The Energy Minister Boakye Agyarko has reiterated that no employee of ECG will face “any involuntary redundancy” when the Power Compact II Agreement takes off in earnest.
His comments come after he laid before parliament the concession agreement between the government of Ghana and Meralco Consortium for the privatization of ECG.
An approval by parliament would mean that ECG will be managed by the Philipino power company for the next 20 years starting 2019.
This would also pave the way for the release of some $498 million under the American government’s Power compact.
Millennium Development Authority (MiDA) in May selected Meralco Consortium which is led by the Manila Electricity Company (Meralco) to manage ECG after determining it to “have the highest combined technical and financial score.”
The announcement followed the disqualification of BXC Consortium.
Per the compact, the Millennium Challenge Corporation is expected to inject about $418 million into ECG, while Meralco will invest about $500 million.
The laying of the agreement before parliament comes after the Commercial Court in Accra dismissed an interlocutory injunction seeking to stop the Millennium Development Authority (MiDA) from going ahead with the ECG concession process.
The injunction was filed by BXC Company Limited, one of the companies that lost the bid to manage state-owned power distributor Electricity Company of Ghana (ECG) under the concession arrangement.
According to BXC, it was unlawfully disqualified from the bidding process by MiDA, describing the disqualification as “arbitrary and without basis.’’
Addressing journalists, after laying agreement in parliament Tuesday, the Energy Minister said after inheriting the Compact II and upon thorough review of the ECG PSP, “the NPP Government decided to align the transaction arrangements to the vision of the party as a result of which the following decisions were made; Increased the Ghanaian participation from 20% to 51%; shortened the term of the concession from 25 years to 20 years among other things.”
He also noted that per the current form of the agreement “no employee of ECG will face any involuntary redundancy during the term of the concession; and that the employees will be transferred to the new company on terms and conditions that are equal to or better than those they are currently engaged by ECG.”
“The concession arrangements and the associated transaction agreements have been revised to reflect these decisions,” he declared asserting that the NPP Government “is committed to developing the Ghanaian private sector businesses to enable them provide the necessary impetus to grow the national economy.”
Below is the full statement read by Agyarko
PRESS CONFERENCE BY THE MINISTER FOR ENERGY ON THE ELECTRICITY COMPANY OF GHANA (ECG) PRIVATE SECTOR PARTICIPATION (PSP) ARRANGEMENTS
Ladies and Gentlemen of the Press, I have convened this Press Conference this morning to inform you and the good people of Ghana about the ECG PSP agreements which the government has submitted to Parliament for ratification and subsequent implementation. We are doing this because we believe the good people of Ghana have to be regularly appraised of very important decisions which government has taken with the view to enhancing increased transparency in the governance of the country.
We also believe that the successful implementation of the Compact II, which was signed by the previous administration, will inure to the benefits of all Ghanaians if it is properly executed with the Ghanaian interest as the paramount objective. This is the motivation of the Government of the New Patriotic Party (NPP) and we will ensure that it is fully achieved in the ECG PSP process.
We expect that the Minority in Parliament will work with the Majority to conclude quickly on the business of ratifying the various agreements we have submitted to Parliament on the ECG PSP Transaction arrangements.
The Government of Ghana has selected a consortium led by the Manila Electricity Company Limited (Meralco) as the Preferred Bidder to operate and manage the ECG Concession.
2.1 MMC Compact II
In August 2014, the Republic of Ghana, acting through its government (the “Government”) signed the Millennium Challenge Compact II with the United States of America, acting through the Millennium Challenge Corporation (“MCC”) that focuses on funding the implementing a programme of activities in the electricity distribution sector which includes private sector participation in electricity distribution as part of the Power Sector Reform Programme (PSRP). The MCC is an independent United States Government foreign aid agency.
2.3 Implementation of Compact Programme
The Compact II is being implemented through the Millennium Development Authority (MiDA), a Government of Ghana (GoG) special vehicle agency, to specifically manage the implementation of the Compact II programme on behalf of the Government of Ghana. MiDA was created in 2006 by an Act of Parliament (Millennium Development Authority Act, 2006; Act 702) which was subsequently amended (Millennium Development Authority (Amendment), 2006; Act 709).
2.4 Goals and Objectives of the Compact II
The overall goal of the Compact is to reduce poverty through economic growth in Ghana through increased private sector investment and increased employment opportunities for men and women.
2.5 Key Activities under The Compact II Program
The Program consists of six (6) Projects namely:
- ECG Financial and Operational Turnaround Project which embodies the ECGs PSP transaction;
- NEDCO Financial and Operational Turnaround Project;
iii. Regulatory Strengthening and Capacity Building Project;
- Access Project;
- Power Generation Sector Improvement Project; and
- Energy Efficiency and Demand Side Management Project.
Substantial progress has been made in the implementation of all the key activities.
2.6 Funding for the Compact II
Under the Compact II, the United States Government is to disburse a grant funding of up to US$498,200,000.00 (Four Hundred and Ninety-Eight Million, Two Hundred Thousand United States Dollars) over a 5-year period. The funding from the US Government is to be disbursed in two tranches comprising US$297 million in Tranche I and US$190 million in Tranche II. Tranche II will be disbursed between the 3rd to 5th years subject to meeting all the Conditions Precedent (CP) including successful selection of an Acceptable PSP Provider to ECG.
The Government of Ghana is to provide direct counterpart funding of US$37.36 million being no less than seven and one half percent (7.5%) of the amount of MCC Funding provided under the Compact. In addition, it is estimated that tax exemptions over the 5-year Compact-term will be about US$133.9 million.
The Compact is governed by the principle of international law and allows for either Party to terminate the Compact without cause in its entirety by giving the other Party thirty (30) days prior written notice. It also allows The Parties to amend the Compact only by written agreement. They (The Parties) could make any modification of any Annex, or to any other provision of the Compact without need for further action by the GoG (including any parliamentary action), or satisfaction of any additional domestic requirement of Ghana.
- Private Sector Participation (PSP) in ECG Project Activities
Private Sector Participation (PSP) in ECG is an activity being implemented under the ECG Financial and Operational Turnaround Project and seeks to identify and engage private sector entities in the power distribution sector to partner with the Government of Ghana to turnaround the fortunes of ECG in its operations and finances.
3.1 Objectives of ECG PSP
The primary objective of the ECG PSP is to improve the quality and reliability of electricity and ensure ECG can serve as a creditworthy and credible off-taker of electricity under power purchase agreements.
The PSP intends to achieve this objective by:
(i) reducing implicit subsidies (created by losses, under pricing and under billing);
(ii) ensuring cost recovery;
(iii) re-investment in the distribution subsector;
(iv) bringing private sector participation in the governance and management of ECG as well as infrastructure and foundational investments designed to reduce losses and improve service quality
Several stakeholder discussions were held regarding the appropriate PSP options for ECG following due diligence conducted by consultants engaged by MiDA. The due diligence review covered the following PSP options: (i) Service Contract; (ii) Management Contract; (iii) Lease; (iv) Concession; and (v) Privatization.
By a letter dated March 20, 2015, MIDA, the Ministry of Power and the Ministry of Finance was advised that an executive approval had been given by H.E. the President for the selection of the Concession as the preferred PSP option for the ECG PSP.
3.2 Role of the Concessionaire
The Concession arrangement, as articulated in the Request For Proposals (RfP), requires ECG to grant to the private company the right, specifically:
(i) to utilize, operate, maintain, restore, reinforce, and expand the Distribution System in accordance with the terms of a Lease and Assignment Agreement (LAA);
(ii) to supply distribution services to End-Users that are connected to the Distribution system with electricity in accordance with a Distribution License issued by the Energy Commission;
(iii) to sell electricity to End-Users that are connected to the Distribution system in accordance with a Sale License issued by the Energy Commission.
The Concessionaire is required to inject a total investment capital of over US$ 500 million in the concession in the first 5 years from the start of the concession arrangements.
3.3 Role of ECG under the PSP
Under the PSP, ECG’s responsibilities will be as follows:
(i) lease the Distribution System to the Concessionaire;
(ii) acquire capacity and energy from Portfolio Facilities pursuant to their PPAs;
(iii) sell capacity and energy to the Concessionaire;
(iv) own its retained assets and continue to engage in any line of business that ECG is engaged in as of the Transfer Date in connection with any of the retained assets;
(v) supply capacity and energy to third parties using any released capacity; and
(vi) engage in cross-border sales of electricity.
It is observed that ECG will have the rights to monitor the operations of the Concessionaire especially with respect to restoration, reinforcement, repair, maintenance, installation and retirement of the Distribution System.
- Justification for implementation of the ECG PSP
Reliable supply of electricity is critical for economic growth, job creation and enhancing the general welfare of the citizenry. The distribution of electricity is a major component in the electricity value chain and is critical in achieving reliable supply of electricity. It is worth noting that the people of Ghana had already initiated a power sector reform programme in 1997 in order to enhance the operational credibility of the sector as a whole.
The commitment to reforming the power sector of Ghana was intended, primarily, to introduce sweeping changes in the sector with the aim of bringing in increased private sector participation and investments in the whole value chain of the electricity supply industry. The process included the transformation of the ECG from a corporation into a limited liability company and the creation of multiple concessions within the ECG jurisdictional area under private sector and also to allow retail competition. These broad policy initiatives were encapsulated in the Energy Commission Act and the PURC Acts as well as the several legislative instruments passed by the Parliament of the Republic. The Compact II was therefore within the collective vision of the country.
- Major Issues:
5.1 What has the NPP done differently?
While the NPP Government, at the time of coming into office, was generally satisfied with the decision of the previous administration to apply the Compact II funds to the power sector, there was the need to address a number of challenges regarding the way and manner the ECG PSP was being implemented. The workers of ECG and other key stakeholders had raised a number of issues with the ECG PSP process.
The NPP Government promptly engaged the workers and the stakeholders leading to important changes/revisions to the ECG PSP arrangements.
After inheriting the Compact II and upon thorough review of the ECG PSP, the NPP Government decided to align the transaction arrangements to the vision of the party as a result of which the following decisions were made:
– Increased the Ghanaian participation from 20% to 51%;
– Shortened the term of the concession from 25 years to 20 years;
– No employee of ECG will face any involuntary redundancy during the term of the concession; and
– The employees will be transferred to the new company on terms and conditions that are equal to or better than those they are currently engaged by ECG.
The concession arrangements and the associated transaction agreements have been revised to reflect these decisions.
The NPP Government is committed to developing the Ghanaian private sector businesses to enable them provide the necessary impetus to grow the national economy.
5.2 What will NewCo do differently?
A major concern regarding the ECG PSP has been what the new company/concessionaire will bring to the table.
Ladies and Gentlemen, we expect the concessionaire to improve on the performance of ECG by undertaken the following:
– The Concessionaire will invest over US$ 580 million over the first 5 years and subsequently as may be required. Owing to the poor balance sheet of ECG, it is unable to raise the requisite investment capital to improve its infrastructure. Government is unable to secure the investments as it is limited under IMF conditions limiting the country’s borrowings.
– The Concessionaire will ensure reduction in distribution losses to acceptable international levels. Reduction in losses will lead to savings which will be passed through tariffs to the benefits of consumers.
– The Concessionaire will post guarantees for power purchases in advance. This will eliminate the challenges faced by power generators resulting from ECG’s inability to pay for the power it purchases. This situation has led to significant indebtedness in the energy sector and the substantial legacy debts which government is currently settling.
5.3 How do we ensure that investments made by the concessionaire are optimal?
A team will be set up to vet and approve or otherwise planned investments by Newco. This team will work to ensure that investments are actually what the country and its distribution system needs to have stable and reliable electricity at all times. Also, this same team will monitor the approved investments of Newco to ensure that what has been approved is what is being done.
5.4 Who will monitor the investments made by NewCo?
The team as described above will comprise team representatives from Energy Commission, PURC and ECG to approve and also monitor investments to made by the Concessionaire.
5.5 What happens after the 20-years when the PSP arrangement comes to an end?
The distribution assets and infrastructure will revert to ECG after the concession has ended. To ensure that the distribution assets and infrastructure are in good working conditions, ECG and the regulators will be empowered to assess and ensure the state of the assets and infrastructure is in good working conditions are in good stead at all times. The requisite enforcement mechanisms will be invoked to bring the best practice out of the concessionaire.
- The Next Steps
Following the ratification of the ECG PSP documents before Parliament, we expect the Second Tranche of the MCC funds of US$ 190 million to be released for critical projects to be implemented within ECG.
The ratification will also lead to the signing of the relevant ECG PSP Agreements in early July 2018. Subsequently, the timelines for meeting the ECG PSP Financial Close date of September 2018 would have to be met and then leading to the Transfer Date and Start of the Concession in January 1st 2019 and February 1st 2019 respectively.
- Concluding Remarks
From the foregoing, what is clear and must be emphasized is that Government has worked very hard to protect the Ghanaian interest in the ECG PSP arrangements/ agreements. As a nation, we await the ratification of the agreements by parliament to enable us go into execution of these agreements. What is critical is that we all work as citizens to ensure that the benefits of these agreements are realized. As sector minister, I commit myself to this cause and will hold all my subordinates and staff to this solemn pledge.
God bless our homeland Ghana.