Ghana Power Report 2019/20

Samples

Executive Summary

Ghana’s transition from chronic instability and military rule to become one of Africa’s most stable democracies has been widely celebrated as an example of a maturing polity that has emerged to underpin an economy which encourages foreign investment and can offer the prospect of higher living standards and access to infrastructure (including education, health and electricity) for coming generations.

There is substance to support this interpretation of contemporary Ghana and its attractions to investors. However, without denigrating its many undoubted advances, there are also reasons to question comfortable assumptions about Ghanaian governance, policy implementation and investability. Attractions and downsides are outlined in the following pages of Ghana Power Report 2019/20.

Among key issues are the following:

Political and business risk

•  Judged on a global scale, Ghana’s political risk profile is average by global standards (It is assigned a ‘Country Grade’ of ‘C’ on a scale where ‘A’ is highest and ‘F’ lowest), but it scores well above most of its Sub-Saharan peers.
•  The ‘B’ grade rating for ‘democratic accountability’ and ‘stability and violence’ reflect the way that, in the past two decades, its multi-party system has allowed the peaceful transfer of power several times – despite being hotly contested by the two main parties, the NDC and NPP – while maintaining relatively high levels of press and other freedoms.
•  The authorities’ success in limiting ‘blowback’ from jihadist and other radical groups operating in the wider neighbourhood has fed into perceptions of a low threat of violence, which is consequently reflected in Ghana’s positive political risk rating.
•  For all its good reputation, Ghanaian public and business life are still prone to corruption and other abuses. This is reflected in assigning a ‘governance’ grade of D. Its upward arrow (h) reflects improvements in the judiciary and other key areas. President Nana Addo Dankwa Akufo-Addo has made strides in cleaning up since his New Patriotic Party’s election victory in January 2017, but more is needed.
•  Di is assigned to ‘investment risk’, despite Ghana’s generally positive reputation for implementing the rule of law in contracts. This rating is influenced by a history of contract disputes. The World Bank Group’s 2019 Ease of Doing Business report ranked Ghana 116 out of 190 countries for ‘enforcing contracts’.
•  The next election in December 2020 is expected to be fought on Akufo-Addo’s economic record, which has been marked by a very ambitious policy mix but has been undermined by currency instability.
• Delivering key promises in the coming months will prove critical. Sluggish growth and unsustainable debt cost his predecessor residency in Jubilee House in 2017 after John Dramani Mahama was forced to secure a $918m bailout from the International Monetary Fund (IMF) in 2015.
•  Helpfully for Akufo-Addo and the NPP’s 2020 outlook, the IMF programme concluded in April 2019, leaving behind a significantly reorganised financial sector, returning investor and multilateral confidence, and some improvements in macroeconomic management indicators.
•  However, macroeconomic concerns remain. The IMF has noted a surging debt-to-GDP ratio; Ghana’s debt servicing capabilities are forecast to decline in coming years (despite a forecast of strong GDP growth, albeit tapering off in the 2020s). Key lending rates are at a six-year low, while foreign reserves remain a major concern.   

The electricity supply industry

•  Generation capacity has gone from unfit-for-purpose to a substantial surplus, but the addition of costly emergency plants has placed a further strain on the sector’s finances. Capacity will continue to rise in line with the expected commissioning of a number of major new generation and transmission projects.
•  The pipeline of projects, recorded by the Live Data, bodes well for Ghana’s potential to export substantially more electricity to its neighbours in the West African Power Pool (WAPP).
•  However, gaps in domestic transmission and distribution infrastructure remain an issue. There are a number of programmes in place to address this, but the implementation could be challenging unless projects align with economics in an appropriate framework.
•  Domestic electricity consumption is projected to rise significantly, with policies that should increase energy use by Ghanaian families and businesses, especially if Akufo-Addo’s ambitious industrialisation policy – known as the 1-District-1-Factory (1D1F) initiative – takes off.
•  The contribution of renewable technologies is set to increase in a thermal (and biomass)-dominated energy mix. The February 2019 Renewable Energy Master Plan has set a target to hike renewables’ penetration (not including hydroelectric power) in the national generation mix from a 2015 baseline of only 42.5MW to 1,363.63MW by 2030 when grid-connected systems should total 1,094.63MW.
•  Considerable attention is being paid to off-grid solutions in rural areas and to distributed solutions in the commercial & industrial (C&I) space.
•  While levels of electrification are very high by regional and wider Sub-Saharan standards, many rural areas remain beyond the grid, and other rural and peri-urban areas may require more intensive electrification than the headline access data suggests. The access rate is officially around 84% – the second-highest level in Sub-Saharan Africa – but this may over-estimate the extent of electrification. The government aims to achieve universal access by 2020.
•  Electricity tariffs are not cost-reflective. Efforts from consumer groups to maintain lower prices and of utilities to raise their tariffs place policy-makers and parliamentarians in a conflicted situation in a country where every vote can count. Tariffs are widely expected to be revised downwards in summer 2019 following the relocation of the HFO-fired Karpowership and its conversion to natural gas, but this is far from certain.

Gas and thermal power

•  Ghana has substantial gas availability and reserves from its offshore exploration and production industry. Despite supply outpacing consumption, gas demand is heavily constrained, resulting in poor availability at thermal plants.
•  In the medium-term, rising gas production is expected to outpace increases in demand, with the unconstrained supply gap projected to close by 2022. However, this is based on a number of new projects coming onstream, including the Tano field, which was yet to reach a final investment decision as of April 2019, and new liquefied natural gas import schemes, although supply from Equatorial Guinea was thrown into doubt following Ophir’s loss of its Fortuna licence.

• Abu Dhabi National Energy Company (Taqa)
• African Development Bank
• APR Energy
• Bui Power Authority
• CDC Group
• Cenpower
• China Development Fund
• Electricity Company of Ghana (ECG)
• eleQtra
• Emerging Africa Infrastructure Fund (EAIF)
• Enclave Power Company (EPC)
• Endeavor Energy
• Energy Commission
• FMO
• GE
• Ghana Grid Company (GRIDCo)
• Ghana National Petroleum Corporation (GNPC)
• Ghana Natural Gas Company (Ghana Gas)
• Karadeniz Energy Group
• KfW
• Lekela Power
• Millennium Challenge Corporation (MCC)
• Millennium Development Authority (MiDA)
• Nedbank
• Northern Electricity Distribution Company (Nedco)
• Overseas Private Investment Corporation (Opic)
• Public Utilities Regulatory Commission (PURC)
• Rand Merchant Bank
• Sumitomo Corporation
• Tema Osonor Plant Ltd
• Volta Aluminium Company)
• Volta River Authority (VRA)
• West African Gas Pipeline Company (WAGPCo)
• World Bank