'OSAGYEFO BARGE', BALKAN ENERGY FRAUDULENT CLAIMS & A PPA THAT NEVER WAS

By J. Ato Kobbie, Managing Editor [The Business Analyst]
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By J. Ato Kobbie, Managing Editor [The Business Analyst]

5/23/2012 7:42:57 PM -

When FPSO Kwame Nkrumah M.V. 21 was being designed and constructed, the Jubilee Field partners, together with the Government of Ghana, were hopeful that first oil would be accompanied by first gas.

FPSO Kwame Nkrumah was to process the first 30-million standard cubic feet of gas from the field into dry gas, to power the 'Osagyefo Barge,' to supplement the country's electricity requirement.

Alas! That was not to be because the 'Osagyefo Barge', a brainchild of Tsatsu Tsikata, former Chief Executive Officer of the Ghana National Petroleum Corporation (GNPC), had been grounded, incapable of generating a kilowatt of power, notwithstanding a July 2007 deal with Balkan Energy Ghana Limited, to operationalise it within 90 days.

It all started with a memorandum of understanding between the government of Ghana and Balkan Energy in May 2007, following the latter's representation to the country that it had the capacity to operationalise and commission the 'Osagyefo Barge' within 90 days to supply the country with 125 megawatts of electricity.

It would be recalled that on July 27, 2007 Joseph Kofi Adda, then Minister of Energy signed on behalf of Ghana the said PPA, with Mr. Phillip Elders, 3rd defendant in the case, acting on Behalf of Balkan Energy (Ghana) Limited (2nd Defendant) for the lease of the 125-megawatt dual fired power barge, Osagyefo Barge, then situated at Effasu-Mangyea in the Western Region of Ghana.

The agreement involved the repair, rehabilitation and commissioning of the Osagyefo Barge by Balkan Energy Ghana Limited, within 90 days of the Effective date of the Power Purchase Agreement.

It was this deal with Balkan Energy that culminated in a Power Purchase Agreement (PPA) which the Supreme Court of Ghana last Thursday, May 17, 2012 declared by a unanimous decision did not measure up to the requirements of the country's laws because it constituted an international transaction and as such should have been validated by a parliamentary approval.

The PPA That Never Was
In declaring the PPA an international business transaction, the Supreme Court said among others that:

“The PPA between the Government and the first defendant was the result of negotiations between a foreign investor (3rd Defendant acting on behalf of owner of the second defendant) and the government,” adding that “This is a significant foreign element in the transaction.”

Continuing, the apex court said “Secondly, the first defendant, though a Ghanaian company, is wholly owned by a foreign entity, incorporated in the United Kingdom. Thirdly, the managing director of the first defendant is a foreigner, the third defendant and control of the management of the first defendant is in foreign hands.”

Back to Commercial Court
The Supreme Court further directed that “The case is accordingly remitted to the High Court for this court's interpretation of article 181 (5) of the 1992 Constitution to be applied in the proceedings before it,” in apparent reference to the case between Government and Balkan Energy at the Commercial Court.

“We would like to end this opinion by repeating our request to parliament to enact a Bill indicating what modifications it wishes to make to article 181(5) of the Constitution,” the Supreme Court advised, adding that “This step would bring greater certainty and clarity to the law”

The Government had obtained an injunction at the Commercial Court, staying the order of the arbitration court, to allow the Supreme Court to determine the constitutionality and enforceability of the PPA.

Government had sought the injunction after Balkan Energy Ghana Limited, without notice to it, obtained from the District Court of Amsterdam a prejudgment attachment of the Government's Bank account in the Netherlands to the limit of US$66,330, 000.

Balkan Energy cited to the District Court the pendency of an arbitration it had initiated as the legal proceeding for which an attachment was sought and relied on the provisions of clause 24 of the Power Purchase Agreement.

“It further justified the attachment on the enforceability of the power purchase Agreement and the Arbitration Agreement with reference to both Dutch Law and Article 18 of the United Nations Convention on Jurisdictional Immunities of States and their Property Attached hereto and marked “VG5” is a true copy of the Application for Attachment,” an affidavit by Vivienne Gadzekpo, Legal Counsel of the Ministry of Energy, in support of the application for the injunction on the orders of the international arbitration by the Attorney General at the Commercial court in July 2010 averred.

Continuing, Ms Gadzekpo revealed that “Although the attachment order was obtained on February 24, 2010, it was received by the Ministry only on May 31, 2010 after various banks had been served with the District Court order.”

Balkan started the arbitration procedures against the Government of Ghana in the Amsterdam court, which awarded attachment orders against the accounts of Ghana to the tune of more that $66 million in February 2010, an amount it claimed as damages and tolling charges since November 2008.

Red Flags Over PPA
The Government of Ghana, raised red flags over the constitutionality of the PPA, arguing strongly that both the power purchase agreement and the Arbitration Agreement contained therein were international Business or Economic transaction within the meaning of Article 181 (5) of the 1992 Constitution and therefore required Parliamentary approval to make it valid.

The Attorney-General, in 2010 therefore applied for a declaration rendering the PPA unenforceable because it infringed upon Article 181 (5).

It sought also a declaration that clause 22.2 of the PPA constituted an international business transaction to which the Government of Ghana was party and is unenforceable as infringing Article 181(5) of the Constitution and an injunction restraining all the defendants whether by themselves, their agents, their affiliates, subsidiaries or howsoever otherwise from instituting and/or pursuing arbitration proceedings or any other proceedings outside the jurisdiction of Ghana whatsoever against the Government in respect of or on the basis of the PPA.

While Article 181(1-4) deals with parliamentary ratification of loan agreements, article 181(5) extends the requirement to “international business transactions' to which the government is a party. It states that “This article shall, with the necessary modifications by Parliament, apply to an international business or economic transaction to which the Government is a party as it applies to a loan”.

But the defendants argued that the PPA is a valid contract between the Plaintiff and a Ghanaian company. Balkan had argued that it was not an international business or economic transaction to which the government is a party and therefore did not require parliamentary approval.

This was countered by the government of Ghana, citing many factors which rendered the transaction an international business.

The government had argued further that the expression of interest in the commissioning of the Barge and the negotiations for the PPA were conducted entirely by Balkan Energy LLC, which entered into a memorandum of understanding for the project and undertook to execute the project.

Fraudulent Claims
While Balkan Energy was struggling to get the 'Osagyefo Barge' to cough, a Reuters report captured its bosses fraudulently misrepresenting to the people of Botswana in May, 2008 that it had refurbished the barge and it was generating 125MW of power to Ghanaians!

["We recently refurbished a barge-mounted power station in the nation of Ghana, which is successfully delivering 125 megawatts of power to the people of that nation," said Phil Elders, President of Balkan Energy Company.

"The Osagyefo Power Barge, located in Effasu on the Ghanaian coast, is the first phase of a three-year project designed to deliver nearly 600 megawatts of electricity to that country. At project's completion, approximately 1.9 million homes will be provided much needed energy relief.]

The power barge has however, still not become operational, a situation that Balkan Energy, in an action it embarked upon in the United States of America (USA) District Court for the Northern District of Texas, Dallas Division, blamed another US based company, Pro Energy Services International Inc for.

“To date, the Barge has not been rendered operational. Consequently, the Government has not been provided with any additional power therefrom to date and has thereby suffered loss and damage,” Ms Gadzekpo averred.

Balkan had accused Pro Energy of having caused damage to the Osagyefo Power Barge, which rendered it non-operational, thereby preventing it from meeting its contractual obligations to the GoG.

Pro Energy had met Balkan's representatives in Accra, and after inspecting the barge, the former indicated its capacity and ability to undertake the servicing of the Osagyefo Barge.

Balkan Energy Company had contracted Pro Energy Services International in October 2007, to oversee the process of start-up and the commissioning of the barge that had been inactive at the time of the agreement.

In Balkan's statement of claim in the United States Court, it states also that

Pro Energy committed to completing the work in 45 days instead of the 90 days and based on that a service contract was signed in September 20, 2007.

Records from the US Court, accessed by Government of Ghana from Pro Energy on a court order reveal that Balkan had raised concerns right from the beginning, about the caliber of personnel recruited by its subcontractor to execute the job.

Balkan Energy had, in that case, accused Pro Energy of being the reason for its inability to operationalise the Osagyefo Barge in order to meet its contractual terms with Ghana.

Balkan Energy further states that Pro Energy breached the service contract in several ways, which included pumping dirty water into the supply fuel for the turbine on the barge, wrongly wiring the voltage switch gear, and engaging workers who had no experience.

Balkan was therefore claiming from Pro Energy, cost of $1.2 million incurred in time wasted and for correcting the damage to the supply fuel, $80,000 for re-doing the wiring and travel fees for shipping workers who had no experience to and from the barge running into $75,000.

Author: [email protected]

[A print version of this article is published in The Business Analyst of Wednesday, May 23rd - Tuesday, May 30, 2012]

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