Executive
Officer
of
the
Independent
Power
Generators,
Ghana
(IPGG)
Dr
Elikplim
Kwabla
Apetorgbor
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In
a
recent
press
conference
at
the
Ministry
of
Finance,
the
Finance
Minister,
Hon.
Amin
Adams,
suggested
that
revenue
recognition
and
arrears
owed
to
Independent
Power
Producers
(IPPs)
under
Power
Purchase
Agreements
(PPAs)
are
realized
solely
through
the
monthly
invoices
received
and
paid
by
the
Electricity
Company
of
Ghana
(ECG).
This
assertion
oversimplifies
the
complexities
of
accounting
in
the
power
sector,
especially
with
the
involvement
of
IPPs.
Proper
accounting
for
power,
particularly
in
the
context
of
Power
Purchase
Agreements,
is
governed
by
every
clause
within
these
agreements.
As
stewards
of
shareholder
interests,
it
is
crucial
to
comprehensively
account
for
every
financial
obligation.
This
publication
critiques
the
Finance
Minister’s
claims,
highlights
the
intricacies
of
PPA-related
financial
liabilities,
calls
for
prudence
and
full
disclosure
to
provide
a
transparent
picture
of
the
sector’s
financial
state.
The
Multifaceted
Nature
of
Power
Purchase
Agreement-Driven
Financial
Liabilities
Power
Purchase
Agreements
are
intricate
legal
and
a
risk
sharing
documents
outlining
the
terms
and
conditions
under
which
power
is
produced
and
sold
to
utilities
like
the
Electricity
Company
of
Ghana.
These
agreements
are
under
pass-through
cost
mechanism
which
encompass
various
financial
obligations
beyond
the
monthly
invoices
for
electricity
supplied
by
the
Independent
Power
Generators.
Key
clauses
in
the
PPAs
that
result
in
financial
liabilities
include:
-
Changes
in
Law:
PPAs
often
contain
provisions
allowing
IPPs
to
pass
on
increased
costs
due
to
changes
in
law,
such
as
new
taxes
or
levies
–
Growth
and
Sustainability
Levy,
Emissions
Levy,
Energy
Commission’s
Variable
Charge,
etcetera.
These
additional
costs
form
part
of
the
increased
costs
clearly
defined
in
the
PPAs
and
must
be
passed-on
through
the
tariff
to
ECG,
impacting
the
overall
financial
obligation.
The
Ministry
of
Finance
managers
falls
short
of
these
industry
basics;
-
Fuel
Price
Variations:
The
cost
of
fuel
significantly
influences
financial
liabilities
under
a
PPA.
Escalations
in
fuel
prices
increase
operational
costs
for
IPPs,
which
are
subsequently
reflected
in
the
energy
charge
of
invoices
sent
to
ECG.
As
experts
in
our
business,
we
recognize
the
impact
on
the
tariff
and
pass
it
on;
-
Idle
Capacity
Charges:
Under-utilization
of
contracted
capacity
leads
to
idle
capacity
charges.
When
ECG
does
not
fully
utilize
the
power
capacity
contracted
under
the
PPA,
it
must
still
make
payment
for
the
idle
capacity,
resulting
in
additional
legitimate
financial
liabilities;
-
Interest
on
Delayed
Payments:
Delays
in
honoring
monthly
invoices
attract
interest
charges.
The
cumulative
effect
of
these
interest
charges
substantially
increases
the
arrears
owed
to
IPPs;
-
Exchange
Rate
Losses:
Many
PPAs
are
denominated
in
foreign
currencies,
introducing
exchange
rate
risks.
Adverse
currency
movements
can
lead
to
exchange
rate
losses,
often
passed
on
to
ECG;
and
-
Loan
Interest
Surcharges
and
Other
Claims:
IPPs
may
incur
loan
interest
surcharges
and
other
financial
claims
covered
under
the
PPA.
There
were
instances
where
IPPs
contracted
loan
to
be
able
to
service
debts
that
were
due
for
payment,
as
a
result
of
payment
default
by
ECG.
These
additional
costs
further
complicate
the
financial
landscape
of
the
power
sector
accounting.
A
Critical
Examination
of
the
Finance
Minister’s
Claims
-
Indeed,
the
debt
owed
the
Independent
Power
Producers
is
in
excess
of
US$2
billion,
until
a
meaningful
and
win-win
deal
is
reached
and
sealed.
The
Finance
Minister’s
assertion
that
he
has
“reconciled
or
restructured”
the
IPPs’
arrears
to
US$1
billion
is
questionable
and
oversimplifies
the
underlying
financial
obligations.
Given
the
multifaceted
nature
of
financial
liabilities
under
PPAs,
a
mere
aggregation
of
the
monthly
invoices
does
not
capture
the
full
extent
of
ECG’s
commitments.
Let’s
take
propaganda
out
of
this
sensitive
case
and
act
ethically.
To
provide
a
more
accurate
and
reliable
picture,
the
finance
minister
should
offer
a
detailed
breakdown
of
the
“so-called”
US$1
billion
figure,
including
all
PPA-related
claims,
as
I
have
pointed
out
above.
It
is
worrying
to
learn
that
these
are
figures
audit
firms
of
high
reputation
have
certified.
Importance
of
Full
Disclosure
To
achieve
greater
accountability
and
transparency
in
the
power
sector,
the
finance
minister
must
present
a
realistic
picture,
no
matter
the
frightening
outlook,
and
make
full
disclosure
of
the
financial
situation.
This
involves
providing
a
detailed
reconciliation
that
includes:
-
A
Breakdown
of
All
Components
Contributing
to
the
Arrears:
This
should
include
interest
charges
on
delayed
payments,
idle
capacity
charges,
exchange
rate
losses,
and
any
additional
claims
under
the
PPAs; -
An
Explanation
of
How
Changes
in
Law
and
Fuel
Price
Variations
Have
Been
Accounted
For:
This
will
ensure
that
all
financial
obligations
are
transparently
reported;
and -
Clarification
of
the
Methodology
Used
to
Arrive
at
the
USD
1
Billion
Figure:
This
will
help
ensure
that
all
financial
obligations
under
the
PPAs
are
accurately
reflected.
Challenges
and
Recommendations
To
ensure
that
any
debt
restructuring
proposal
is
credible,
acceptable
and
not
rip-off
any
serious
investor
of
their
benefits,
it
is
essential
to
conduct
a
careful
scenario
and
sensitivity
analyses
on
the
options
proposed.
This
ensures
a
win-win
situation
for
all
stakeholders
involved.
The
use
of
the
high
office
of
a
finance
minister
for
political
propaganda
undermines
the
credibility
of
financial
management
in
the
sector.
As
stewards
of
investors’
interest,
we
implement
comprehensive
accounting
practices.
This
goes
beyond
simplistic
revenue
recognition
models
and
requires
meticulous
consideration
of
all
contractual
obligations
stipulated
in
the
PPAs.
Proper
accounting
for
power
in
Ghana’s
energy
sector
extends
far
beyond
the
monthly
invoices
received
and
paid
by
ECG.
The
Finance
Minister’s
claims
regarding
the
reconciliation
of
IPPs
arrears
need
to
be
substantiated
with
a
detailed
breakdown
that
reflects
the
true
financial
liabilities
arising
from
PPAs.
As
stewards
of
shareholder
interests,
it
is
imperative
to
account
for
every
amount
and
provide
full
transparency.
The
complexities
inherent
in
PPA-driven
financial
obligations
demand
a
comprehensive
approach
to
accounting,
one
that
goes
beyond
simplistic
revenue
recognition
models.
Only
through
such
rigorous
and
ethical
accounting
practices
can
we
hope
to
achieve
financial
clarity
and
stability
in
Ghana’s
power
sector.
Dr.
Elikplim
Kwabla
Apetorgbor
(Power
Systems
Economist
&
CEO,
IPPG)
July
10,
2024