IPPs demand 30% of $1.4bn debt: To keep lights on, Kick against debt restructuring

Even before the government presents a formal proposal to Independent Power Producers (IPPs) on how it intends to restructure a US$1.4 billion debt, in a second round of domestic debt rationalisation, the group of six say any debt restructuring discussion “is off the table”.

Consequently, the IPPs have made a demand for the government to immediately pay 30 per cent of the debt, noting that failure to do so would mean they can’t guarantee power supplies beyond June 30, 2023.

This stand by the IPPs have sparked fears of an impending load shedding exercise, and also threaten government’s objectives of reforming the energy sector under the extended credit facility (ECF) programme with the nternational Monetary Fund (IMF).

Following the approval of Ghana’s IMF programme by the Executive Board in May, the Bretton Woods institution released the first tranche of US$600 million out of the US$3 billion to the country.

A key condition to trigger the additional US$600 million budgetary support which is due in September is for the government to institute measures to reform the Energy Sector, which is reeling under legacy debts totalling US$2 billion as of May 2023 and an estimated debt projection of US$5.9 billion between 2023 and 2025.

It is expected that the structural reforms in the energy sector should reduce the shortfall by at least US$2.95 billion over the period.

As part of the reforms, the government is seeking to also restructure its debt of about US$1.4 billion owed to six Independent Power Producers (IPPS) between January 2022 and March 2023.

The government is, however, faced with some challenges in this regard as the IPPs, who produce about 65 per cent of the country’s thermal power, have from the onset rejected any debt restructuring proposal.

The six IPPs are Karpowership, Sunon Asogli Power Ghana Ltd, CenPower Generation, AKSA, Twin City Energy and Cenit Energy.

No free cash flow

In an interview, the Chief Executive Officer of the IPP’s Chamber, Elikplim Apetorgbor, said the IPPs rejected the debt restructuring proposal on the grounds that they did not have any free cash flows which they could sacrifice to help government in these difficult times.

He said what was owed them were obligations that they have already accrued to their stakeholders, including lenders, creditors and suppliers and there was therefore no way they could go back to them to discuss any form of restructuring with them.

“It is practically impossible for private companies like us. The government has that luxury and privilege of going back to its creditors for debt forgiveness and restructuring but we don’t have that,” he stated.

No proposal from government

Mr Apetorgbor said although the government was yet to make any firm proposal regarding the issues, it had already indicated to government that debt restructuring was off the table.

“We have had some meetings and engagements and nothing has been proposed yet but there is no option for debt restructuring,” he stated.

“We have made a demand on government to pay at least pay 30 per cent of the outstanding debts of about US$1.4 billion as at the end of April to enable us to redeem our repayment pledges to our lenders and suppliers,” he added, stressing that the IPPs have defaulted on their first quarter payments and fear that they would again default on their second quarter payments if government does not make payments on due debts.

“We are open to a payment plan of how our arrears could be settled but debt restructuring is not an option,” he reiterated.

He cautioned that should the government fail in honouring their demands; they cannot stretch themselves beyond 30th June 2023.

PPAs

Power Purchasing Agreements (PPAs) signed between 2013 to 2016 has been cited as a major contributing factor to the country’s current economic woes, as these agreements were signed under a ‘take or pay’ basis.

That meant that the country still had to pay for excess power it did not need, some of which were very expensive as well in terms of pricing; a situation which has prompted calls by the IMF and World Bank on the need for the country to renegotiate some of these PPAs.

Early this month on June 4, the World Bank Country representative in Ghana, Mr Pierre Frank Laporte, criticised the Power Purchasing Agreements (PPAs) signed by the government, stating that they were expensive and burdened the country with paying for unused energy due to “take or pay contracts”.

He pointed out that the mismatch between the production cost of Independent Power Producers (IPPs) and the amount consumers paid for electricity led to a surge in debts, as the government was unable to meet its financial obligations to the IPPs.

Laporte also noted that the country had entered into agreements at unfavourable rates and prices in recent years, which had further impacted the debt situation.

More efficient power plants

Giving his perspective on the ongoing challenges in the energy sector, the Executive Director of the Africa Centre for Energy Policy (ACEP), a civil society organisation in the energy sector, Mr Benjamin Boakye, revealed that although the contracts for some of the power plants which have been described as expensive were coming to an end, the government had no plan to bring in more efficient power plants before the emergency ones run their course.

He said the government has therefore been forced to renew the contracts of some of the emergency plants.

“Instead of bringing in efficient ones that will pass on benefits to the consumer, we are signing on to more expensive power,” he stated, a situation he described as worrying.

He mentioned the torny issues of the reliability associated with aging power plants, adding that as power plants age, their reliability also reduces.

Benjamin questioned why in spite of the aging of these power plants, government has gone ahead to sign 15 years contract with some of these IPPS, saying “you have these old power plants, some of them 20 years and we are still giving them 15 years’ contracts”.

The government recently announced that the Electricity Company of Ghana (ECG) has signed a new PPA with AKSA Energy.

Debt restructuring

In an attempt to reduce its debt to GDP ratio from the current 93.5 per cent to 55 per cent under the IMF programme, the government last year embarked on an exercise to restructure both its domestic and external debts.

The Domestic Debt Exchange Programme which was announced in December last year saw the government swap a total of GH¢82 billion of old bonds for 12 new ones at a reduced coupon rate and longer tenors.

Negotiations for the restructuring of cocoa bills and dollar denominated bonds are also at an advanced stage.

On the external front, the government is targeting an external debt relief of US$10.5 billion between 2023-2026 as it engages its external creditors for debt restructuring. The external creditors include both bilateral and commercial creditors.

The government announced a suspension of debt service on external commercial obligations on December 19, 2022 and has since then been engaging with them on a debt restructuring.It is also seeking to restructure debts totalling $14 billion, out of which $13 billion are in bonds with its external commercial creditors.

Following the formation of the Creditor Committee, the government is also expected to begin debt restructuring negotiations with its bilateral creditors in the coming days in a bid to restructure debts totalling $5.4 billion.

The IMF at the end of its recent visit reiterated that the timely restructuring agreements with creditors were essential to secure the expected benefits of the Fund-supported programme.