Additionally, he said, the agreement would not precipitate increases in electricity tariffs.

He said apart from the fact that there would be no point in retrenching staff because 15 per cent would go on retirement in the next five years, the key elements of ECG’s private sector participation (PSP) transactions guaranteed jobs for five years.

Ing. Sarfo gave the assurance when he responded to questions from editors at a media interaction after presenting an update on the Compact II programme implementation, also known as the “Power Compact”, in Accra yesterday.

The theme for the power compact is: “Powering Ghana for accelerated and sustainable growth”. Touching on the PSP’s impact on tariffs, Ing. Sarfo stressed that the Public Utilities Regulatory Commission (PURC) would continue to set tariffs as set by law and, therefore, assuaged fears that the transaction would result in automatic increases in tariffs.

He, however, cautioned that it did not mean that if at the time of takeover by a concessionaire the prevailing conditions necessitated tariff adjustment it would not be done.

Background

On Friday, September 2 and Monday, September 5, 2016, the Public Utility Workers Union (PUWU) directed workers of the ECG to embark on a three-day nationwide demonstration to protest against the privatisation of the ECG and demand the review of the Millennium Challenge Corporation (MCC) compact which they asserted had the road map for massive lay-offs.

The exercise had all offices of the ECG across the country closed down for three hours on both days, a situation which left customers stranded. But reacting to accusations by the staff of the ECG and the PUWU that the government, through MiDA, intended to privatise the company, a development which would result in massive lay-offs, Ing. Sarfo explained that the activity was not a privatisation but rather private sector participation.

He stated that “the compact offered two options — partial privatisation and a concession — but the government chose concession after further analysis”. According to him, the activity also entailed the transfer of operational control to the private sector, while ECG’s assets would remain 100 per cent government-owned.

“The private partner will invest in, operate and maintain the distribution network for a specified period of 25 years, with reviews every five years and a major review in 15 and 10 years of the concession,” he said.

Why concession?

Outlining the advantages to be derived from the concession option taken by the government, Ing. Sarfo said it would bring in needed investments, introduce efficiencies in ECG’s operations and ensure that real tariff levels would reduce over time for the power sector and allow the public sector to concentrate on the monitoring and regulation of obligations, among other gains.

He, however, admitted that the success of the concession depended on extensive dialogue and joint planning prior to entering into binding contractual commitments and also required close monitoring in terms of contracts and enforcement of compliance and penalties.

“It is often renegotiated over the life of the concession and this gives public perception that the PSP is not working, which affects public support,” he stated.

Current status

Ing. Sarfo said six foreign entities with Ghanaian partners had been shortlisted out of 11 companies that submitted applications for the ECG PSP and the winner of the bid would be required to invest a minimum of US$100 million every year for the first five years and further investments thereafter.

“It is from them that bids will be received from early next year. By the third quarter of 2017 there should be a concessionaire managing ECG operations,” he predicted. Meanwhile, the projected project fund is US$535.6 million and it is divided into three — a programme funding of US$469.3 million, a compact implementation funding of US$28.9 million from the United States grant of US$498.2 million and a government of Ghana contribution of US$37.4 million.  

ECG EFOT

The ECG PSP falls under one of the six projects that make up the Compact II project labelled as the ECG Financial and Operational Turnaround (EFOT) and will attract a first tranche funding of US$161.2 million.

The other components of the EFOT are the modernisation of utility operations, reduction in commercial losses, improvement of revenue collection rates, technical loss reduction and outage reduction.

The objectives of the EFOT project are to reduce implicit subsidies, ensure that the ECG runs on sound commercial principles to become credit worthy and ensure it becomes a credible power off-taker under power purchase agreements.

Other objectives include ensuring that the ECG recovers its costs, including maintenance and expansion costs, without the government’s support, strengthening governance and management by bringing in an acceptable PSP provider and undertaking infrastructure and foundational investments to reduce energy losses.

The Deputy Minister of Power, Mr John Jinapor, stated that the agreement with the concessionaire was not cast in stone and that if during the reviews, as mandated under the contract, the company was found wanting, the contract could be terminated.