Don't scare away IPPs – ACEP boss

Government should be communicating to investors in the power sector in a way that will attract rather than scare them away, especially in view of the large deficit in supply, Dr Mohammed Amin Adam of the African Centre for Energy Policy (ACEP) has said.

His comments follow a position taken by the Power Minister, Dr Kwabena Donkor, that government will no longer in a blanket manner honor requests by IPPs for all manner of guarantees before they agree to invest.

“The fact that IPPs are still asking for guarantees in spite of the power sector reforms is a demonstration that the reforms have not been successful, because the reforms were supposed to ensure that a wholesale market was developed where people can trade for power,” Dr Amin told the B&FT in an interview.

“But up till now that market has not been developed; ECG remains the largest buyer of power, and ECG is also faced with balance sheet challenges. Therefore, there is no IPP that will come and will not ask for guarantee, only to come and invest, sell the power and will not get the money back.”

Most IPPs wanting to invest in the power sector have asked for one form of guarantee or the other, mainly due to the fear that the ECG, which already owes the VRA and other IPPs large sums of monies, may not be able to pay them.

Government has been wheezing under the weight of requests by IPPs for a Consent and Support Agreement meant to insulate them from the inability of the power off-taker – the ECG – to pay for it when they generate.

Dr Kwabena Donkor told the B&FT recently that: “I have currently on my table more than 30 applications for various solar projects. What has been the hitch has been that most of them have asked for Government Consent and Support Agreements, which I think is not right.”

Risk sharing, he said, was the reason government embarked on the power sector reforms and so it is unacceptable for IPPs to try to avoid sharing the risk.

Dr Amin Adam argued, however, that until the environment is liberalized to allow for open and competitive bidding, and until the ECG conundrum is resolved, IPPs will always ask for guarantees.

“The reason why they also ask for guarantees is because they come through politicians and pseud-politicians,” he added.

“No investor can just come in and get the regulatory permits and get approval of government to invest in power without going through pseudo-politicians or politicians, and so in order for them to protect themselves against the political and markets risks, they have to require all these things.

“We should be communicating in a way that appeals to investors to come and invest. But if you start communicating in this crisis that you will not provide the guarantees, do you think any of them will come?”