Africa-Press – Ghana. To help Finance Minister Dr Mohammed Amin Adam provide a more accurate and reliable picture, regarding the debt of the Independent Power Producers (IPPs), he should offer a detailed breakdown of the ‘so-called US$1 billion that he said the government has restructured, including all PPA-related claims, Chief Executive Officer of the Chamber of Independent Power Producers, Dr Elikplim Kwabla Apetorgbor, has said.
Dr Apertorgbor noted that the pronouncement by Finance Minister Dr Mohammed Amin Adam that the government has restructured the IIPPs) One Billion Dollars arrears is questionable.
He says that the minister’s comment oversimplifies the underlying financial obligations.
The Finance Minister had revealed that an amount of $ 400 million has been paid to five IPPs as part of the debt settlement.
The payment formed part of the implementation of the agreement that the government has reached an agreement with five out of the seven independent IPPs over debt settlement.
Speaking during a joint Ministry of Finance, Bank of Ghana, and International Monetary Fund (IMF) press conference on the disbursement of the $360 million third tranche, in Accra on Monday, July 1, Dr Amin Adam stated that the threats that the IPPs issued to shut down their plant will not happen because of the agreement.
He said “we have reached an agreement with Aksa Energy, Amandi Energy, Cenit Energy, Cenpower Generations and Early Power.”
“We have seven IPPs and we have reached an agreement with five, which is very positive for our country.
Govt has reached agreement with 5 Independent Power Producers – Finance Minister
“It tells us that the threats of shutting down power plants will be a thing of the past because we are committed to implementing the terms of this agreement. we already have started performing on our side and to date government has paid in excess of 400 million dollars to all IPPs as part of our performance of the agreement that we just reached.”
He further stated that “as part of the implementation of the Energy Sector Recovery Programme (ESRP), Government has, for some time now, been negotiating with the energy sector Independent Power Producers (IPPs) to restructure legacy debt of over a US$1 illion
owed to the IPPs and Power Purchase Agreements (PPAs) to address the accumulation of arrears in the energy sector and work towards implementing critically needed reforms to make the sector more financially sustainable.
“A Government Negotiating Team (GNT) was mandated to restructure legacy debt owed to the IPPs, namely AKSA, Amandi, CENIT, Cenpower, Karpowership, Early Power and Sunon Asogli. In addition, the GNT was tasked to finalize any outstanding matters pertaining to the restructuring of the respective PPAs of the IPPs with the Electricity Company of Ghana (ECG). The key objective of the exercise was centred on the restructuring of legacy debt, necessary amendments to the PPAs and other project documents arising from the restructuring exercise, as well as ensuring that ECG remains current on its payment obligations to IPPs under the respective PPAs going forward.
“The final round of negotiations in June 2024 after several months of negotiations resulted in the following: i. commercial agreements have been reached on headline debt restructuring terms and renegotiated PPA terms with Amandi, Cenpower, Early Power, CENIT and AKSA. ii. The amended Amandi, Cenpower and Early Power documentation will require Parliamentary approval, and the GNT is pursuing an aggressive timeline aimed at
securing various regulatory, Ministerial and other approvals prior to presentation of the amended documentation to Parliament for approval before Parliament rises at the end
of July 2024; iii. Work on closing out and execution of the Sunon Asogli restructuring package/documentation is also in progress; iv. ECG and GNPC have agreed all commercial terms under master gas supply arrangements (with final technical details being considered) under which GNPC will sell to ECG fuel in bulk for onward supply to the IPPs, as part of the conversion to a tolling arrangement. The master gas supply arrangements between ECG and GNPC are central to the restructuring exercise; and v. The GNT is further engaging Karpowership to close out the Karpowership restructuring as soon as possible.”
But in a statement, Dr Elikplim Kwabla Apetorgbor, said that “indeed, the debt owed the Independent Power Producers is in excess of US$2 billion, until a meaningful and win-win deal is reached and sealed.
“The Finance Minister’s assertion that he has ‘reconciled or restructured’ the IPPs’ arrears to US$1 billion is questionable and oversimplifies the underlying financial obligations. Given the multifaceted nature of financial liabilities under PPAs, a mere aggregation of the monthly invoices does not capture the full extent of ECG’s commitments. Let’s take propaganda out of this sensitive case and act ethically. To provide a more accurate and reliable picture, the finance minister should offer a detailed breakdown of the ‘so-called’ US$1 billion figure, including all PPA-related claims, as I have pointed out above. It is worrying to learn that these are figures audit firms of high reputation have certified”
He further explained that to achieve greater accountability and transparency in the power sector, the finance minister must present a realistic picture, no matter the frightening outlook, and make full disclosure of the financial situation.
“This involves providing a detailed reconciliation that includes: A Breakdown of All Components Contributing to the Arrears: This should include interest charges on delayed payments, idle capacity charges, exchange rate losses, and any additional claims under the PPAs; An Explanation of How Changes in Law and Fuel Price Variations Have Been Accounted For: This will ensure that all financial obligations are transparently reported; and Clarification of the Methodology Used to Arrive at the USD 1 Billion Figure: This will help ensure that all financial obligations under the PPAs are accurately reflected.
“To ensure that any debt restructuring proposal is credible, acceptable and not rip-off any serious investor of their benefits, it is essential to conduct a careful scenario and sensitivity analyses on the options proposed. This ensures a win-win situation for all stakeholders involved. The use of the high office of a finance minister for political propaganda undermines the credibility of financial management in the sector. As stewards of investors’ interest, we implement comprehensive accounting practices. This goes beyond simplistic revenue recognition models and requires meticulous consideration of all contractual obligations stipulated in the PPAs.
“Proper accounting for power in Ghana’s energy sector extends far beyond the monthly invoices received and paid by ECG. The Finance Minister’s claims regarding the reconciliation of IPPs arrears need to be substantiated with a detailed breakdown that reflects the true financial liabilities arising from PPAs. As stewards of shareholder interests, it is imperative to account for every amount and provide full transparency. The complexities inherent in PPA-driven financial obligations demand a comprehensive approach to accounting, one that goes beyond simplistic revenue recognition models. Only through such rigorous and ethical accounting practices can we hope to achieve financial clarity and stability in Ghana’s power sector.”
Below is his full statement…
In a recent press conference at the Ministry of Finance, the Finance Minister, Hon. Amin Adams, suggested that revenue recognition and arrears owed to Independent Power Producers (IPPs) under Power Purchase Agreements (PPAs) are realized solely through the monthly invoices received and paid by the Electricity Company of Ghana (ECG).
This assertion oversimplifies the complexities of accounting in the power sector, especially with the involvement of IPPs. Proper accounting for power, particularly in the context of Power Purchase Agreements, is governed by every clause within these agreements. As stewards of shareholder interests, it is crucial to comprehensively account for every financial obligation. This publication critiques the Finance Minister’s claims, highlights the intricacies of PPA-related financial liabilities, calls for prudence and full disclosure to provide a transparent picture of the sector’s financial state.
The Multifaceted Nature of Power Purchase Agreement-Driven Financial Liabilities
Power Purchase Agreements are intricate legal and a risk sharing documents outlining the terms and conditions under which power is produced and sold to utilities like the Electricity Company of Ghana. These agreements are under pass-through cost mechanism which encompass various financial obligations beyond the monthly invoices for electricity supplied by the Independent Power Generators. Key clauses in the PPAs that result in financial liabilities include:
A Critical Examination of the Finance Minister’s Claims
Indeed, the debt owed the Independent Power Producers is in excess of US$2 billion, until a meaningful and win-win deal is reached and sealed.
The Finance Minister’s assertion that he has “reconciled or restructured” the IPPs’ arrears to US$1 billion is questionable and oversimplifies the underlying financial obligations. Given the multifaceted nature of financial liabilities under PPAs, a mere aggregation of the monthly invoices does not capture the full extent of ECG’s commitments. Let’s take propaganda out of this sensitive case and act ethically. To provide a more accurate and reliable picture, the finance minister should offer a detailed breakdown of the “so-called” US$1 billion figure, including all PPA-related claims, as I have pointed out above. It is worrying to learn that these are figures audit firms of high reputation have certified.
Importance of Full Disclosure
To achieve greater accountability and transparency in the power sector, the finance minister must present a realistic picture, no matter the frightening outlook, and make full disclosure of the financial situation. This involves providing a detailed reconciliation that includes:
Challenges and Recommendations
To ensure that any debt restructuring proposal is credible, acceptable and not rip-off any serious investor of their benefits, it is essential to conduct a careful scenario and sensitivity analyses on the options proposed. This ensures a win-win situation for all stakeholders involved. The use of the high office of a finance minister for political propaganda undermines the credibility of financial management in the sector.
As stewards of investors’ interest, we implement comprehensive accounting practices. This goes beyond simplistic revenue recognition models and requires meticulous consideration of all contractual obligations stipulated in the PPAs.
Proper accounting for power in Ghana’s energy sector extends far beyond the monthly invoices received and paid by ECG. The Finance Minister’s claims regarding the reconciliation of IPPs arrears need to be substantiated with a detailed breakdown that reflects the true financial liabilities arising from PPAs. As stewards of shareholder interests, it is imperative to account for every amount and provide full transparency. The complexities inherent in PPA-driven financial obligations demand a comprehensive approach to accounting, one that goes beyond simplistic revenue recognition models. Only through such rigorous and ethical accounting practices can we hope to achieve financial clarity and stability in Ghana’s power sector.
Dr. Elikplim Kwabla Apetorgbor
(Power Systems Economist & CEO, IPPG)
July 10, 2024
Source: 3News
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