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Report by Bernard K DADZIE
Africa Centre for Energy Policy (ACEP) is calling on the Ministry of Energy to immediately, subject the EPC contracting process to competitive bidding that accommodates local contractors to achieve the most optimal contract cost.
According to them, “VRA must own and operate the plant per the Deed of Assignment dated 17th August 2016 for which they were trained by AMERI. We maintain that in a cash-strapped power sector, prioritizing the retooling of the NITS is a far optimal option than the attempts to relocate plants and its attendant unnecessary cost additions”.
Cabinet and Parliament he stated, should assume critical responsibility for the efficient planning of the sector saying, government should be transparent about plans to renegotiate power plants.
Mr. Kodzo Yaotse, Policy Lead, Petroleum and Conventional Energy at ACEP in a press conference pointed out that under no circumstance should the operations and maintenance of the AMERI plant be outsourced to any contractor.
“The power sector has significant financial, technical, and managerial challenges. These challenges are worsening over time and manifesting in unsustainable debt accumulation. In 2020 and 2021, the government shouldered total under-recoveries from the sector to over GHS 14 billion (GHS 6.8 billion in 2020, and the cedi equivalent of $1.257 billion in 2021). In addition, the sector’s outstanding payments for gas and IPPs are in excess of $1.2 billion for the first half of 2022”.
He added that the proposed relocation and O&M cost $71.6 million for three years to be recovered from the already anaemic Cash Waterfall Mechanism (CWM).
“Additionally, the gas infrastructure and discounts on the commodity cost to support the relocation would require about $50 million cumulatively per year. At the same time, the transmission infrastructure requires urgent investment, particularly upgrading the Western Corridor Transmission Lines and the 330KV Pokuase-Anwomaso Transmission Line, which are more critical infrastructures to facilitate the stable transmission of power to the middle belt of the country”.
According to Kodzo Yaotse, ACEP agrees that the power system would need some power generation dotted across the country in the medium to long term. However, given the current debt situation and the multiplicity of the challenges in the sector, more optimal planning should prioritize efficiency, effectiveness, and economy for power delivery.
“Strengthening the transmission system to coincide with a stable power supply for the middle belt from the Bui Dam is more urgent. This would require converting the Bui Dam from a peaking plant to an operationally possible base load supply plant to support the NITS. If, for any reason, this recommendation is not an option for the Ministry, which appears to be the case for the past two years, the worst they can do is to ensure that the relocation and contracting processes are done in the most transparent and competitive manner. “
The current processes have no semblance of that transparency required to generate the most optimal cost. The O&M being sole sourced to Mytilineos SA is just an unnecessary cost addition in the face of the fact that VRA has the capacity to manage the plant”.
ACEP, Mr. Kodzo Yaotse disclosed are against Ministry of Energy’s negotiations with Mytilineos SA to relocate and install the AMERI plant from Aboadze to Kumasi with a firmed contract price of $35.6 million.
“The contract also grants the Operation and Maintenance (O&M) to Mytilineos SA for three years at the cost of $36 million, bringing the total cost of the relocation and maintenance of the plant to $71.6 million barring any unforeseen upward adjustments.
ACEP is emphatic on the contract costs even though the Ministry denies it is conclusive.The following events affirm ACEP’s conviction on the contract cost: The Ministry has received PPA approval to sole source the EPC contract to Mytilineos AS.
The Decision to Relocate the AMERI Plant from Takoradi to Kumasi to address the persistent power fluctuations and low voltages in the middle belt of the power corridor, the government is committed to building a power hub in Kumasi, negligent of the challenges of the power sector on existing power plants.
The government intends to relocate the AMERI plant and locate new plants (240MW Karpower, 300MW AKSA and 80MW VRA plants) in the face of the constant rhetoric of excess capacity, to Kumasi with the expectation of stabilizing the power supply.
ACEP has raised concerns over the propriety of this decision, especially against the option of retooling the transmission infrastructure to achieve the same objective. These concerns are raised particularly within the context of the power sector’s current debt and payment challenges, which require that the most optimal decisions be made to reduce the sector’s debt burden.
The cost of relocation and the gas infrastructure needed to power the plant injects further cost burden into the financially constrained sector. Prioritizing the National Interconnected Transmission System to loop the Bui, Western and Eastern power enclaves is a cheaper and quicker fix to the instability in the middle belt. This poor planning of generation addition will only exacerbate difficult financial challenges of the sector.
The Ministry of Energy has advanced negotiations with Mytilineos SA to relocate and install the AMERI plant from Aboadze to Kumasi with a firmed contract price of $35.6 million. The contract also grants the Operation and Maintenance (O&M) to Mytilineos SA for three years at the cost of $36 million, bringing the total cost of the relocation and maintenance of the plant to $71.6 million barring any unforeseen upward adjustments.
ACEP is emphatic on the contract costs even though the Ministry denies it is conclusive. The following events affirm ACEP’s conviction on the contract cost:The Ministry has received PPA approval to sole source the EPC contract to Mytilineos AS.
The Ministry confirmed to Parliament on 15th June 2022 that it had received a legal opinion from the Attorney General’s Office on the EPC contract to Mytilineos AS. iii) Again, in a 17th December 2021 letter, the Ministry requested support to establish payment security in the form of an irrevocable Standby Letter of Credit (SBLC) of $30 million from VRA to secure the commitment of Mytilineos SA for both the EPC and O&M.
The Energy Ministry has been in charge of the contract negotiations since March 2021. The proposal for the EPC Contract by Mytilineos SA sighted by ACEP was addressed to the Ministry of Energy, which engaged in negotiations with the company. The Minister confirms the leadership of the Ministry on the negotiations in his 17th December 2021 letter to VRA when he states: “Reference is made to ongoing negotiations between the Ministry of Energy and Mytilineos SA for the relocation for the 250MW Ameri power plant from Aboadze to Anwomaso.”
The above contrasts with the position of the Minister when he appeared before Parliament on 1st July 2022 and stated that VRA has been leading the contract negotiations. It is also important to note that these negotiations predate the transfer of title to the plant, which, perhaps, explains why the Ministry was in a hurry to novate the terms of Section 26 of the BOOT Agreement to Mytilineos SA.
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