EnergyGhanaHeadlineInternationalPower Sector

GPGC termination: Ghana saves US$55.8 million

The decision by President Akufo-Addo’s government to end its emergency power purchase agreement with Ghana Power Generation Company (GPGC) saves the country nearly US$56 million

The decision by President Akufo-Addo’s government to terminate an emergency power purchase agreement (EPA), entered into by the John Mahama government in 2015 with an Italian-owned company, Ghana Power Generation Company (GPGC), with the goal of producing 107 megawatts of electricity between two plants, has ultimately saved the country US$55,800,000.

On 13 February 2018 the government sent a notice of termination of the GPGC emergency power purchase agreement and on 13 August 2018 GPGC issued a letter accepting what it claimed was the Government of Ghana’s repudiatory breach of the EPA in terminating the EPA.

Consequently, GPGC filed international arbitration proceedings at the United Nations Commission on International Trade Law (UNCITRAL).

UNCITRAL award

On 26 January 2021 UNCITRAL issued a substantial adverse award, finding that the Government of Ghana (GoG) had terminated the EPA between the parties unlawfully, and ordering that the GoG pay GPGC compensation of $134,348,661. The compensation includes an early termination fee of $69,361,680, mobilisation costs of $58,492,005, demobilisation costs of $6,462,528, and preservation/maintenance costs of $32,448.

Additionally, the international trade law tribunal awarded compound interest from 12 November 2018 (amounting to roughly $30 million) as well as GPGC’s legal costs and expenses in the arbitration, amounting to $3 million (compound interest included), and costs of arbitration at $309,877.74 (compound interest included).

The final settlement payment as a result of the United Nations Commission on International Trade Law’s award to GPGC against the Government of Ghana therefore amounts to $18 million.

Cost-benefit analysis

Investigations by Asaase News analysing the costs of termination, and comparing the benefits of keeping the plant to the cost of maintaining the GPGC excess capacity plant, show that the GPGC plant would have been operational during the period of excess capacity in Ghana.

All fixed contractual payments to GPGC would have represented an additional excess fixed cost to the Government of Ghana and Ministry of Finance.

By avoiding payments to GPGC for the cost of bringing the EPA into effect, the GoG and the Ministry of Finance (MoF) have saved all capacity charges otherwise payable to GPGC, had the plant been commissioned according to schedule.

Further probing by Asaase News shows that the GPGC plant could have been commissioned 12 months after the date of the EPA: that is, the commercial operation date would have been on 3 June 2016. The full plant capacity of 107MW would have been available from day one on the commercial operation date (3 June 2016). This is essentially in line with the manner in which the early termination payment was assessed for the purpose of GPGC’s claim against the GoG.

In addition, the EPA would have run for 48 months without disruption and/or extension of the term. Under extension, the agreement would have concluded on 3 June 2020. To this end, the fixed costs to the GoG would have been the capacity charge of US¢4 per kWh, comprising the capital recovery charge of ¢3.70 per kWh and the fixed operation and maintenance (O&M) charge of ¢0.30 per kWh.

GPGC would therefore have used the contractual right to escalate the capacity charge by the higher of US consumer price index and 5% per annum, beginning one-year post cash on delivery (COD).

As such, the GPGC plant would have been available in line with the plant specification and in keeping with the basis used to establish the early termination payment, which is part of the settlement amount.

Beats down capacity charges

Asaase News’s investigations estimate that the GoG would have had to pay total capacity charges of $191.5 million, comprising capital recovery charges of $177.1 million and fixed operation and maintenance (O&M) charges of $14.4 million, but these have now been avoided.

When these avoided costs are assessed at their 30 June 2021 value equivalents, at the GoG cost of capital of 8%, the estimated present value of the costs avoided is $235.8 million.

Asaase News’s analysis shows that the GoG and MoF have avoided this cost of $191.5 million with a present value of $235.8 million as at 30 June 2021 (at 8% per year).

The present value of the avoided cost consists of the avoided historical cost, adjusted for the time value of money and the GoG cost of capital of 8%.

Settlement or fixed cost

On the other hand, the GoG and MoF are facing a payment of $180 million to settle the dispute with GPGC.

Clearly, seen in this light, GoG and MoF are better off with the settlement payment to GPGC than if Ghana had to pay fixed costs to GPGC, had the EPA not been terminated. The decision to terminate the EPA will result in value-for-money to GoG and MoF of $55.8 million as at 30 June 2021.

Claims by sections of the political class that the Government of Ghana has lost money by terminating the GPGC agreement, as against choosing the option of allowing the agreement to run its full course, are not supported by this cost-benefit analysis of the GoG and GPGC agreement.

Wilberforce Asare

Asaase Radio 99.5 – tune in or log on to broadcasts online
Follow us on Twitter: @asaaseradio995
#AsaaseRadio
#TheVoiceofOurLand
#GreenGhana
#WeLoveOurLand

Show More

Related Articles

Back to top button

Adblock Detected

ALLOW OUR ADS