Last week’s order, by a London commercial court that Ghana pay some US$170 million as judgment debt awarded against the government by independent power producer, Ghana Power Generation Company for early termination of a contract awarded it, is not a new phenomenon; judgment debts have become a regular expense for the Ghanaian State. However, the fierce controversy between officials of the President Nana Akufo Addo administration and officials of its predecessor, the John Mahama administration, is setting the grounds for an ugly dispute which could likely end up in local law courts.
The London commercial court’s ruling follows Ghana’s efforts to appeal a judgment made in January by the United Nations Commission on International Trade Law (UNCITRAL) Tribunal, which awarded GPGC US$134 million.
Immediately following the announcement of the judgment debt award, Ghana’s Minister for Justice and Attorney General, Godfried Dame accused officials of the Mahama administration of causing financial loss to the state, insisting they have “questions to answer” relating to the structure of the contract. Subsequently some of those officials have fired back, accusing the incumbent government of “political posturing’ to cover up for “incompetence” in addressing issues relating to both the contract itself and the resultant legal wrangling
The contract was awarded by the Mahama administration while in office but was annulled by the incumbent President Nana Akufo Addo administration upon assumption of office, on the real grounds that the power generation capacity it was to provide was not needed, although with the excuse that GPGC had not proceeded to execute the contract on schedule. Indeed, the incumbent government decided that under the circumstances it would be cheaper to pay a bill for contract cancellation than pay for power not used under the ‘take or pay’ clause contained in the contract.
The contract was one of several awarded by the immediate past administration in an attempt to bridge a debilitating energy shortfall which adversely affected the country’s economy between 2012 and 2016, causing power outages and load shedding. To build up generation capacity quickly the then government resorted to several desperate – and expensive – initiatives, including offering ‘take or pay’ contracts to independent power producers willing to establish power generation plants on the agreement that government would pay for their installed capacity whether it was used or not. However, it apparently got its calculations wrong and gave such contracts well in excess of the needed generation capacity leaving government to pay for lots of power not needed or used.
In February 2015, the government entered into negotiations with GPGC to provide a fast-track power-generation solution involving the relocation of two existing gas turbine combined-cycle power plants from Italy to Ghana. The power plants were to provide the country with an emergency power supply of up to 107 megawatts (“MW”) for four years
The contract was signed June 3, 2015, and endorsed by Parliament on July 23, 2015. By November 2016, the plants were shipped to Ghana after an inspection by Francis Dzata, the then technical advisor to the Minister of Power, Dr Kwabena Donkor.
However, a year after the signatures, the government set up a committee to review its power purchase agreements including that of the GPGC.
Although there was a change in government in 2017, the committee, chaired by the then Executive Secretary of the Energy Commission, Dr. Alfred Kwabena Ofosu-Ahenkora, continued its work and submitted its report in April 2017.
“In November 2017, the Minister of Energy reported to Parliament that the PPA Committee Report had recommended that four PPAs with a combined capacity of 1,810MW be deferred until 2018-2025, three PPAs with a combined capacity of 1,150MW be deferred beyond 2025 and 11 PPAs with a combined capacity of 2,808MW, among them the GPGC EPA [energy purchase agreement], be terminated,” the tribunal documents said.
The Energy Minister, Boakye Agyarko, told Parliament that: “… the Government stands to make significant savings from the deferment and/or termination of the reviewed PPAs. The estimated cost for the terminations is USD 402.39 million, compared to an average annual capacity cost of USD 586 million each year or a cumulative cost of USD 7.619 billion from 2018 to 2030.”
According to the tribunal’s documents, in an analysis of the GPGC contract, the Ahenkora Committee concluded that “… the Committee set forth for consideration the option of termination of the EPA [GPGC] at an estimated cost of US$ 18 million rather than the payment of an excess capacity charge of US$ 24.9 million per annum over the contract period of 4 years.”
It further reasoned that despite the high cost of its operation, the plant was likely to be idle.
“The likelihood of the plant being idle is further heightened by the fact that it is a pure natural gas-fired turbine to be located in Tema where there is inadequate gas to feed it.
“There is, therefore, a high probability of the plant remaining idle even if allowed to proceed. The actual development cost of the project to date should be verified and used as a guide in negotiations for termination,” the Ahenkorah Committee said.
However, it did not immediately terminate the contract. There were several engagements with the GPGC, including siting of the power plant, which was moved from Aboadze in the Western Region to Kpone in the Greater Accra Region.
It was on February 18, 2018, that the Ministry of Energy axed the GPGC deal, alleging that the company failed to fulfil its obligations.
The decision was based on the Attorney-General’s recommendation in a letter dated August 28, 2017. The A-G also had instructions from a Cabinet memo dated June 20, 2017, the tribunal’s documents revealed.
In its letter to the power producer, the ministry said “…. [EPA] was executed during the power crises as an emergency power project. The term of the agreement commences from the signature date until forty-eight (48) days after the full commercial operation date.
It continued, “In accordance with the terms and conditions of the agreement, the agreement should have become effective on 3rd August 2015 except the parties mutually extend the period for the fulfilment of the conditions precedent to the effectiveness of the agreement.
“Following a review of the agreement and of the project, we note that the parties have not mutually extended the period for the fulfilment of the conditions precedent,” the ministry’s termination letter to the company said in full.
To be sure though, neither the Mahama administration nor the Akufo-Addo administration acted in good faith in its dealings with GPGC a fact noted by the Tribunal. Indeed, both administrations put hurdles in the company’s way – for instance failing to issue it with requisite operating license and construction permits in timely fashion as initially agreed – only to turn round and accuse the company of not performing its contractual obligations on schedule as a reason for terminating the contract.
The real reason though was simply financial. Government was led to believe by its expert officials that it would only incur a US$18 million early contract termination bill, which was far cheaper than paying some US$24.9 million a year over four years – totaling US$99;6 million – for power it would most likely not even use.
However, largely due to its failure to focus on defending itself against GPGC ‘s judgment debt petition, it ended up incurring an initial US$134 million judgment in January which has since spiraled to nearly US$170 million following the failed attempt to appeal against the initial judgment.
The commercial court’s awards in favour of GPGC include US$69.36 million as compensation for early termination (the plaintiff claimed it had begun procurement of equipment and onsite activities); US$58.49 million for mobilization costs; US$6.46 million as demobilization cost; US$132,448 as preservation and maintenance costs; US$614,353.86 as cost of the Tribunal; and US$3million as GPGC ‘s legal costs.
Government officials are now pointing fingers at their predecessors in office for putting the state in a position where it was sure to lose money no matter the course of action taken.
However public policy commentators are already questioning why government took a nonchalant approach to contesting the claim from GPGC if indeed those were the clear-cut circumstances.
Indeed, following the initial ruling against Ghana by the United Nations Commission on International Trade Law (UNCITRAL) Tribunal in London on January 26 this year, government did not file a notice of appeal until three days until the expiration of the 28 days allowed it for doing so under British law which is applicable in this case.
When it eventually did so through a British law firm, it was at a London commercial court which it asked for 56 days to file its appeal, which is twice the usual time allowed.
The commercial court granted an extension (although not nearly as long as the one requested by Ghana) but then failed to submit the appeal until April 1, well after the extension had expired on March 8. The law firm claimed it had not been given instructions to appeal until March 15.
The court, on June 8, subsequently upheld the Tribunal’s ruling against Ghana insisting that its appeal had come too late and asserting that the excuses offered by Ghana – that the Minister of Justice and Attorney General was not sworn in until March 5 – was unreasonable and that its case was “intrinsically weak.”
All this gives both major political parties grounds to accuse each other; the incumbent insists its predecessor took Ghana into a bad contract and the predecessor now accuses the incumbents of costing the country by terminating the contract and failing to defend its decision in court.