Terminating GPGC contract didn’t make sense – Kwabena Donkor on $140m judgement debt

A former Power Minister under the John Mahama administration, Dr. Kwabena Donkor, has stated that the decision by government to terminate the Ghana Power Generating Company (GPGC) contract, leading to a judgement debt of $140 million “made no sense commercially and legally” at the time.

The Pru East MP, wants parliament to probe the former Energy Minister, Boakye Agyarko and other officials of the current government who took the decision, insisting the reasons given for the termination are untenable.

Trafigura, the majority owner of the power company GPGC, secured the award in January 2021 after an arbitral tribunal in London found that Ghana had unlawfully terminated a contract for the installation and operation of two power plants.

As a result, the Ghana High Commission building in the UK which provides visa and other services, the commissioner’s residence, the Ghana International Bank building, and other properties are at risk of being auctioned to defray a $140 million judgment debt awarded to Singaporean firm Trafigura.

The government says the Finance Ministry has taken steps to liquidate the debt, but Ghana’s High Commissioner to the United Kingdom, Papa Owusu Ankomah, believes the financial constraints of the government are to blame for the default in the payment agreed with the judgement creditors.

Upon the advice of the Attorney General in 2017, the government terminated the deal on grounds that due to its attendant high tariffs, if implemented, it would have cost the state $115,480,000.

It also cited illegality for want of capacity of [GPGC] to enter into a PPA, failure to obtain siting and construction permits, installation of used plant contrary to policy, and failure on the part of GPGC to fulfil some conditions among others.

But the former Power Minister said of all the PPAs signed in 2016, the GPGC was the cheapest and had the shortest life span of four years.

Speaking on PM Express on Tuesday, October 24, he also argued that the failure of the government to negotiate the termination and opt for reasonable options is to blame for the situation at hand.

“It was very avoidable as I have always said. Let me quickly say this. This was the cheapest of all the emergency power plants in terms of cost. It was also the shortest because it was for four years. There was no requirement for the government of Ghana to put down a guarantee, and then again the total capacity charge made of capital recovery, fixed ONM, and non-fuel variable ONM came to 4 cents per kilowatt hour. It was the cheapest at the time of all the emergency power plants we brought in, and so it couldn’t have been on the basis of cost.”

Dr Kwabena Donkor also explained that the government’s claim that GPGC failed to obtain siting and construction permits, was neither here nor there since that responsibility was partly on the state as stated in the PPA.

“Every contract, at least power contracts, contain conditions for termination. My worry at the time and I raised the alarm, was that the letter signed by the then Energy Minister Boakye Agyarko, stated that Trafigura or the Ghana Power Generating Company [GPGC] which was the subsidiary we had signed the contract with, had not obtained all the necessary Energy Commission permits.

“In the Power Purchase Agreement, one of the obligations of the government of Ghana was to assist the contractor obtain all relevant government of Ghana permits. And so if we turn around to use that as the basis for termination it creates a problem for all of us.”

While admitting that the government reserved the right to terminate any agreement it wanted, he said the state failed to follow due process in terminating the contract.

Let me concede that the government of the day can decide to terminate any contract, but there are consequences for termination. And in all agreements, there are conditions and processes for termination, and so if you do not follow the processes and conditions, particularly if the termination is not justified as ruled by the arbitration panel, then we are in trouble, and this is exactly what has happened” he insisted.

If we had negotiated the termination, we could have even taken ownership of the equipment. Unfortunately, even after the court had ruled, we went to sleep. Trafigura is still doing business in Ghana, and therefore we had some leverage at least in negotiating a payment plan, but all the way from 2021 we went to sleep.”

They [Government] could have staggered when it came online. They did the same for Amandi and Jacobson, so there were options to stagger if they thought we had excess capacity. Okay, come online in year three instead of year one, but that was not also done.

According to him, “the reason given in the letter of termination couldn’t have been the reason. Probably there were some other reasons that we didn’t know. In terms of the official reasons given in the letter of termination, it wasn’t tenable. And we advised at that time, it wasn’t just me. Others including IMANI also advised. There is also the importance of process in governance. Yes, you might have all the power and think you can do whatever you want, but there is the process, and we didn’t also go by the process” he noted.

Dr. Kwabena Donkor also rubbished the government’s argument that the plants were used, insisting that information was not hidden. He also argued that the GPGC plant was not the only used plant the country had secured.
“Yes, it is used equipment and it was known at that time. It was not the only used equipment that was brought in. The AKSA plant was also used, it wasn’t new. And so, for AKSA we signed a 5-year agreement, and the government has found it necessary to extend this agreement for another 10 years, so the question of the equipment being used is neither here nor there.”

The legislator wants those responsible for the termination to answer critical questions.

“I believe the Ghanaian state should ask the people who took the decision to terminate to tell us why they terminated. I believe that is the route to use if we have to improve our governance. Those who were responsible would have to tell us why they took that decision because commercially, and legally it doesn’t make sense.”

Even from an energy perspective, you don’t terminate the cheapest emergency plant you have. And then if you say it was an old plant, we knew it. AKSA was also an old plant, we signed for five years as an emergency plant, but this government has gone ahead to extend it for a further ten years. And so if you add all these, we find it extremely difficult to justify. Maybe Hon. Boakye Agyarko who signed the letter may be able to tell us what some of us don’t know” he added.

I believe parliament is the best institution to do that because the decision to terminate was taken by the executive arm, and so you cannot ask the executive arm to investigate it. Ghanaians must know why, we have the right to know “he noted.

Source: Ghana News