New agreement with Cenpower to save Ghana $3 billion

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CENPOWER Generation Company Limited (Cenpower) has committed to switching its primary fuel from light crude oil (LCO) to natural gas and signed a gas supply agreement (GSA) with the Ghana National Petroleum Corporation (GNPC). Gas operations are expected to begin by the end of this week.

The GSA is a key part of the proposal put forward by the government during negotiations with Cenpower and will deliver substantial cost savings, estimated at $3bn over the remaining term of the Cenpower  Power Purchase Agreement (PPA). Furthermore, conversion to natural gas will have important environmental benefits, as emissions will be lowered and Ghana’s abundant natural gas resources effectively utilised for the benefit of the Ghanaian people and the business community.

Additionally, the move to natural gas will alleviate the considerable pressure on the government from its take-or-pay commitments with fuel suppliers and allow for the substitution of imported fuels with locally available natural gas, thus positively impacting the capital account.

Cenpower is a major power producer in Ghana, providing nearly 10 percent of Ghana’s total electricity generation. ‘This project is an excellent example of the public and private sectors working together in Ghana to attract private investment while ensuring sustainable development,’ the government said in a statement on Wednesday.

‘Presently, Ghana pays more than $500 million a year for unused electricity. Most of the power PPAs are legacy agreements, entered into under the previous administration in an uncoordinated and short-sighted attempt to end dumsor [a local euphemism for power outages]. The tariffs agreed were not competitive and have contributed significantly to the build-up of debt in the sector and oversupply of energy,’ the statement added.

‘This government, in collaboration with the World Bank, established the Energy Sector Recovery Programme (ESRP), identifying the policies and actions needed for financial recovery in the energy sector over a five-year horizon (2019-2023). As part of these reforms, Government is taking steps to institute competitive bidding for future additional capacity, so as to ensure that future tariffs are fair and in line with expected pricing benchmarks,’ it said.

Commenting, Finance Minister Ken Ofori-Atta said: ‘We welcome Cenpower’s commitment to Ghana and recognize Cenpower’s conversion to gas as a significant step in helping regenerate Ghana’s energy sector.

‘In recent weeks, there has been increased momentum under the ESRP Consultation Process towards resolving some extremely challenging legacy issues inherited from the previous administration.

We encourage all other IPPs to engage constructively with the government negotiating team to conclude negotiations as soon as possible. IPPs have a vested interest and a significant role to play in providing a stable energy supply as well as ensuring a fair, balanced and sustainable energy sector for the people of Ghana.

‘As ever, this Government is committed to building a competitive and dynamic energy sector, where private investments can thrive and the interests of the Ghanaian people and businesses continue to flourish.’

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