On 8th March 2019, AmCham Ghana held its 2019 maiden Ghana Energy Forum on the theme: “Energy Sector Perspective: Vision and Strategies for a Sustainable Energy Sector in Ghana” with the Hon. John Peter Amewu, Energy Minister as Guest Speaker. Hon. Vicky Bright, Managing Partner and Co-Founder, of law firm AddisonBrightSloane was the moderator.
Hon. Vicky Bright posed questions that had been collated from AmCham Members. The interview with the Minister of Energy has been transcribed for your reading.
Vicky Bright (VB): Welcome Mr. Minister. We have a very exciting industry. Only last week we heard that PDS has finally taken over the operations and management of ECG. And of course, the expectation is that they will make ECG leaner and improve access to electricity in Ghana. I was reading that you (Minister of Energy and the President) have already told PDS that you’ll be watching them with a Hawk’s eye. Also in the oil and gas sector, Ghana has finally started its first licensing round.
Question (VB): Minister perhaps we could start with the power sector, could you please let us know the current status of the review of the power purchase agreement(PPA); whether that exercise is ongoing or completed and if it completed or when it is, what should companies expect after the whole review?
Answer –John Peter Amewu (JPA): Let me use this opportunity to thank the American Chamber of Commerce-the organizers of this platform for carving out such an educative program for public awareness creation and the benefit of our socio-economic development.
The Ministry of Energy as you are aware is an ongoing organization, which means that policies have been transformed from one point to another. Again, let me use this opportunity to thank my predecessors-past ministers of the Ministry for laying down some of the solid foundations especially Hon. Agyarko for what they have done and for which am also building on.
The agenda of this current government as you are all aware is 100% penetration of power and also the affordability of power across of the country. As I speak the penetration rate is in the range of about 83% and we still have a lot to do. You will recollect prior to the election of His Excellency Nana Akuffo Addo one of the key indicators and triggers for that election was as a result of the circumstances of the power sector. I always say that we came to power through power and as there was a lot of intermittent interruption of power supply across the country, stable power supply becomes very critical.
We took over with a lot of complexities; several PPAs had been signed. Currently, our peak demand is about 2600 megawatts and we have availability in terms of generation of almost close to 5000 megawatts. The PPAs were signed on the basis of ‘take or pay’ terms which means once the power has been produced if it is not harvested to the grid, it still has to be paid for. Ghana is currently paying between US$25m to US$30m dollars monthly as a result of excess capacity.
A government team which analyzed the power sector found that the number of PPAs signed outweighs the generation capacity needed. As I speak about 11 PPAs have been put on hold for termination within the framework of the 2600 megawatts generation capacity. By 2022-2023, the government expects power demand to increase between 12- 15% and so PPAs have been deferred to that period.
The cost of excess capacity by 2020 is expected to go up to US$403m and by 2021 will be US493m which represented high excess capacity charges which are worrying. As you are aware most of the previous PPAs were signed through negotiations which did not bring cost-value reconciliation compared to the international market and resulted in high and excess capacity charges.
VB: We understand there will be no more PPAs signed by the Ministry except for renewables?
JPA: Correct. But even PPAs for renewables is still questionable because if you bring on board a 50 megawatts renewable plant, it means you have to retire a 50 megawatts conventional power plant for which you have to pay, therefore the addition of renewables then becomes an addition to our capacity charges. Much as there is interest in renewable, the position is to have the PPAs on a ‘take and pay’ basis as opposed to the existing ‘take or pay’ arrangements. ‘Take and pay’ PPAs which are competitively priced should be able to give a capacity charge that will help pay for excess capacity of conventional plants that will be retired, then automatically such a PPA will be on the grid at the base or peak load. The government will then set aside (not cancel) the take or pay PPAs to enable to the ‘take and pay’ plant to be on the grid. We have invited some of the power companies for a negotiation to relook at their rates.
VB: Does it mean if power suppliers don’t agree with this new scenario, their plants will not be used?
JPA: Yes of course. The government will only be paying their capacity charges and not variable and pass through charges which are margins of the power plant’s operational cost. So when you have a competitive PPA on ‘take and pay’ basis then of course Government will allow the very expensive power producers to stay aside and use the PPAs that are competitively priced.
VB: Under the previous administration, there was a bit of confusion because some of the PPAs were signed by the Ministry of Energy and others by ECG. I understand in this new administration any PPA that will be signed will be renewables and will probably now be signed by PDS-the ECG concessionaire?
JPA: Yes. The Ministry of Energy will stick to its role of providing policy directions and would allow PDS (ECG) the organization responsible for managing power distribution to sign and manage the implementation of the PPAs.
Oil and Gas Sector
VB: The Ministry of Energy is currently undertaking its first oil and gas licensing rounds. How are you ensuring that the process is open and fair?
JPA: The President, Nana Addo Dankwa Akuffo-Addo believes in the rule of law and it was under his leadership that Ghana launched its first the oil and gas licensing round. In fact, the President launched the first market sounding event in Accra.
The way the Ministry is making the process transparent is to open up the invitations for bids, the market sounding events and every part of the process for prospective bidders which includes big oil and gas companies like Exxon, BP, and Total. I want to use this opportunity to announce our competitive licensing regime has been one of the most competitive in the sub-region. I can assure all players involved that the process is fair right down from the beginning and that the best winner will be the best choice for this country.
VB: Mr. Minister, where is the Ministry in the licensing process at the moment and when will the process be completed and final awards made?
JPA: The Ministry will definitely make sure that the winner is announced between August/September 2019 or latest by the end of the last quarter of this year. The Ministry has written to all the bidders who have gone through the pre-qualification stage and so the next stage is where their inputs in terms of the biddable factors are going to be taken into consideration and so this is where we are now and when those bids are available, we will develop our own selection criteria. The selection criteria have to do with technical competence, financial capability, and your past experiences and on top of all-a very key element is the local content.
For me, local content is paramount. Even though some claim Ghana does not have a local content capacity. In the case of mining, Ghana has been mining gold for over 100 years, yet some people claim we don’t have the local content capacity. We may not have the financial resources, but we do have the capacity to procure those resources.
VB: Are there any plans to have local content in mid-stream and downstream sectors?
JPA: Yes. The Ministry is coming out with a local content policy which has been reviewed and approved by the cabinet’s finance and economic sub-committee and will be presented to the larger cabinet. We had the local content for the upstream sector and we are now coming out with a similar policy for the mid-stream sector. For example, international companies should not be in involved in the selling of petroleum products and we believe it is time Ghanaians get involved in the business and so a very strong Ghanaian participation policy is being drafted to make sure Ghanaians take charge. For instance, fuel supply to the mines is a huge market and we want to say that going forward Ghanaians must be the only people who should in the mining fuel supply business.
VB: The government planned to set up a petroleum hub in the Western Region, what is the timeline for the Petroleum Hub and what are some of the opportunities companies can take advantage of in the hub?
JPA: I am happy to announce that cabinet, about two weeks ago, gave approval for the establishment of the petroleum hub. The hub will create a lot of jobs and investment opportunities for interested companies. The petroleum hub-a free zone concept-will have government facilitate access to about 20,000 km2 of land where petroleum infrastructure such as fertilizer plant; refinery and other petroleum-related activities will be located. The petroleum hub will be private sector driven, however, the government will provide the infrastructure such as roads. The hub is going to be for petroleum activities for the sub-region.
VB: As past Minister of Lands and knowing about the land tenure system Ghana, how much land are you expecting to acquire for the petroleum hub and how confident are you that we will get a good title of tenure?
JPA: Land as you rightly put it is difficult to acquire; we are seriously talking to the traditional authority and we will have title to the land before the project starts.
VB: What do you consider to be the three greatest challenges facing the petroleum industry in Ghana and where do you see the sector 10 years from now.
JPA: The three major challenges I will say are: first, the low rate of the replacement rate (the reserve to the production ratio) over the period has not been encouraging and the challenge has been about how to increase rig activities-given Ghana’s rig activity is the weakest in the sub-region. Second, the late submissions of IOC work programs which the law stipulates must be done within 60 days are submitted sometimes after about one year. However, once submitted, the OICs expect approval within four days. This can be quite challenging for the ministry. Third, companies that existed before the coming into force of the local content policy tend to award unilateral contracts without recourse to the Petroleum Authority. Some companies base their decisions on the stabilization agreements they have and this is a worry to the Ministry.
The Ministry has started putting in place measures to address these challenges. In terms of reserve to production ratio, the Ministry has begun new exploration exercises in the Voltain and the Keta Basins with the support of some international investors. With regards to local content, the issue is being addressed through the Accelerated Capacity Building Project being implemented by the Petroleum Commission.
VB: What is your final message to companies the power, and oil and gas sectors?
JPA: This is the best time for international companies to invest in Ghana. One thing I want the International Oil Companies to be assured of is that investing in Ghana’s peaceful and competitive environment will bring higher returns on their income statement. Thank you.