Ghana, the West African nation struggling with 24-hour power blackouts, is considering the sale of a stake in its national power distributor as part of an aid program to fund the ailing grid, according to a U.S. government official.
The Ghanaian government will make a decision in the coming weeks over whether to sell a share or introduce a company to operate the Electricity Co. of Ghana under a concession agreement, said Deidra Fair James, resident country director of the U.S. government’s Millennium Challenge Corp., the agency overseeing foreign-aid programs in nations including Ghana.
Ghanaians are battling the worst power cuts in at least eight years as outages weigh on the region’s second-biggest economy. The government cut its 2015 growth forecast for this year to 3.9 percent, the lowest since 1994. Ghana signed its second program with the MCC in August after officials decided to ask for aid for the electricity sector. An earlier deal funded infrastructure including a highway in the capital, Accra.
“The government in the compact agreed to a partial privatization -- a percentage of shares yet to be determined -- or a concession,” James said in an interview at the U.S. Embassy on April 24. “Unless you have an efficient and operationally, financially sound distribution company, the rest of the chain is not going to work.”
A feasibility study as part of the compact’s preparation showed that the power company known as ECG will require $800 million investment in the distribution network, she said.
Once the government decides whether to sell a stake or appoint an operator, it will open bids for a partner in the second half of the year, James said. That should lead either to the selection of an investor or a concessionaire within 18 months to two years from now, she said.
For meeting the requirements, Ghana will receive financial support worth $498.2 million over five years from the U.S., according to the compact document, a copy of which is published on the website of the Ghanaian department managing the funds. It includes a provision barring Ghana from allowing ECG or its counterpart in the north “to enter into any financial arrangements that MCC reasonably determines would have a material adverse effect” on the utilities.
Three calls made to Power Minister Kwabena Donkor didn’t connect on Tuesday, while another three on Wednesday didn’t go through. His deputy, John Abdulai Jinapor, said he couldn’t immediately comment when contacted on his mobile phone on Tuesday and didn’t answer two calls on Wednesday.
President John Dramani Mahama said on Feb. 26 the MCC is a chance to restructure ECG as the country seeks to add more than 3,500 megawatts to the national grid over five years. The country has no intention of selling ECG and is looking for private companies to invest in power and improve efficiency, Mahama said on April 17, according to broadcaster Citi FM.
In February, ECG released a guide to the power cuts showing neighborhoods may have blackouts lasting as long as 24 hours, depending on how much electricity is available. The blackouts constrained businesses already facing Africa’s worst-performing currency against the dollar in 2015. The cedi dropped 17 percent since January and traded 0.1 percent weaker at 3.8550 per dollar by 2:09 p.m in Accra on Wednesday.
If Ghana opts for a concessionaire, the government will remain the sole shareholder in ECG, James said. A private company will be brought in to manage the assets and operate ECG for about 20 years, she said. The concessionaire may pay a fee to government during the period, she said.
Ghana will spend $339 million of the compact amount to upgrade equipment at ECG and help reduce losses, James said. The company is unable to collect about 30 percent of its revenue because of unpaid accounts, technical problems and “commercial” losses, she said.