Ghana’s energy sector has gone through quite a tempestuous time, from an energy shortage a few years ago to a surplus of energy at present, all of which has had an effect of the country’s mining sector, which is heavily reliant on stable and uninterrupted energy supply.
What has not changed is Ghana’s limited transmission and distribution network, which requires critical maintenance, update and extension. This may only be possible through private sector capital injections, writes CHANTELLE KOTZE.
Ghana, which is Africa’s largest gold producing country and also produces bauxite, manganese and diamonds, may find that its largest consumer – the mining sector – turn its gaze to the private sector to source the energy needed to power its mines, amid the country’s continued electricity distribution woes.
Speaking during a Webinar hosted by Africa Mining Forum and Mining Review Africa on the prospects for a mature mining industry lacking power infrastructure,Solomon Asamoah, CEO of the Ghana Infrastructure Investment Fund, a government-owned investment vehicle with the purpose of investing in infrastructure assets throughout Ghana, shed light on the energy crisis in the country.
Energy crisis is financially crippling Ghana’s economy
According to Asamoah, the country’s underlying take or pay contracts, which it signed with a number of independent power producers (IPPs) meant that when the country moved from an energy deficit to an energy surplus, the government remained liable to pay for energy that was being generated, but not being used.
“This led to a financial crisis in the country where outstanding payments for power generation was approaching US$750 million a year in liabilities, which took a toll on the country’s finances,” says Asamoah.
Because most of these IPPs were funded through relatively expensive debt funding, a decision was taken by the government to use $1 billion of a $3 billion Eurobond issue to refinance the debt, in a bid to address this situation. In doing so, this would reduce the cost of energy to the country’s power utility and to the country’s consumers, Asamoah explains.
This process is currently underway and the government is negotiating with each of the IPPs and has provided an offer for them to refinance their debt to much lower levels and over a longer tenure, says Asamoah, noting that this should provide a win-win situation for both the government and IPPs and provide much needed stability within the energy sector.
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At the same time as refinancing this debt, the Ghanaian government, together with the country’s ministries of energy and finance have looked at ways of further strengthening the energy sector through the 2019 Energy Sector Recovery Programme (ESRP), aimed at identifying the policies and actions necessary for the sector to recover its financial footing.
Asamoah says that a list of recommendations from the ESRP will be implemented to improve the country’s overall energy sector, including the renegotiation of existing power purchase agreements signed with the IPPs from a take or pay basis to a more balanced take and pay basis, the use of more efficient gas power while reducing fossil fuel-based power as well as future energy generation dispatch based onmerit order so that cheaper, more efficient power is used.
Despite being a challenge – energy is a risk that miners can control
Also speaking during the Webinar, Jeff Quartermaine, MD and CEO of Perseus Mining, which owns and operates the Edikan gold mine on the prolific Ashanti Gold Belt, said that the company has had to adjust its business model to accommodate for and better manage the risks associated with the changing energy landscape in the country over the past decade.
Perseus Mining poured first gold at Edikan in 2011, and besides the prolific gold resource, the company was attracted to Ghana because of its abundant supply of relatively low-cost and reliable hydro-electric power, when it was first considering investing in the country in 2009.
Quartermaine says that the country’s generation capacity constraints prompted it to invest in alternative diesel-generated stand-by power to mitigate these constraints.
“While energy generation capacity in Ghana has dramatically improved, with sufficient energy supply at the moment, the country’s transmission and distribution infrastructure remains a weakness in the energy system,” says Quartermaine.
The Edikan mine, and most mines in general, require uninterrupted energy 24 hours a day with even the slightest energy spike in the grid causing a power failure and requiring the operation to re-energise its system, Quartermaine explains, noting that it uses its standby diesel-generated energy to supplement and smooth the grid power.
Quartermaine points out that IPPs, such as the one that has established a gas-fired power plant adjacent to Edikan, provides an additional alternative stand-by energy source to that of the company’s stand-by diesel-generated energy.
Transmission and distribution investment needed
Iterating Quartermaine’s concerns around Ghana’s transmission and distribution network, Asamoah says while Ghana has successfully attracted a large share of private sector investment in the energy sector, largely within the generation sector, there has been much less investor interest in the country’s power transmission and distribution.
“If we are serious about strengthening the country’s power sector we have to attract investment into the transmission and distribution network,” says Asamoah, noting that Ghana needs to take full advantage of any private sector involvement in this area of the power network.
Asamoah explains that Ghana’s power transmission and distribution network is seen as a strategic asset for the country and something that the government is weary of giving away too much control. “While Ghana’s electricity transmission company, GRIDCo, has made investments in this area of the power network, greater additional investment, specifically from donors or the private sector, is needed if it were to have any significant impact,” says Asamoah.
Should Ghana manage to improve its transmission and distribution network, the next step natural step would be the export of its surplus power to neighbouring countries within the West African Power Pool, says Asamoah, noting however that the additional investment would be required to facilitate the interconnectedness between neighbouring countries.
He adds that in order to facilitate private sector investment, the business model on how this would be done, would need to be clarified so that the benefits for private investors are clear from the outset.