Gov’t Still Winks At Private Sector Participation In ECG

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Government is still focused on bringing on board private sector expertise in the management of the Electricity Company of Ghana.

The Akufo-Addo government officially terminated the power concession agreement with the Power Distribution Services (PDS) in October 2019 after detecting some breaches in PDS’s obligations in the provision of payment securities.

There was intense pressure on the government over the action following which the US government refused to release an amount of $190 million as part of the concession agreement.

Presenting the 2020 budget statement in Parliament on Wednesday, the Minister of Finance, Ken Ofori-Atta said regardless of the developments in the sector, “Government is fully committed to [ensuring] private sector participation in ECG and is focused on moving forward with urgency to find a suitable replacement for the PDS arrangements.”

“Moreover, we are prepared to review the transaction structure and indeed, recognize the need to improve significantly the management of ECG, by bringing in world-class private sector expertise and attracting adequate private capital,” he added.

He further indicated that a competitive tendering process will be initiated very soon to find a replacement for PDS.

“Against this backdrop, Mr. Speaker, I am pleased to announce that Government intends to initiate an accelerated tender process to select a new private partner for ECG in the coming months. It is indeed Government’s intention to make relevant adjustments to enhance the existing bid documents and tailor the process to optimize the selection from companies having a track record of managing and operating a comparable utility, so as to achieve a fair, transparent and expeditious closure of the transaction”.

The Minister also added that concerning finding a new replacement for PDS, due diligence will be done to ensure that certain mistakes are not repeated.

“Mr. Speaker, we cannot overstate the importance of learning from past mistakes if we are to make sound decisions going forward. However, we have no doubt that a well-executed partnership between ECG and the “right” technical and financial partners, will certainly improve our distribution capabilities and enhance end-user experiences”.

“In this regard, heightened scrutiny will be brought to bear in the design and implementation of the financial and technical evaluation criteria to ensure that interested bidders not only have credibility and extensive experience in operating and managing a comparable electricity utility but also possess the financial wherewithal to make the requisite investments in ECG to achieve significant reductions in technical and commercial losses, as well as drive operational efficiency to deliver sustained service reliability for the benefit of all Ghanaians”

Ofori-Atta also maintained that despite the challenges encountered in the PDS concession agreement, Ghana remains committed to its relationship with the Millennium Challenge Corporation (MCC).

“Indeed, Government fully respects and is committed to the essential principles underlying the relationship between the MCC and the Government of Ghana, as well as the overall bilateral relationship between Ghana and the United States”

“Moreover, Government remains committed to the energy sector reforms, as envisioned under both the MCC Compact and the Energy Sector Recovery Program (ESRP), developed with the support of the World Bank”.

Recall that on March 1, 2019, Ghana Power Distribution Services, Ltd. (PDS) assumed operation and management of the staff and assets of the Electricity Company of Ghana (ECG) under a 20-year concession agreement. Private sector participation is a central reform under MCC’s Ghana Power Compact. This is critical to the long-term sustainability of related infrastructure investments and the financial recovery of the energy sector in Ghana.

The Compact comprised two tranches of funding: $308 million available upon the official start of the current Compact, and a second tranche of $190 million, which was available upon a successfully executed concession agreement, which the United States maintains occurred on March 1, 2019.
PDS was in July 2019 found to have presented invalid insurance security for the takeover of ECG assets.

The company was initially supposed to furnish the ECG with payment securities in the form of either a demand guarantee or a letter of credit issued by a bank.

The insurance guarantee came about because of difficulties experienced with raising a bank guarantee.

PDS appealed to use a demand guarantee issued by an A-rated insurance company.

PDS thus submitted the Payment Securities in the form of demand guarantees issued by a Qatari insurance firm, Al Koot Insurance and Reinsurance, which eventually became the source fraud after it was discovered that there were fabricated letters and forged signatures.

The government also noted that Al Koot did not have the capacity to engage in such a transaction based
on its net worth.

The company was also not authorised to issue demand guarantees.

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