Govt and Cenpower agree Gas Supply Agreement to Secure Cost Savings of up to $3.0 billion

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The Ministry of Finance has said that Cenpower has agreed to switch to natural gas as primary fuel, committing itself to using Ghana’s
abundant natural resources.

A statement ny the Ministry said the conversion to natural gas by Cenpower, which will provide cost savings of approximately $3.0
billion, demonstrates significant momentum in this administration’s implementation of the Energy
Sector Recovery Programme (ESRP).

Government of Ghana calls on all Independent Power Producers to emulate Cenpower and CENIT
in advancing solutions to ensure the long term sustainability of the energy sector.

Below is the full statement…

This week, Cenpower Generation Company Limited (Cenpower) has committed to switching its
primary fuel from light crude oil (LCO) to natural gas and signed a gas supply agreement (GSA) with
the Ghana National Petroleum Corporation (GNPC). Gas operations are expected to begin by the end
of this week.

Government welcomes this significant milestone and commitment from Cenpower. The GSA is a key
part of the proposal put forward by Government during negotiations with Cenpower and will deliver
substantial cost savings, estimated at $3.0 billion over the remaining term of the Cenpower PPA.

Furthermore, conversion to natural gas will have important environmental benefits, as emissions will
be lowered and Ghana’s abundant natural gas resources effectively utilised for the benefit of the
Ghanaian people and business community. Additionally, the move to natural gas will alleviate the
considerable pressure on Government from its take-or-pay commitments with fuel suppliers and allow
for the substitution of imported fuels with locally available natural gas, thus positively impacting the
capital account.

Cenpower is a major power producer in Ghana, providing approximately 10% of Ghana’s total
electricity generation. This project is an excellent example of the public and private sectors working
together in Ghana to attract private investment while ensuring sustainable development.

Presently, Ghana pays over US$500 million a year for unused electricity. Most of the power PPAs are
legacy agreements, entered into under the previous administration in an uncoordinated and short-sighted
attempt to end dumsor. The tariffs agreed were not competitive and have contributed significantly to
the build-up of debt in the sector and oversupply of energy.

This Government, in collaboration with the World Bank, established the Energy Sector Recovery
Programme (ESRP), identifying the policies and actions needed for financial recovery in the energy
sector over a five-year horizon (2019-2023). As part of these reforms, Government is taking steps to
institute competitive bidding for future additional capacity, so as to ensure that future tariffs are fair and
in line with expected pricing benchmarks.

Government has demonstrated its commitment to the ESRP by actively developing whole-of-sector
initiatives and reforms, including implementation of the Cash Waterfall Mechanism (CWM) in April
2020, which allows tariff revenues of the Electricity Company of Ghana (ECG) to be distributed in a
more transparent manner. As well, Government is managing payment of energy sector arrears, despite
the challenging fiscal situation, which has been exacerbated by the COVID-19 pandemic.

The Government negotiating team, established under the Energy Sector Recovery Task Force (ESRTF),
which is helmed by the Senior Minister, is working bilaterally with independent power producers (IPPs)
and gas suppliers (GSs) under the ESRP Consultation Process, to secure more favourable agreements
for both parties and achieve a balanced energy sector capable of delivering fair, long-term energy
partnerships and solutions. Government has undertaken these discussions in good faith and urges all
IPPs to continue working closely with the Government negotiating team to conclude negotiations as
soon as possible. In September, Government successfully secured terms for an amended PPA with
CENIT Power Limited.

By Laud Business.com|Ghana

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