VRA freezes US$500m bond issue

The Volta River Authority (VRA) says it has postponed indefinitely its intention of raising US$500million on the capital market next month to fund power projects.

Samuel Fletcher, the VRA’s Head of Corporate Communications, speaking to the B&FT stressed that the bond plan has not been abandoned, but that the power producer wants to concentrate on completing ongoing investments.

“We are still holding discussions as far as the issue of the bond is concerned. It is something that will go on, but it is the timing that is being discussed.”

Last month, analysts at the Economic Intelligence Unit (EIU) cast doubts over a VRA bond -- saying that the power producer will find it hard to convince investors about its future financial prospects due to the continued under-pricing of electricity in the country.

“Although Ghana is in dire need of increased power capacity, we have doubts about how feasible a bond issue will prove to be,” said the analysts. “A key factor here is that the VRA is unable to charge full cost-recovery price levels for the electricity it produces. If potential investors cannot see how they will be repaid without continuing government subsidies, at a time when the government desperately needs to bring down the fiscal deficit, they are likely to demand a high yield.”

The current bulk electricity tariff covers just 60 percent of the VRA’s cost of production, former chief executive Kweku Andoh Awortwi told B&FT in September. This position worsened after government announced a one-quarter reduction of the October increase in the power tariff.

VRA’s ability to accelerate investment in additional generation has been constrained by tariffs that are lower than the cost of production, leaving electricity demand -- estimated to be rising at 10 percent annually -- to race ahead of supply.

Mr. Fletcher maintained that VRA is focusing its resources on increasing its installed generational capacity to meet the growing energy demand.

“From now till end of 2014, we are expecting to finish the Kpone Thermal Power Project (KTPP) -- a 220 megawatt (MW) facility -- at a cost of about US$250million,” he added.

Another project expected to add 110 MW to the VRA’s capacity is the expansion of the T2 thermal plant in Takoradi, which Mr. Fletcher said should be completed by the end of the first quarter of 2015. This should cost the VRA about US$350million, he said.

These projects are expected to add to the VRA’s total installed capacity of 2,100 megawatts.