Private sector participation in ECG still on, after termination of PDS concession agreement Featured

The Akufo-Addo government has indicated strongly that it remains committed to the Millennium Challenge Corporation (MCC) Compact, as well as a private sector participation in the operations of the Electricity Company of Ghana (ECG), despite the termination of ECG’s concession agreement with Power Distribution Services Limited (PDS).

The Daily Statesman can exclusively reveal that because of the short time left for the Ghana Power Compact, which must be closed by the end of 2019, if the compact is to be saved, the only way to do so is by restrictive tender process.

In discussions with the MCC, the Ghana Government has suggested a tender that may be restricted, possibly, to the companies already shortlisted by the Millennium Development Authority (MiDA) process in 2016.

The only challenge may be that some of those companies may not have the appetite for the 49 per cent equity participation, which Ghana requires them to pay nearly $290 million minimum spread over the next five years.

The Akufo-Addo government is of the view that the key urgent requirement for the national electricity distribution sector is private sector management.

Unresolved differences

The differences the Government of Ghana and the MCC, which began from the suspension of PDS, could not be resolved. For Government, terminating the PDS concession was not negotiable because the absence of a demand guarantee was a fundamental breach.

For MCC, government should see the issues with insurance guarantee as curable because termination would be an unrecoverable event, in view of US Government procurement rules and Compact policy.

Unfortunately, both sides could not find a common ground.

The Ghana Government has been told to expect the MCC take two punitive measures: (i) to de-obligate the remaining $190 million which had been awarded through US procurement process and (ii) announce that Ghana will no longer be eligible for a regional compact because of failure to close Compact II.

Institutional investors

To the government, the current arrangement of private sector participation in ECG may even mean introducing local institutional investors, such as pension funds, Ghana National Petroleum Corporation, Ghana Infrastructural Investment Fund, Social Security and National Insurance Trust, and others, to step in to provide the equity injection necessary to make the compact work.

Finance Minister Ken Ofori-Atta is expected to address the press this week after returning to Accra from Washington DC this Wednesday.

The Akufo-Addo government, the Daily Statesman can reveal, “is committed to democratizing the ownership of ECG for workers, every Ghanaian and all other investors in an open and transparent manner and our ultimate plan, if all goes well, is to float it on the Ghana stock market next year,” a senior government source disclosed.

Compact

The issue now is to save the compact with the Americans. Today, a “de-obligation” notice is expected to be presented to the US Congress, which controls the Millennium Challenge Account. The Speaker of the US House of Representative was on a visit to Ghana when the PDS suspension was announced.

The compact is for the sum of $498 million, which, together with $1 billion from the World Bank as well as an additional $500 million from the regional compact that Ghana is to sign up for, are meant for the energy sector. They are linked to energy reforms, including ECG privitisation, tackling excess capacities, among others.

There is a fear that some $1.7 billion support facility from these two sources have been jeopardized by the decision to terminate the PDS concession.

But President Akufo-Addo is determined to stand firm and confident that both the Americans and the World Bank will see wisdom in the principled decision taken by the Ghana Government.

“They are committed to good governance and what we have done is, first and foremost, to protect a critical national asset and, secondly, to ensure that the right thing is done for Ghana.
“This is something that we know in principle the Americans and the World Bank are both committed to and we don’t expect our country, which is seen as a beacon of democracy in Africa, to be punished for doing the right thing,” a source close to the President said.

No valid payment security

The government had earlier suspended the concession agreement after raising questions about the validity of the demand guarantees provided by PDS, as a security for the transfer of ECG assets into its custody.

It subsequently commissioned investigations into the matter, and assured the nation that its final decision on the concession agreement will be announced after the investigations.

In a letter addressed to the chief executive officer of the MCC, Sean Cairncross, the Minister of Finance, Ken Ofori-Atta, indicated: “On the strength of all the information gathered about the purported Demand Guarantees provided by PDS as security for the transfer, the Government of Ghana is of the firm opinion that there is no valid Payment Security.”

Mr Ofori-Atta noted that Al Koot, the insurance company contracted by PDS to provide the security guarantees, “has clearly denounced and repudiated the instruments and expressed a clear intention not to be bound by any present or future obligation arising out of same.”

“It is quite apparent that the alleged signatory of the purported Demand Guarantees, Yahaya Al Nouri, was not duly authorised by Al Koot to execute same according to the company’s Delegation of Authority instrument. The product was also not one of the company’s product lines,” he added.

The Finance Minister further noted that it will be illusory for Ghana to consider that a valid and enforceable payment security “was furnished by PDS in fulfilment of an essential condition precedent for the transfer to PDS.”

Committed

He indicated in his letter that, following consultations with Government, “we wish to emphasise that Government remains strongly committed to the Compact and to private sector participation in the Electricity Company of Ghana.”

“We also wish to reiterate the position communicated to the CEO of the MCC by the President of Ghana during their meeting on the sidelines of the United Nations General Assembly in New York on September 23rd to the effect that, the current concession had to be terminated in view of the facts uncovered regarding the failure by PDS to satisfy conditions precedent under the relevant transaction documents AND, however, that every effort would be employed to ensure a suitable replacement within the relevant timelines in order to complete the Compact,” he added.

Suitable replacement

According to Mr Ken Ofori-Atta, the government’s decision to terminate the PDS concession, and find a replacement in a timely manner to successfully conclude the Compact, is based on two key points.

“First of all, it is Government’s view that the meeting between the CEO of MCC and the President of Ghana produced an understanding that the existing concession would be discontinued and a concession restoration and restructuring plan executed within existing timelines and in any event before December 31 2019.
“It is worth recalling that following this understanding, Mr Cairncross and President Akufo-Addo shook hands and committed to expeditiously putting the understandings into effect. Following the meeting, however, MCC sent an implementation plan, which in our opinion did not accurately reflect the outcome of the New York meeting,” he stated as the first point.

Mr Ken Ofori-Atta also noted that the facts provided as the basis for the discontinuance of the current concession is justifiable, adding that it “does not in any way diminish the Government of Ghana’s commitment to private sector participation in Ghana’s energy sector.”

“Indeed, Government intends to see this PSP through in a manner that respects due process and fidelity to the relevant transaction documents and underlying Compact,” he added.

MCC’s prerogative

The Finance Minister said Ghana is desirous of ensuring a successful completion of Compact II of the Millennium Challenge Account.

“As such, the Government of Ghana remains fervently dedicated to the ECG PSP (private sector participation) Transaction and fully intends to conclude the PSP transaction within the remaining term of the Compact II Programme.
“Whilst recognising the prerogative of the MCC in the determination of a particular procurement method in the selection of a PSP, in view of the limited time (approximately two years) until the expiration of the Compact II Programme, Ghana hereby recommends the adoption by the MCC/MiDA of a restricted tender process to replace PDS,” he stated.

He assured that the restricted tender process “shall be undertaken timeously by fast-tracking some of the processes without compromising the integrity and transparency of the procurement processes.”

PDS position untenable

As a way forward, Mr Ken Ofori-Atta noted in his letter that, in light of all of the above, “the position of PDS as a PSP in the private sector enterprise, which constitutes the driving factor for the Compact, has become untenable.”

“It is our respectful view that the Government of the United States of America should be seriously concerned about the lack of security for a transaction involving the commitment of funds of the American people as colossal as the amounts in question, as well as the general unethical and unprofessional conduct of PDS,” he stressed.

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