Ghana: Why the government is paying billions for power it does not use | Tellwell Newspaper
Tellwell Newspaper, Abuja – Nigeria:
By Sipho Kings
To solve previous power crunches, Ghana signed contracts with international institutions that are stymieing its economy today.
In 2015, amid a global plunge in energy prices, Ghana was running out of power. A gas pipeline from Nigeria was not delivering as much as promised, and its own existing oil and gas projects were not designed to meet local demand.
In desperation, the government turned to the International Monetary Fund for a bailout. It got one. With the IMF’s support, the World Bank organised a $1-billion loan to develop Sankofa, a new gas field, with the local market in mind. The World Bank noted that this would reduce Ghana’s carbon footprint.
Ghana and its 32-million people are responsible for 0.06% of global emissions.
Sankofa got funding from other groups, like the UK’s export credit agency, to a total of $7.9-billion. This made it the single biggest foreign investment in Ghanaian history. Italian oil company Eni and Dutch-Swiss traders Vitol, who developed Sankofa, said that it meant that “Ghana is able to count on at least 15 years of stable, reliable and affordable gas supplies.”
To sweeten the deal, Ghana promised to pay for the gas produced, even if it did not use it. In its own analysis of the project, the World Bank said this “sovereign guarantee” could be as high as $600-million a year.
A new gas power plant was subsequently built, and an emergency contract was signed with a Turkish company to anchor a power ship offshore, which burnt gas to produce electricity. Despite the World Bank and the other funders publicly committing to tackling the climate crisis, these loans went ahead without any real investment in Ghana’s renewable energy capacity. Renewables still make up less than 10% of the grid.
Today, Ghana’s power grid creates 5,000-megawatts of capacity. But the country only uses 3,000-megawatts. Nonetheless, because of the terms of these loans, the government must pay for the gas that it does not use (much of this extra gas is burned, adding to global carbon emissions).
In 2019 the government said it spent $1.3-billion on power that it did not need. In the years before this, it was spending at least $500-million a year on unused power. The national debt is now at 80% of GDP. Government spends nearly half of all the money it takes in on paying off that debt.
Ghana’s current government, led by President Nana Akufo-Addo, came to power in 2018. It has publicly criticised the energy deals signed by the previous administration. It blamed the state utility, the Electricity Company of Ghana, for giving bad advice. In its 2019 budget, the state said the new power had been bought “at exorbitant prices under flawed [contracts].”
But the country is still on the hook. It has tried to renegotiate the loans. If it does not honour them, it risks defaulting on its debts and suffering even more.
To pay back the debts, it is taking on more debt. One of its proposals is with the World Bank, for a $300-million loan to pay for the energy that it did not use. This ensures that the international investors get their money back, even as Ghanaians live through one of the worst economic crises in living memory.
The national currency, the cedi, is currently the worst-performing currency in the world, while annual inflation hit a 21-year high of 40.4% in October. It has to pay back its loans in dollars.
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