- VRA ready to do job but NAPO says no way; opts for controversial Greek company
The Africa Centre for Energy Policy (ACEP) has detected some financial anomalies in government’s decision to enter into a sole-sourced agreement with Mytilineos Holdings to transport and operate the Ameri-powered plant from Aboadze in the Western Region to Kumasi in the Ashanti Region, saying the contract sum has been inflated by some 10 million United States dollars.
The Energy think tank, disclosed seeing documents in which the Energy Minister, Matthew Opoku Prempeh quotes US$35.6 million as the cost of the relocation in a December 17, 2021 letter to Volta River Authority (VRA), although the Greek company, had in a proposal put before the ministry demanded $25.48 million for the same job.
ACEP, asked that “Cabinet and Parliament should assume critical responsibility for the efficient planning of the sector. Government should be transparent about plans to renegotiate power plants” especially so when VRA management and staff insist, they are in a position to do the said job and has written to the Energy Minister to that effect but had been ignored.
“The Minister quotes $35.6 million as the cost of the relocation in his 17th December 2021 letter to VRA. However, ACEP has sighted the original proposal from Mytilineos SA dated 22nd March 2021 to the Ministry, quoting $25.48 million for the same. Instead of negotiating the proposal of the sole-sourced offer downwards, the contract cost has instead increased by 40 percent”.
ACEP argues that “it is unclear what accounts for such a quantum leap from the proposal amount by Mytilineos SA. This does not even question the $25.48 million proposed by Mytilineos SA as the true cost of the relocation of the plant, analysis of which will be concluded after receipt of all documents requested under the Right To Information (RTI) from the Minister, the Attorney General’s Office and the Public Procurement Authority (PPA)”.
The think tank, revealed that “the Attorney General’s Office and the PPA are yet to respond to the requests even though the timeframe stipulated by the RTI has elapsed. Additionally, the Information Officer of the Ministry of Energy did not provide the necessary information in ACEP’s initial request for a breakdown of the total cost of the relocation of the plant, which interestingly was missing from the proposal from Mytilineos SA. This has necessitated an appeal to the Minister as Head of Entity to provide the required information.
ACEP’s Policy Lead, Petroleum and Conventional Energy, Kojo Yaotse at a press briefing yesterday, insisted that the agreement has been padded by several millions of cedis, adding the deal with Greek company, which ended Boakye Agyarko’s tenure as Energy Minister in Akufo-Addo’s first term, is not financially sound and doesn’t favour the country.
He questioned why “the Ministry has been in charge of the contract negotiations since March 2021, adding “the proposal for the EPC Contract by Mytilineos SA sighted by ACEP was addressed to the Ministry of Energy, which engaged in negotiations with the company. The Minister confirms the leadership of the Ministry on the negotiations in his 17th December 2021 letter to VRA when he states: “Reference is made to ongoing negotiations between the Ministry of Energy and Mytilineos SA for the relocation for the 250MW Ameri power plant from Aboadze to Anwomaso.”
“The above contrasts with the position of the Minister when he appeared before Parliament on 1st July 2022 and stated that VRA has been leading the contract negotiations. It is also important to note that these negotiations predate the transfer of title to the plant, which, perhaps, explains why the Ministry was in a hurry to novate the terms of Section 26 of the BOOT Agreement to Mytilineos SA. This raises the important question about why the Ministry of Energy is leading the negotiations on the contract when the Deed of Assignment dated 17th August 2016 transfers and assigns GoG’s rights under the BOOT Agreement to VRA, essentially making VRA the post-agreement owner of the plant. Interestingly, in his 17th December 2021 letter to VRA, the Minister unilaterally postpones the period of ownership and control of the plant by VRA to the end of the new deal with Mytilineos SA”.
“The Ministry of Energy has advanced negotiations with Mytilineos SA to relocate and install the AMERI plant from Aboadze to Kumasi with a firmed contract price of $35.6 million. The contract also grants the Operation and Maintenance (O&M) to Mytilineos SA for three years at the cost of $36 million, bringing the total cost of the relocation and maintenance of the plant to $71.6 million barring any unforeseen upward adjustments. ACEP is emphatic on the contract costs even though the Ministry denies it is conclusive.
The following events affirm ACEP’s conviction on the contract cost: The Ministry has received PPA approval to sole source the EPC contract to Mytilineos AS, the Ministry confirmed to Parliament on 15th June 2022 that it had received a legal opinion from the Attorney General’s Office on the EPC contract to Mytilineos AS. Again, in a 17th December 2021 letter, the Ministry requested support to establish payment security in the form of an irrevocable Standby Letter of Credit (SBLC) of $30 million from VRA to secure the commitment of Mytilineos SA for both the EPC and O&M”.
According to ACEP, the decision to entrust the O&M activities to Mytilineos SA instead of VRA is not in the best interest of VRA and the Nation because “VRA has the capacity to operate the single cycle Ameri plant, having operated combined cycle plants since the 1990s. Additionally, Section 8(h) of the BOOT Agreement mandated Ameri to provide onsite practical training to designated officers six months to the expiration of the agreement. The BOOT Agreement also envisages the capacity to monitor the plant’s operations throughout the agreement’s life through a biannual inspection of maintenance records kept by AMERI. Beyond these contractual arrangements, ACEP is aware that VRA staff were attached to the operations team to manage the plant”.
“The capacity of VRA is captured much more graphically in a 1st February 2022 letter from the Senior Staff Association (SSA) of VRA appealing to the Minister of Energy to allow VRA to operate the plant in the national interest.
They had said that “VRA has the requisite capacity and technical-know-how (knowledge, skill mix, experience, etc.) in hydro, thermal (heavy duty and aero derivative) and solar power generation and can effectively and efficiently undertake the O&M activities of the plant without any challenges. It is only expedient that VRA is allowed to undertake the O&M activities.
“VRA undertaking the O&M activities would lead to lower cost of power (lower tariff) to consumers since VRA’s cost of generation is generally lower than that of the IPPs.
“VRA undertaking the Operation and Maintenance activities will lead to creation of employment opportunities for Ghanaians instead of the opportunity being given to foreigners (Mytilineos SA).
“If VRA undertakes the O&M activities, any value from it would be for the benefit of Ghanaians and not foreigners (Mytilineos SA). Mytilineos SA is likely to repatriate the money received to their home country and this would have a negative impact on Ghana’s exchange rate performance.
“VRA undertaking the O&M activities would lead to the Authority recovering some of the losses (US$11.28 million per month) incurred under the five-year Ameri deal.
“VRA undertaking the O&M activities would result in GOG/VRA not paying penalties for O&M delayed payment, reduction in SBLC and any associated fees and charges as well as the avoidance of the exchange losses associated with the O&M payments.
But, ACEP has identified that under the Operation and Maintenance (O&M) Cost Post Relocation, in Mr. Opoku Prempeh’s “17th December 2021 letter to VRA, Mytilineos SA is sole sourced to operate and maintain the plant for three years at the cost of $1 million per month. According to the Minister in Parliament on 1st July 2022, out of the 42 staff to run the plant, VRA will have to provide 40 staff to support the operations. This is an admission that VRA has the capacity to manage the plant as it is practically impossible for the two personnel from Mytilineos SA to be available 24/7 to operate the plant. It then raises the fundamental question of the precise role of the two personnel from Mytilineos SA to warrant the payment of $1 million every month for three years”.
The think tank insisted that “the justification for the decision to sole source the EPC and the O&M Contracts to Mytilineos SA, as communicated to Parliament by the Minister of Energy, is that Mytilineos SA has been the operator of the plant since inception and is thus best suited to deliver the contract. It is important to note that long service is not part of the exceptional cases per the PPA Act to warrant sole sourcing. Furthermore, Mytilineos SA is not the only company with the capacity to relocate trailer-loaded aero-derivative turbines. There are local companies that can deliver the EPC for Ghana”.
“It gets even more curious to note that the same Mytilineos SA attempted to take over the Ameri contract in the botched novation agreement in 2018. In the proposed novation, ACEP found that the contract was significantly overpriced. The President agreed to that position by indicating that he was misled to issue the executive approval for the contract. How this same company has survived the botched novation to reappear with another cost-dynamic sole-sourced contract is a question to which the Ministry has to provide convincing answers”.
The power sector, it noted “has significant financial, technical, and managerial challenges. These challenges are worsening over time and manifesting in unsustainable debt accumulation. In 2020 and 2021, the government shouldered total under-recoveries from the sector to over GHS 14 billion (GHS 6.8 billion in 2020, and the cedi equivalent of $1.257 billion in 2021). In addition, the sector’s outstanding payments for gas and IPPs are in excess of $1.2 billion for the first half of 2022”.
“The proposed relocation and O&M cost $71.6 million for three years to be recovered from the already anaemic Cash Waterfall Mechanism (CWM). Additionally, the gas infrastructure and discounts on the commodity cost to support the relocation would require about $50 million cumulatively per year. At the same time, the transmission infrastructure requires urgent investment, particularly upgrading the Western Corridor Transmission Lines and the 330KV Pokuase-Anwomaso Transmission Line, which are more critical infrastructures to facilitate the stable transmission of power to the middle belt of the country.
“ACEP agrees that the power system will need some power generation dotted across the country in the medium to long term. However, given the current debt situation and the multiplicity of the challenges in the sector, more optimal planning should prioritize efficiency, effectiveness, and economy for power delivery. Strengthening the transmission system to coincide with a stable power supply for the middle belt from the Bui Dam is more urgent. This would require converting the Bui Dam from a peaking plant to an operationally possible baseload supply plant to support the NITS. If, for any reason, this recommendation is not an option for the Ministry, which appears to be the case for the past two years, the worst they can do is to ensure that the relocation and contracting processes are done in the most transparent and competitive manner. The current processes have no semblance of that transparency required to generate the most optimal cost. The O&M being sole sourced to Mytilineos SA is just an unnecessary cost addition in the face of the fact that VRA has the capacity to manage the plant.
“Based on the foregoing, we recommend the following: The Ministry of Energy must immediately subject the EPC contracting process to competitive bidding that accommodates local contractors to achieve the most optimal contract cost.
Under no circumstance should the operations and maintenance of the plant be outsourced to any contractor. VRA must own and operate the plant per the Deed of Assignment dated 17th August 2016 for which they were trained by AMERI.
“We maintain that in a cash-strapped power sector, prioritizing the retooling of the NITS is a far optimal option than the attempts to relocate plants and its attendant unnecessary cost additions. ACEP, has under the RTI written Energy Ministry requesting for the following items on the transaction.
They include;
i) A copy of the EPC Contract on the Relocation of the Ameri Power Plant.
ii) A copy of the Public Procurement Authority (PPA) approval for the contract and all correspondences with the PPA on the relocation of the Ameri Power Plant.
iii) A breakdown of the total cost of the relocation of the Ameri Power Plant.
iv) A copy of the request for proposals and notice of request for proposals (if any) for the relocation of the Ameri Power Plant.
v) A copy of the tender evaluation report on the selection of the contractor, showing names and details of all the companies which bid for the EPC Contract on the relocation of the Ameri Power Plant.
vi) Confirmation of whether or not it is the same Mytilineos SA company that was engaged in the attempted novation of the Ameri Power Plant in 2018.
vii) Copies of all other documents related to EPC Contract on the relocation of the Ameri Power Plant.
