The government is implementing a series of power sector reforms designed to provide Ghanaians with universal access to electricity and to transform Ghana into a middle-income country within one generation, which is Ghana's Vision 2020. How will the Volta River Authority be affected by the structural and regulatory reforms?
The reform is good and will bring in competition and increased efficiency.For example, the reform sets up regulatory bodies like the Public Utilities Regulatory Commission (PURC), which, if working efficiently, will be sensitive to the needs of the Utilities and give us tariffs that would enable us recover our costs.The other aspect of the reform is that, if the tariff is attractive, a lot of investors will set up in Ghana to support the power sector.
The government has decided to highlight the role of the private sector in the Ghana's power industry. Where do you foresee further investment opportunities in your sector?
Pricing has to be good to attract investors. If the pricing is good, it will provide lots of opportunities for investors to come into the energy sector. No investor wants to lose money. An investor takes risks by coming to a developing country such as Ghana and therefore expects that whatever he invests will be recovered with a profit margin. There are lots of development opportunities in the energy market in Ghana. Right now the penetration is low. Should we go on a field trip in Ghana, from the southern coast right to the northern borders, from the east to west, you would find out that, even though every district capital has been connected to the national grid, yet, there are many towns and villages, which do not have access to electricity. There is a need for private participation to be able to extend electricity to every corner of Ghana. The government alone cannot achieve this objective.
How do you still expect to have it done in such a short time?Five years ago it was targeted at 30 years. Will it be done within 25 years from now?
I think so - that is the projection.We have what we call the rural electrification or self-help electrification project, which is ongoing in some areas of the country.
Could you elaborate on your capital requirements as far as generating electricity?
I think the biggest area of need is generation where the investment required is huge. Generation facilities could range about 300 to 400 million dollars. Distribution is not as capital intensive.The Volta River Authority is in charge of generation at the moment, but the government's power sector reforms permit private sector participation in energy generation.Currently, VRA has to complete construction of its combined cycle thermal power plant in Takoradi to a full capacity of 660 megawatts in addition to two hydroelectric facilities with a total installed capacity of 1072 megawatts. The Takoradi Thermal Power Plant has two blocks; the first block of 330 megawatts was built through multilateral funding. The second 220 megawatts block was built with capital project finance - CMS Generation of Michigan put into this project US$100 million of their own money while VRA provided US$10 million.In order to maximise efficiency, we intend to expand the second block of 220 megawatts to 330 megawatts by constructing a110MW steam turbine. We are sourcing for funding of US$180 million from IFC and OPIC. VRA is in discussions with AES Corporation, an American Company to develop through private capital project financing, another 330MW thermal project in Tema, which together with Accra constitutes the load centre.The project is expected to come on stream in the next two to three years.VRA may have to go to bodies like IFC, Exim Bank and other places for support with financing, but at the moment, we are doing this project with private capital. Nothing is coming from the government.The government may give guarantees here and there but the funding comes from outside. The key to attracting investors is good tariffs and transparency. The regulatory bodies need to be up and working properly.You might have heard some talk about the West African Gas Pipeline Project (WAGP), which will bring in to Ghana, natural gas that is currently being flared in Nigeria. Chevron and others are involved with that project. The Project requires a whopping US$400 to 500 million to bring the gas from Nigeria to Ghana. The four governments involved in the West African Gas Pipeline Project may not finance the project, as they need to spend money on social services like, education, health and others.
How do you go about attracting these investors, for example AES?
Well, there is a history to AES.During the visit of President Clinton to Ghana, there was an appeal by the Government of Ghana for US investors to come in to support the energy sector. Our Vice President followed up on this drive and went to the US with a team which included the then Minister of Mines and Energy and myself. After our visit, a company called MARATHON, based in Houston came down and expressed interest in the energy sector.They went round on inspection and when they were satisfied that they could do business with us, started discussing the Power Purchasing Agreement, shareholding, land lease etc.Somewhere along the line MARATHON pulled out with the reason that they were diverting their interest in power.AES came in and took over from MARATHON.
Have you targeted Europe?
Investors from Europe do come in to discuss projects with us but so far, it is Americans Companies like CMS of Michigan who have entered into joint partnership with us. CMS Michigan came to Ghana after the signing of a protocol agreement between our former President and the Governor of Michigan.They expressed interest in thermal power generation, and that is how we started working with them. Incidentally, at that time we were looking for strategic partners for the Takoradi Thermal Power Plant. We were discussing the terms with CMS when in 1988 the country experienced drought and its attendant power shortage.CMS Michigan quickly put together their own money and fast-tracked the first 110 MW unit of the second block, which came on stream on 3rd March last year. The second 110 MW unit came on stream in the middle of September last year.
What kind of investment are you looking for now in power generation?
To build in maximum efficiency into the Takoradi Thermal Power Plant, we need to convert the simple cycle plant into a combined cycle plant by adding a 110 MW Steam Turbine to the existing 220 MW Units of the second unit. We need roughly US$180 million to be able to do this. We are seeking assistance from IFC and OPIC. We need about US$300 - 400 million to undertake the Tema Thermal project. Additionally, we need about US$ 400 - 500 million dollars to undertake the West African Gas Pipeline Project.We also need investment in our transmission facilities.After generation, power has to be evacuated from the source to the load centres, the bulk of which is in the Accra-Tema axis and to an extent, in the mining areas of western Ghana, and Ashanti. We need a very solid transmission system to evacuate the power from the source to the centre. We are currently undertaking a project which costs roughly between US$10 - 15 million to complete a section of the transmission line from the mining town of Prestea in the Western Region to the Obuasi mines in the Ashanti Region. Later, we will need about US$ 27 - 30 million to build another transmission line from our Takoradi generation facilities to Tema to evacuate power to the load centres. | What are the revenues of the Volta River Authority?
We are self-sufficient. In the past year or two we have gone into cash flow difficulties because tariffs have not kept pace with basic costs. We have been buying LCO at great cost to fuel our thermal plant. About two to three yeas ago when we started thermal generation, crude oil was only US$11 - US$12 a barrel, now the price of crude oil has more than doubled. VRA's biggest generating station, Akosombo, even though does not look her age, is 36 years old. We are therefore taking advantage of the great advances made in technology by retrofitting our turbines with the best “Runners” on the world market and we are very pleased with the results. For instance, we retrofitted one turbine last year, and achieved a additional output of 50 megawatts on a turbine that was previously running at 140 megawatts.
Could you mention some of the current projects in the 2001 budget statement, like the Bui Dam, which will receive financing from the Treasury?
According to our Act, any development on the Volta River should be carried out by the Volta River Authority or in partnership with the Volta River Authority. We have signed a Memorandum of Understanding (MOU) with Brown& Root of UK. The first requirement from the MOU is for VRA to carry out preliminary works like environmental impact assessment.The biggest challenge with the Bui Project is the environment. There is the potential risk of flooding portions of a National Reserve that is close by.
When was the Bui Dam Project initiated?
Bui was initiated during the time of our first President, Dr. Kwame Nkrumah.The project was started with Russian Experts who left when Dr. Nkrumah was overthrown by the 1966 coup d'etat.Subsequently, Australian, Canadian and French Investors/Experts have all, at one time or the other studied the project.
In what phase is the Bui Dam Project now?
Now we are undertaking the environmental impact assessment. We have selected a consultant who is doing that job. The topographical work is also underway and there is a consortium carrying out hydrological studies. The project will move to the next phase after completion of all the outlined assignments.
What is the budget allocation for the Bui Dam Project?
The Bui Dam project will cost about US$400 to US$500 million. The allocation in the budget cannot cover it, but at least it sets Bui in perspective, that Bui is a national project, and is important. The Bui Dam, when on stream, will open up the northern parts of Ghana. Right now all the generation spots are in the South.
What subsidiary does Volta River Authority own?
VRA has three subsidiaries. The Volta Lake Transport Company ((VLTC) of which we are only sponsors. It is a government company but VRA is in charge.VLTC promotes inland transportation by linking up southern and northern Ghana. VLTC is now beginning to make money. Initially, they could not sail on the Volta during the dry season because of outcrops on the lake.A project is underway to remove all the debris so VLTC can operate around the clock all year.On the Volta Lake, the pattern is that, there is drought every seven to ten years thus making hydro generation very difficult.One cannot tell the severity of the drought, but we do know that there is a drought cycle.In 1984, we had a very bad drought, which made us start thinking of securing our power generation activities by acquiring insurance. The insurance we acquired was to build a thermal station, which though expensive, prevents a total shut down during drought periods.
It is interesting that you mentioned the thermal station. We have spoken to the Minister of Energy Kan-Dapaah and he has mentioned that he is interested in bringing in private investors into the Volta River Authority to take the heavy load of cost burden of the thermal power generation.
Yes, Takoradi Thermal Power Plant has been privatised. Running a thermal station is very expensive because it uses crude oil.A barrel of crude oil is now around US$30.Anytime we bring in a cargo of crude oil, it costs us about US$10 million. We therefore welcome any private investor who will share this cost burden.
Speaking of the income for Volta River Authority, what are your expectations for the year 2001?
I think we should leave that out for now because, for two years now our tariffs have not increased, and we are expecting a press release on that shortly.
So you will increase your revenues?
Yes, it will go up astronomically.
What percentage do you think it will go up by?
I don't know. We asked for 300% but I don't think they will grant us that percentage increase. I think they might give us 100% or so, but that should improve our revenue anyway. Currently, we are supposed to make 8% return on our physical assets, but we are not making that.If we are allowed to increase by 100% we may break even. It will help us recover the economic costs of our operations.On the subject of our subsidiaries, we have also Volta Hotel and Kpong Farms.Kpong Farms is a little subsidiary, which was set up as a pilot project. It is not doing so well financially, but it is helping in educating the people in the area on irrigated farming.Voltacom came in by accident and not by design. Certain frequencies can be used to do a lot of telephoning on power systems.When the Takoradi Thermal Power Station was under construction for instance, there was so much information flowing between Takoradi and Tema, where we have our control centre.We soon exhausted all the frequencies on the power-line carrier, our traditional system of communication.We therefore resorted to using the new fibre optics technology and have decided to make our excess capacity commercially available to IT/Media Companies. Currently we have connection between Accra, Tema, Akuse, Kpong and Kumasi generation areas, that is, across three regions in Ghana.
Where do you put the fibre cables?
The sky wires. Those sky wires protect the transmission pylons against lightening.We make it protect our lines as well as carry our fibre optic cables.We have also set up GRIDCO to be responsible for Transmission. The reform expects us to do so in order to provide transparency for Independent Power Producers (IPP).With the Takoradi Thermal Plant too we have a subsidiary called TICO, established for the same purpose of providing transparency for the IPP's
What would you say to our one million readers out there about Volta River Authority?
The mission of the Volta River Authority is to excel in her position as the leading supplier of electricity in Ghana and in the West Africa sub-region, as well as, manage a portfolio of viable businesses in generation, transmission, distribution, telecommunications and other energy infrastructure and related services, within a privatised business setting. We are experts in hydro generation and transmission and are gaining experience on thermal generation. |
