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23.02.2006 Feature Article

Electricity Outages -The VALCO Equation

Electricity Outages  -The VALCO Equation
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THE full truth about the return of VALCO will one day come out. President Kufuor and the NPP eased into the executive political arena in January 2001. Of the legacies the new government inherited was a tensed negotiation between VRA/VALCO and Government of Ghana.

VALCO as the biggest energy consumer of Ghana's hydro electric power with an estimated intake of more than 40% of local output nearing 1300 MW, see Business &Financial Times (B&FT) February 8, 2006.

VALCO an aluminium smelter based at Tema, paid "25% rate less for power than any other consumer." Based on preferential rates established as a result of the historical development of the Volta River Project itse! lf, VALCO had initially resisted a re-negotiation of its tariffs but after some hard bargaining by the erstwhile PNDC and later the NDC some deals were clinched.

Unfortunately, the in-coming government which was suspicious of all deals and agreements entered into by its predecessor government, threw the negotiated deal out of the window and opted for a new deal.

This led to a long stand-off between the Government of Ghana and Kaiser and other partners in the management of VALCO. In the midst of the stand-off and probably by reason of some among others, Kaiser Group (USA) filed for bankruptcy some four years ago. In the event, the Government of Ghana thought it prudent to buy back the smelter with ALCOA, an international company as a minority shareholder. The alter certain between officials of ALCOA and the U.S Government linkage and President Kufuor and the NPP is yet to be fully documented. ! Whether the long stand-off involving the Government of Ghana and these companies is left to history to judge.

Thousand of jobs were meanwhile lost and massive revenue due to the state from the aborted negotiation remains a financial loss to the State.

President Kufuor however looks upbeat about his skills at buying back or nationalising the smelter as he moves around the world seeking to source fresh international finance to re-boot the smelter to its pre-2000 state. Support has been far and few. The recent antecedents of VALCO would appear to be its own undoing.

The next two years may well unravel to the Ghanaian populace the real truth of the President Kufuor buy-back success. For now, maintenance and skeletal staff have been taken on to maintain the system and keep the smelter in shape. President Kufuor has done as many trips not only to boost his own ego! , but to re-assure a skeptical nation about the viability and the hope for a future for VALCO. Credit from the banks is still a major headache. But the revenue projections look bleak even as the return into operation of the smelter may well add to President Kufuor's woes.

The onset of VALCO has led "for the first time in decades, a total blackout – experienced in the country and subsequent daily erratic power cuts" B&FT. No one seems ready to step forward from the executive to explain and inform the public about the truth of these outages. ECG and VRA officials were simply irritating with their inconsequential responses.

Public officials have a duty to be frank and honest with the public else rumours and tongues will wag. In the past, the management of VRA were said to be tough on the VALCO management even to the point of cutting its power supply. Today, with VALCO literally a state-owned company, VA! LCO is attracting all the incidents of mismanagement which has run several SOEs down. VRA cannot pin VALCO down and VRA feels obliged to supply power to VALCO willy-nilly.

Secondly, VALCO as per the B&FT news "pay 1.7 cents instead of the 3 cents they were being tasked to pay" for which the original management was booted out. In the end, VALCO looks like yet another liability on the fortunes of the country's SOE. As Mr. President Kufuor leads in the closure/re-opening of VALCO, the burden of politics will lead him into further decisions which will make greater political than economic and financial sense.

Where will the President pull out the political lead. When will the private sector become the veritable engine of growth.

And when shell was see the Golden Age of Private Business as private business are being elbowed out as also in Westel, 2nd Telecom operator! . Does it make more financial sense to reject 3 cents per MW for 1.7 cents? Time will tell. Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.

Rikard Quaye
Rikard Quaye, © 2006

The author has 11 publications published on Modern Ghana. Column Page: RikardQuaye

Disclaimer: "The views/contents expressed in this article are the sole responsibility of the author(s) and do not neccessarily reflect those of Modern Ghana. Modern Ghana will not be responsible or liable for any inaccurate or incorrect statements contained in this article."

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