System upgrades: Initiatives are under way to address supply constraints and promote private investment

With the economy growing at record rates, the authorities are working to keep pace with rising demand for water, power and sanitation. Compared to many neighbouring countries, Ghana’s utilities are in healthy standing, though the sector has not been without problems. Over the past year power outages increased to the point that local industries cited inadequate power supply as the top constraint on private sector growth in the first quarter of 2013, according to the Association of Ghana Industry’s (AGI) “Business Barometer Survey”. Working from a deficit, the government is making efforts to raise power capacity all along the value chain. The water, sanitation and hygiene (WASH) sectors still suffer from under-planning and inadequate investment, but progress is being made toward achieving WASH-related Millennium Development Goals with increased private sector involvement.

GENERATION: The Volta River Authority (VRA), the government entity responsible for generating electricity, was established in 1961 to construct the Akosombo Hydro Plant. Today Akosombo, along with the Kpong Hydro Plant built in 1982, has an installed capacity of 1180 MW and generates more than 60% of the country’s power. In 1997 the VRA began operating thermal power plants in Takoradi and then in Tema, which use a flex-fuel technology, allowing them to run on natural gas, light crude oil or diesel. As of December 2012 Ghana had installed capacity of 2296 MW with a slightly lower technically dependable capacity. Average peak demand stood at 1729-1871 MW, according to the Energy Commission’s “2013 Energy Outlook” report. While Ghana has excess installed capacity, the VRA plants have not been operating at full capacity due to natural gas shortages and underperformance. To better supply growing electricity demand, the government plans to increase installed capacity to 3160 MW by 2015. The Bui Hydroelectric Project commissioned one of three units in June of 2013, adding 133 MW in capacity to the grid. The two other units will bring 266 MW on-stream when completed in the fourth quarter of 2014. The Bui’s northern location has also helped to correct a geographical imbalance in power generation. Power gets lost when transmitted over the long distance between the country’s southern-based plants to northern residents. Bui is now the northern-most plant and even with just one unit in operation, supplies are more secure. “The system voltage distribution has improved tremendously and this is expected to lead to a reduction in overall transmission losses,” Frank Otchere, the manager of the system control centre at Ghana Grid Company (GRIDCo), told OBG. “When all three units are commissioned and running, transmission losses are forecast to reduce by approximately 1%.” The VRA has additional thermal plants in the works, and planned expansions at the Tema Thermal Complex. Finally, the VRA is also investing in renewable plants, with the goal of eventually generating 10% of power through renewable fuels by 2020. A 2-MW solar plant was inaugurated in May 2013 and increased to 2.6 MW in July, and the government has secured a loan for another 12-MW solar plant. The VRA also has plans to add 140 MW of capacity from wind power (see analysis).

PRIVATE PLAYERS: Along with pursuing state-owned projects, the VRA works with the private sector to finance independent power producers (IPPs). The 200-MW Sunon-Asogli Power Plant was financed by the China-Africa Development Fund and was completed in 2009 by China’s Shenzhen Energy company. Meanwhile, CENIT, a 110-MW thermal plant wholly owned by Ghana’s social security fund SSNIT, was completed in 2012. “The VRA will plan enough plants to close the gap in supply,” said Kofi Ellis, the director of planning and business development at the VRA. “But then we will also benefit from IPPs.”

By mid-2013, there were at least four serious IPPs in the works with some level of provisional licensing from the state. General Electric (GE) made headlines in June with the signing of a memorandum of understanding with the Ministry of Energy (MoE) to build a new plant. The Ghana 1000-MW Project will be completed over five years and will produce nearly a fifth of the country’s power supply. GE will coordinate financing, development and implementation, and will also establish a training programme for plant managers and engineers.

TRANSMISSION: The state-owned company GRIDCo is responsible for transmission from power plants to distributors across the country. Separated from the VRA in 2008, GRIDCo inherited a 30-year-old transmission grid and the new management immediately commissioned a transmission master plan from Belgium consultancy, Tractebel Engineering.

“You cannot just start doing projects without any guide. The management understands that the master plan is our guide to systematic investments that bring us benefits,” Benjamin Ntsin, the manager for system planning at GRIDCo, told OBG.

The master plan was completed in 2010, at which point GRIDCo began carrying out the recommended steps to refurbish, replace and upgrade the decaying infrastructure. “The master plan helped us to evaluate and forecast year by year what investment we needed to continue to effectively and efficiently carry out our mandate,” Otchere told OBG. The agency expanded transmission capacity by laying 3300-kV cables alongside the older 1610-kV cables. GRIDCo improved reliability by replacing 200 transformers and ensuring that no single substation is vulnerable, with $200m worth of upgrades still ongoing. Today, GRIDCo has reduced transmission losses to 4% and earned a 99.8 (out of 100) on the index of transmission reliability.

DISTRIBUTION: The state-owned ECG is responsible for the main distribution load to residential, commercial and industrial clients, while the VRA handles distribution to northern regions and to industrial clients that require more than 3 MW. Currently the ECG loses about 24.7% of power through distribution, due largely to rundown equipment and theft. The ECG is, in fact, improving performance, as losses hit nearly 27% in 2010. The company is struggling to maintain equipment partly due to lack of funds. In 2012 the ECG operated at a loss, according to World Bank data. The company fails to collect payment from a significant number of customers, with one of the largest delinquent clients being the government of Ghana. In an effort to raise the collections rate, the ECG began installing prepaid meters in 2009 and is still expanding their use. Customers purchase a set amount of electricity and their service is automatically cut-off if they exceed the purchased usage before refilling.

In northern parts of the country, where access to electricity is scarcer, the VRA is responsible for distribution through its subsidiary, the Northern Electricity Company (NEDCo). Over the next five years, the VRA hopes NEDCo cash flows can sustain the company as a standalone state enterprise, Ellis told OBG.

TURN IT ON: Some 72% of the population are connected to the grid, up from 25% in 1989. The expanded power grid makes Ghana second only to South Africa in terms of access to electricity in sub-Saharan Africa. By comparison, only 30% of the populations of Nigeria and Kenya have power, the VRA’s chief executive Kweku Awotwi told local media in June 2013. The average access rate across sub-Saharan Africa was 32% in 2010, according to the International Energy Agency.

While there is still progress to be made in terms of securing a reliable supply and expanded rural access, the high baseline for distribution provides a foundation for industry and innovation. Ghana launched the National Electrification Scheme in 1989, and has since worked with aid agencies and foreign governments to both expand and improve distribution.

Most recently, Japan gave Ghana a $14m grant for the improvement of distribution in the north. The US Trade Agency has also provided two grants to Ghana in late 2012: one to NEDCo to provide technical assistance during a five-year investment in distribution and one to the ECG to study the feasibility of an automated distribution system. Furthermore, the Ghana Energy Development and Access Programme (GEDAP) is a $132m access initiative funded by the World Bank, the International Development Agency, and the African Development Bank, among other partners. NEDCo also works directly with local communities through the SelfHelp Electrification Programme (SHEP), in which villages build poles and support infrastructure while NEDCo installs the actual power cables.

“The commitment of various governments towards the success of the programme and the contribution of the SHEP has helped achieve this phenomenal success,” Andrew Barfour, the coordinator of GEDAP, told local media in February 2013.

REGULATORS: The MoE regulates the electricity system with input from the Energy Commission and the Public Utilities Regulatory Commission (PURC). The Energy Commission advises the MoE on planning policy, while the PURC, an independent regulator, sets the power and water prices. The array of institutions responsible for electricity in Ghana can cause confusion and limit accountability, according to some sector players.

“We have ended up creating all these autonomous public institutions, and roles and responsibilities are fuzzier now than they used to be before the reforms,” Harriette Amissah-Arthur, an executive partner at Arthur Avg. electricity user tariff, 2000-12 Energy Advisors, told OBG. “The ministry responsible for the non-performance of the sector does not have the required mandate to effectively supervise the institutions under it. In other words, it can’t order them to do anything under the current arrangement.”

UNDERSUPPLY: The country’s most recent power crisis began in August 2012, when damage by a Togolese ship to the underwater West African Gas Pipeline (WAGP), which delivers natural gas from Nigeria, disrupted Ghana’s gas supply for nearly a year.

Without natural gas, the 200-MW Sunon-Asogli cannot run and the excess capacity in Ghana’s power supply drops to a slim margin of about 100 MW. This leaves no room for flexibility during maintenance or when the system underperforms. The lack of gas supply to Ghana meant that the country’s thermal plants all had to run on expensive light crude oil instead of the cheaper gas alternative at a total cost of $3m a day to the government. “There was already a distribution problem,” Ellis told OBG. “This compounded it.”

Meanwhile, both residents and industrial firms struggle with daily rolling blackouts. Indeed, load shedding in the industrial sector, particularly where production requires an uninterrupted power supply, “has enormous implications in terms of cost,” John Defor, policy research officer at the AGI, told OBG.

GROWING DEMAND: The current strain on Ghana’s power grid is a result of rapidly increasing electricity consumption combined with limited funds for investment and upgrades. Demand for electricity grew about 10% in 2012, according to the VRA. Over the last decade demand has risen 8-10% each year. The government has tried to keep up, and nearly doubled capacity from 7273 GWh in 2002 to 12,024 GWh in 2012.

In the next few years, demand is expected to increase between 10% and 12% per year, Ellis told OBG. The Energy Commission forecasts demand to reach 1987-2556 MW in 2013, but with technically dependable capacity at estimated at 2267 MW, peak consumption will be constrained at 1800-2000 MW. However, reliability remains a concern. “Increasing the generation of power will not necessarily benefit the economy if the distribution supply remains unreliable,” Amissah-Arthur Electricity consumption by customer class, 2008-12 said, “Just solving the generation end of things does not guarantee the economy benefits by way of actual quality service delivery in the industry.”

CAPITAL CONCERNS: Lack of funding has been a major challenge to achieving the kind of large-scale capital projects and upgrades needed across the power supply chain. The necessary investments will require some $4bn over the next 10 years, according to the World Bank. However, public institutions lack the capacity to foot the bill for all necessary upgrades, partly because the PURC sets the price of electricity below market value, leaving the utilities cash-strapped.

For years the price of electricity has been a hot political issue. In 2011 the government began raising rates each quarter and promised to fix services. There was much outcry from consumers and little evidence of improvements in the infrastructure or distribution. As elections approached, the planned price hikes stalled. In June 2013 the PURC proposed increasing the price of electricity by 166% – an adjustment that would include unit increment rises for the VRA, ECG and GRIDCo of 128%, 214% and 40%, respectively (see analysis).

PLANNING: In addition to improving financing capacity, there is a push to roll out medium- and long-term master plans on behalf of the utilities, to improve coordination and strategic clarity. “The government needs to raise the tariffs because the system cannot wait for the sector to be straightened out before we do. But we need to have a plan – a business and strategic plan to go with the increase,” Amissah-Arthur said. “This sector can access the levels of investment it requires if only it will be run as a business – and it can be.”

Indeed, after GRIDCo’s success in developing and implementing the Transmission Master Plan, the MoE contracted them again to carry out a similar project. A Generation Master Plan was completed, but there has been no sign of implementation to date.

GRIDCo’s planning and transparency has already translated into more financing. When the VRA ran transmission, the organisation relied on traditional funding partners like the World Bank, the European Development Bank and the Kuwait Fund. But with open books and a clear business plan, GRIDCo has been more effective than the other power agencies in securing commercial loans to finance capital projects.

FUEL: Securing fuel for power plants may be the biggest long-term challenge to establishing a reliable electricity supply in Ghana. Despite the euphoria surrounding offshore oil and gas discoveries, the country does not currently possess and is unlikely to identify hydrocarbons reserves significant enough to power local energy infrastructure. Hydropower generated 67% of Ghana’s electricity in 2012, with the rest coming from thermal plants running on natural gas or light crude oil. Hydropower has the benefit of being cheap and requiring little maintenance. Power from the Akosombo plant, built over 50 years ago, costs just GHS0.02 ($0.01) per KWh. Hydro, however, is not always reliable in Ghana, as droughts and over usage can reduce production.

For the remainder of power supply, hydrocarbonsfuelled power plants are used. With the WAGP down for nearly a year between August 2012 and July 2013, the plants with flex-fuel technology ran on oil instead of gas. Generating electricity from oil is expensive, especially as the country is purchasing crude on the open market. Because of Ghana’s limited refining capacity, its oil is sold on international markets and the country must then purchase oil at market value upwards of $100 a barrel. Ghana purchased 4.9m barrels of light crude for electricity in 2012. In 2013 the total crude required for electricity is forecast to rise significantly.

NATURAL POTENTIAL: Using natural gas would halve the price of fuelling Ghana’s thermal power plants. Ghana requires 200m standard cu feet per day (mscfd) to meet current generation demand, of which Nigeria is contracted to supply 120 mscfd by 2015 through the WAGP. However, even before the 2012 breakdown of the pipeline, average delivery was closer to 65-75 mscfd.

The discovery of hydrocarbons reserves holds the promise of local fuel and the government has been clear that the first priority for its natural gas will be to power the domestic electrical grid. With this goal in mind, Ghana secured a $1bn concessionary loan from the China Development Bank (CDB) to develop the necessary infrastructure. The current project, the Ghana Gas Complex, includes a 45-km shallow-water pipeline to transport natural gas from the Jubilee field to a natural gas processing plant in Atuabo, and an 111-km pipeline transmitting the fuel to Takoradi’s thermal plants.

The project has hit snags as issues with disbursement arose between the CDB and the Ghanaian government. However, even if the project misses the set deadline of the fourth quarter of 2013, the gas should be on-line by mid-2014. “When we are able to go through with the Ghana Gas pipeline, then our future will be assured,” AGI’s Defor told OBG. While domestic natural gas supply will certainly improve energy security, Ghana does not posses the discovered reserves to meet current demand. Jubilee currently produces approximately 100 mscfd, which would result in a shortfall even combined with the 120 mscfd of contracted Nigerian gas.

The development of the TEN hydrocarbons project of three deepwater reserves – Tweneboa, Enyenra ( formerly, Owo) and Ntomme – is likely to add 80 mscfd, and the Electricity Commission estimates that future discoveries could add 400 mscfd by 2018; however, by that point demand will have climbed to 800 mscfd, once again topping supply. The “2013 Energy Outlook” gave voice to concerns, stating, “the country is likely to experience gas supply shortfalls right from this year 2013 to 2020. The situation becomes more challenging when industrial demand is included.”

Without sufficient domestic supply, the report concludes that “the only cost-effective gas supply option to quench the shortfall is by [liquefied natural gas] LNG import.” There are ongoing policy debates about investing in the infrastructure to import LNG. Institutions from both the private and public sector are supportive of some type of regasification project, but this is unlikely to be resolved in the short term (see analysis).

WATER & SANITATION: While the current electricity crisis challenges businesses and residents alike, these infrastructure issues pale in comparison to the problems of Ghana’s water and sanitation systems. Only 64% of the population had access to clean water and 15% to adequate sanitation as of 2010, according to the latest data from the Ministry of Water Resources, Works and Housing (MWRWH).

In the Greater Accra area, which swelled to a population of nearly 4m in the 2010 census, 75% of residents lack 24-hour access to water and 10% lack any access. “Investment had stagnated so much over the past 40 to 50 years that you’re no longer dealing with an urgent situation, but with an emergency,” Kweku Botwe, the acting managing director of Ghana’s water utility, told Business Week in April 2013.

The lack of water increases operating costs for businesses, which are forced to pay private water companies’ exorbitant rates (close to 11 times the price charged by Ghana Water, according to local press reports). The firms extracting oil from the Jubilee field had to import water supplies in 2012. As a result of these difficulties, Guinness Breweries temporarily moved production to Nigeria in 2012 when limited water supply proved too debilitating for the business.

The consequences for Ghana’s citizens are more dire still. Inadequate sanitation facilities and unsafe drinking water cause 80% of all diseases in the country, according to UK-based Water Aid. Rural water access lags behind coverage in the more populated south, while the shared toilet facilities used in much of the country lead to sanitation issues.

SYSTEMIC PLANNING: Unlike water crises in some neighbouring countries, Ghana’s limited water supply is not caused by lack of water, as the country is home to several bodies of water. Rather, the water and sanitation issues are the result a lack of planning by water sector managers, according to the Ghanaian think tank, IMANI. Additionally, the water and sanitation system suffers from historical lack of investment.

According to a 1998 World Bank report, “The water supply systems in Ghana deteriorated rapidly during the economic crises of the 1970s and early 1980s when the government’s ability to adequately operate and maintain essential services was severely constrained.” Estimated electricity generation capacity, 2013 Indeed, by the 1990s, 33% of the water supply infrastructure had broken down or deteriorated.

The regulatory reforms of the 1990s improved management and efficiency, although losses of up to 55% due to run-down pipes and water theft remains an ongoing challenge, according to media reports in April 2013. Achieving Ghana’s sanitation and water Millennium Development Goals would require investments of more than $200m per year, which would likely require the doubling of current rates of investment.

GOVERNMENT REGULATORS: The MWRWH is responsible for overseeing water and sanitation. The current regulatory regime was established in the 1990s in an effort to improve efficiency by decentralising the Ghana Water and Sewerage Corporation.

As with electricity, the PURC sets pricing while coordination and regulation is managed by the Water Resources Commission. The Community Water and Sanitation Agency is responsible for rural water and sanitation facilities along with local district assemblies and communities. The Ghana Water Company (GWCL), a state-owned limited liability company, manages urban water supply only.

Government entities operate in partnership with a variety of funders and technical providers, ranging from large international bodies and local non-governmental organisations to private firms. The government has been working on a Sector Strategic Development Plan with development partners since 2011 to serve as a blueprint for investment in the sector.

While a number of local, regional and federal government entities are responsible for water and sanitation in Ghana, the majority of funds for development projects come from donor organisations and foreign aid grants. In June 2013, the World Bank approved a $155m International Development Association grant to improve sanitation and water services in Ghana. Additional support comes from multinational corporations supporting local sanitation initiatives as an aspect of corporate social responsibility. USAID and Coca-Cola completed a $1.5m project in September 2013 that aims to improve toilet facilities in schools and households. More than 80% of total sector financing came from donor funds in 2010, according to the African Ministers’ Council on Water Country Status Overview. This represented a steady increase from 48% in 2006, to 69% in 2007, and to 78% in 2008 and 2009.

PRIVATE PARTICIPATION: Sanitation services are often provided by private players. With over 85,000 workers under management through public-private partnerships, Zoomlion Ghana provides waste management services across Ghana, as well as in neighbouring countries. In addition to its own operations of providing trash collection and developing sanitation infrastructure, Zoomlion formed the “Zoom Alliance” in 2012 to manage collection and disposal for smaller waste management firms. The goal, according the Zoomlion, is to improve local capacity and share best practices.

One challenge with the private contractor model, is that low-income areas continue to face poor service provision. According to a 2011 study on waste management from the University of Ghana, “because the low-income areas offer fewer opportunities for profit (due partly to the tardy payment of the assemblies) compared to the high-income areas where service providers have the privilege of negotiating directly with service beneficiaries, the former generally receive the lowest priority from the service providers.”

There are a number of public-private projects currently under construction and preparing for tender, which are set to upgrade and improve infrastructure. GWCL, for example, plans to double capacity to 600,000 cu metres per day between 2012 and 2016, Senyo Amengor, Ghana Urban Water’s managing director, told industry publication Global Water Intel.

Several of the new projects operate through publicprivate partnerships in which the builder receives a lease for 25 years, after which the plant must be returned to the public utility. In one such project, Spanish firm Abeinsa EPC is building a desalination plant to provide 60,000 cu metres of water per day to residents in Accra’s suburbs. Other firms winning contracts include Israeli joint venture Merhav Mekorot, Belgium’s Denys NV, Ballast Nedem Ghana and several Chinese contractors.

OUTLOOK: Ghana’s electricity supply looks likely to improve in the short term. The country’s gas processing plant is on schedule to be completed in the next year and will provide additional capacity to the currently strained grid. An increase in the price of electricity, meanwhile, should provide new incentive to private sector investment in the form of IPPs.

While the long-term challenges of fuel and infrastructure remain, GE’s recent commitment to building a 1000-MW power plant is a strong indicator of the future health of the country’s power sector. Ghana’s water and sanitation situation is also slowly improving. The country is expected to achieve the Millennium Development Goal for water access, but the targets for sanitation may be more difficult to meet. If and when the master plan, commenced in 2011, is released, it is likely to offer greater clarity and opportunities.

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