Obrempong writes: The ECG concession, all you need to know [Part 1]

The Electricity company of Ghana ECG, is about to be given to a private hand. The “concession” as it has been called by government functionaries will have a 25 year lifespan. If the concession goes through, the distribution of power to your home, barbering and salon shops or companies will be run by any of the six [largely foreign] companies which are chasing for the concession until 2041.

Why is government giving out ECG on concession?

According to the Government of Ghana, the Electricity Company of Ghana is inefficient. In its view, ECG is so because its (1) Operational loses are too high (2) There are frequent power outages and (3) due to non-collection or under collection of bills.

How did government arrive at these conclusions?

The Millennium Development Authority's Compact II [Compact II explained herein] hired the services of the International Financial Corporation IFC, of the World Bank, to carry out an assessment of the Electricity Company of Ghana. After the assessment, the challenges quoted above by government were what the IFC of the World Bank found.

What is ECGs reason for these inefficiencies?

The power supplier has stated the following as reasons for its ineffectiveness.

(1) The largest debtor of the ECG is the Government of Ghana, and its institutions and agencies. Government of Ghana is not paying its bills. Even if it does make any payment, they are for power it has used for over a year. [How do you use power today and pay for it in 2017?]

(2) Adequate power is generated by the Volta River Authority and other independent power producers for effective delivery by ECG affecting volume of sales and turnover

(3) There is political Interference in the managerial and governance activities of ECG

(4) Lack of cost reflective tariffs caused by inherent subsidies that are not paid by the Government Of Ghana

(5) Transmission capacity
(6) There are problems with metering, impacting negatively on revenue mobilization and commercial losses and (7) Managerial challenges impacting negatively on staff morale and discipline.

What is government's solution to ECG's inefficiencies?

After the IFC working on the orders of the Millennium Development Challenge's Compact II found the inefficiencies of the ECG, it recommended that the ECG's distribution business be given out on a single or private concession.

In fact, as part of the terms and conditions under the Compact II, before Ghana could access the US$498.2 million to be provided by the US Government, ECG “MUST” be given to a private sector company to operate and manage its distribution business. [1]

Government of Ghana followed the recommendation and opted for a single concession for a period of 25 years. [Private monopoly]

What is MiDA's Compact II?
Before talking about the MIDA Compact II, let us understand the Compact I. The Millennium Development Compact I was first signed between Ghana and the United States in February 2007, by the erstwhile Kuffour administration and ended in 2012. Benefits from it were the upgrade of sections of the NI road called the George Walker Bush Highway, Improvement in Ferry for Volta Lake, Establishment of Perishable Cargo Center at Kotoka International Airport and the Improvement of some trunk roads and feeder roads.

The Compact II [The brain behind giving ECG on concession]

The Compact II was signed by the John Mahama led administration in August 2, 2014. Compact II is targeting the energy sector. In it, the compact aims at directly supporting the energy sector strategic objectives to achieve power supply sufficiency including export to neighboring countries. It is going to achieve this by implementing these programs

(1) ECG Financial and Operational Turnaround Project

(2) NEDCo Financial and Operational Turnaround Project

(3) Regulatory strengthening and capacity building project

(4) Access project
(5) Power generation sector improvement project[2]

(6) Energy efficiency and demand side management project

(7)        Monitoring and evaluation and economics
(8)        Environmental and social performance
(9)        Social and gender integration
The concession and point 1&2
Per the compact II, in order to turn around the financial and operational functions, the ECG MUST be given on concession. Is the NEDCo also going to be given on concession? Answer is Yes! [The rest of the points will be featured in part 2 of this article]

Which companies have tendered in their bid to run the distribution business of ECG?

Following the request for qualification for concession for the management of, operation of, and investments in the Electricity distribution business of the Electricity Company of Ghana for which submissions closed on 9^th May, 2016, a total of 11 applications were received by MiDA. But after pre-qualification application was completed, the following 6 entities were shortlisted

(1) Engie Energie Services SA from France

(2) Enel S.P.A from Italy
(3) Manila Electric Company from Philippines

(4) Consortium of CH Group, EDF SA, LMI Holdings and Veolia SA Ghana/France collaboration

(5) Consortium of BMX Ghana Limited and Xiaocheng Technology Stock Company Limited and Shaanxi Regional Electric Power Group Company Limited from China and Ghana

(6) Consortium of The Tata Power company limited and the CDC Group PLC from India

What will be the work of the ultimate winner among the six?

The ultimate winner will manage the distribution business of ECG for a period of 25 years; a private monopoly
The concessionaire will then operate, maintain and invest in the distribution assets of ECG, under a Lease and Assignment (LAA).

Does the ECG agree to the Compact II listings above?

Yes.
Does the ECG agree to the proposed concession?

No
What is ECG's solution to the challenges?
According to the ECG, the company's troubles can be turned around to achieve the Compact II's without Private Sector Participation [PSP] through

(a) a disciplined managerial and governance transformation devoid of political interference;

(b) Appointing a dynamic and competent leader through a competitive process on a fixed term contract (5 years) renewable;

(d) Free hand to manage and operate the distribution business on sound business and public service ideals and GOG meeting its obligations and ensuring MMDAs and government institutions pay for power consumed on regular short term intervals.

(e) Availability of reliable and quality power to enhance the growth of the economy

(f) More IPPs to come into the sector to increase generation and eliminate “dumsor” once and for all.

This ends part one of the ECG concession debate. In part two of the article, you will see the good, the bad and the ugly with the concession deal.

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By: Obrempong Yaw Ampofo