.
11. Another additional point in our favour is that the current monthly payment is now more affordable to Govt. The $102m plus variable charge per year were killing Govt and the new cost per year is around $70m which Govt feels it can afford.
12. There has been a significant risk rebalancing exercise in Govt's favour. eg: 1. Govt's liability under BOOT was totally unlimited whilst Ameri's was limited to 10% of our yearly payment to them whereas under the new agreement BOTH parties' liability are limited to 15% of the annual payments. So GoG now has a limitation on its liability should it be in breach. 2. There is no longer any obligation for GoG to provide them with insurance. GoG had ridiculous insurance terms previously 3. GoG now has a performance guarantee. This was absent from the BOOT Agreement etc etc. There is little doubt that anyone who truly understands the extent of the burden and weight under the existing BOOT agreement will agree that this new agreement gives significantly higher protection to Govt. Hope the above helps.
Vicky Bright, a former legal advisor to Ghana's ex-president, John Agyekum