- The concession allowed private sector participation (PSP) in the management of the ECG.
It started with a suspension in July this year, but after many legs of investigations and fact-finding missions, the government has declared its intention to terminate the concession agreement it signed with Power Distribution Services (PDS) to manage the assets of the Electricity Company of Ghana (ECG).
The intention was reached after extensive internal consultations within government circles and with stakeholders and after careful legal reviews of issues surrounding the validity of demand guarantees and their implications on the concession agreement.
The government has already sent a Letter of Intent to the Millennium Challenge Corporation (MCC), an agency of the United States of America (USA), under whose power compact with the government private sector participation in the country’s power distribution sector has been occasioned.
“The actual details of the purported insurance cover for the transaction furnished by PDS disclose further gross deception and unprofessional conduct on the part of PDS. Whereas Al Koot was produced by PDS as the primary insurer, the reality of the scheme deployed by PDS in the procurement of the invalid demand guarantees suggests that Al Koot was only put forward by PDS as a ‘front’, with the actual obligation retroceded to a number of unknown and obscure insurance firms from unfamiliar jurisdictions around the world,” the letter from the government to the MCC stated.
It was dated last Friday, October 18, 2019, signed by the Minister of Finance, Mr Ken Ofori Atta, and addressed to the Chief Executive Officer (CEO) of the MCC in Washington, DC, Mr Sean Cairncross.
“This, at best, betrayed a trivialisation of or a lack of appreciation by PDS of the seriousness of the transaction, in which about three billion United States dollars ($3bn) of the assets of Ghana were at stake,” it stated.
According to the government, the intended termination of the concession agreement to pave the way for a restructured and reorganised arrangement was because demand guarantees provided by PDS as a condition precedent to taking over the assets of the ECG were not valid.
A source familiar with the transaction, who is not authorised to speak on the matter, told the Daily Graphic that the government had to inform the MCC about its intention because it was the funding agency under the power compact.
A key provision in the power compact is private sector participation in the power distribution sector, which the PDS concession agreement satisfied and its suspension can equally occasion the cancellation of the almost $500 million compact to revamp the country’s power generation and distribution sector.
The source said the government would officially notify PDS about its intention before the close of the week and issue a press statement in due course.
The concession allowed private sector participation (PSP) in the management of the ECG.
This was to make the utility provider more efficient in order for Ghana to access $498 million from the USA government for its power sector under the US Millennium Challenge Compact II (MCC II), popularly known as the power compact.
The MCC II is aimed at transforming the ECG in terms of technology and efficiency in power distribution to become a stronger company able to meet national needs.
It was signed between the MCC, acting on behalf of the USA government, and the government of Ghana on August 4, 2014.
Mr Ofori-Atta, in the letter, said investigations revealed that the demand guarantees presented by PDS which were purportedly issued by a Qatari insurance company known as Al Koot were a sham.
According to him, investigations showed that the said demand guarantees were not approved by the authorised staff of Al Koot, neither did the insurance firm even have the mandate to issue such guarantees.
In view of that, the letter said, PDS had failed to provide a payment security, which was a condition precedent for the concession agreement, which was made up of the Lease and Assignment Agreement (LAA), the Bulk Supply Agreement (BSA) signed between the ECG and PDS, and the Government Support Agreement (GSA) signed between the government and PDS.
“In light of all of the above, the position of PDS as a PSP in the private sector enterprise which constitutes the driving factor for the compact has become untenable.
“It is our respectful view that the government of the United States of America should be seriously concerned about the lack of security for a transaction involving the commitment of funds of the American people as colossal as the amounts in question, as well as the general unethical and unprofessional conduct of PDS.
“The ECG and the Government of Ghana have no option but to terminate the LAA and BSA, as well as the GSA, respectively dated 3rd July, 2018,” it said.
In spite of the intended termination of the PDS deal, Mr Ofori-Atta said, the government was committed to the successful completion of the power compact agreement between Ghana and the USA.
“As such, the Government of Ghana remains fervently dedicated to the ECG PSP transaction and fully intends to conclude the PSP transaction within the remaining term of the Compact II programme.
“While recognising the prerogative of the MCC in the determination of a particular procurement method in the selection of a PSP, in view of the limited time (approximately two years) until the expiration of the Compact II programme, Ghana hereby recommends the adoption by the MCC/Millennium Development Authority (MiDA) of a restricted tender process to replace PDS.
“This restricted tender process shall be undertaken timeously by fast-tracking some of the processes, without compromising the integrity and transparency of the procurement processes,” the letter added.
The source explained that the restricted tender could consider pre-qualified applications which were not picked for the initial concession agreement.
PDS was formed by a group of companies to manage the operations of the ECG under a concession arrangement.
Meralco of The Philippines was selected as the lead concessionaire after an international tender process.
In order to satisfy the local content requirement under the transaction, a special purpose vehicle, PDS, was incorporated in Ghana to be the concessionaire operator.
The shareholding structure of PDS includes Meralco (30 per cent), AEnergia S.A from Angola (19 per cent) and GTS Engineering Services of Ghana, Santa Baron Ventures of Ghana and TG Energy of Ghana, which together control the remaining 51 per cent.