Policy think-tank IMANI Africa has kicked against the government’s plan to use restrictive tendering to select a replacement for Power Distribution Services (PDS) after the company’s concession agreement with the government was terminated.
IMANI, in an assessment of the recent PDS debacle, said it believes that the government must ensure a competitive and transparent process in the selection of a new local investor to participate in the concession and therefore urged the government to immediately change the planned procurement method.
“If we also want high local content, then we need to institute a competitive and transparent process for all local investors to participate in a process of price discovery. The government’s preference for backroom dealing, exemplified by its proposal to use restricted tendering to select new partners, after all that has happened, is completely needless. This posture should change completely. We are tired of botched utility reform projects in this country,” it said.
The government officially announced the termination of its power concession agreement with Power Distribution Services (PDS) in a statement dated Friday, October 18, 2019 after a meeting in the US involving the Secretary to President Akufo-Addo, Nana Bediatuo Asante and officials of the Millennium Challenge Corporation.
The concession agreement was initially suspended on July 30, 2019, by the government due to what it called “fundamental and material breaches”.
Details of the alleged breach revealed that PDS’ guarantee was irregular and fraudulently procured.
Many views have been expressed concerning the development about the concession which was less than a year old.
While some have accused the government of negligence and inability to thoroughly scrutinize the deal’s agreements to identify the breaches early enough, others have lauded the government for terminating the deal although it has resulted in the country losing out on US$190 million MCC grant.
The US government through the Millennium Challenge Cooperation which is implementing the power compact has also stated its disagreement with the government’s decision but IMANI said it does not believe that the US government’s concern about keeping the sanctity of the contract is superior to dealing with the impropriety of the deal.
It also criticized the government for the “poorly thought through” process in ensuring 51% local participation in the Special Purpose Vehicle.
Read IMANI’s full statement below:
Press Statement: IMANI’s Assessment of the PDS Debacle & Way Forward.
- We disagree with the American Government’s position that contract sanctity should be the primary concern in the ongoing PDS debacle, or that it should trump other critical matters of governance and administrative propriety. But we fault the Government of Ghana for the processes that led to the formation of PDS after Meralco won the tender. That process was opaque, poorly thought through and badly regulated/governed. If we wanted 51% local participation in the Special Purpose Vehicle (SPV) set up to manage the concession, we should have ensured a quality, transparent and well thought through process subsequent to the international competitive tender.
- The $190m MCC money supposedly lost as a result of the PDS termination was not free money for Ghana to spend as it pleases. It was meant for investment into the electricity grid under a particular regime. With the termination of the extant arrangement, Ghana simply needs to find other partners willing to invest substantial resources in the grid. The problem was that the current PDS group have no capacity to invest the $650 million needed to ensure appreciable improvements to quality of service and loss minimization in the electricity distribution system. So what is the point of $190 million when the bulk of investment resources required remain inaccessible? Meanwhile, privity of contract principles constrain the government from getting involved in PDS reorganisation matters. Consequently, reports that Aenergy SA is proposing restructuring of the SPV to bring on board better resourced promoters, or that Ghanaian institutional investors are interested in participation, cannot be the basis of public policy. So long as the SPV endures, Government of Ghana is limited in its options to exercise strong oversight in the restructuring process as it is not party to the shareholding instruments that set up the vehicle.
- What is required at this stage is a strategic partner with the muscle to invest roughly $650 million to truly modernise the grid, maybe even more (estimates differ). Staying with PDS in the hope of securing $190 million from the US-controlled MCC does not help us achieve that goal.
- This is however not to endorse the government of Ghana’s actions as a whole. We fault the government’s role in anointing PDS following a shambolic local content “farm-in” process that it supported throughout when it shouldn’t have. We are just saying at this point that having got to this messy place as a result of the government’s actions, the termination was the least problematic of the options available.
- We also don’t accept the view that PDS principals should be prosecuted. It is obvious that their problem was a lack of capacity and resources, which led them to rely on insurance brokers and other advisors of rather questionable quality. That’s not a crime per se. It was the Government that should have ensured that this not happen in the first place.
- Devolving the responsibility to the IFC is no defence since the IFC’s terms of reference did not include assessment of the quality and propriety of the local content policy the government instituted in seeking to broaden local participation from 20% to 51%. They – the IFC – were limited to technical analysis of the structure of the deal. And whilst we don’t believe that the advice proffered by the IFC was stellar or excellent, ultimate responsibility for designing the local content farm-in strategy and policy completely lies with the government of Ghana. The Government was not constrained in scrutinising the proposed equity participants prior to closing, or the fund-raising strategies of the proposed SPV.
- It is important to also point out that so long as the PURC remains a politicised institution packed with government-friendly appointees instead of a highly professionalised, technocratic, regime that is charged with, and focused solely on, technical standards regulation, consumer rights, dispute resolution and adjudication within the energy value chain, anti-competitive behavior, and corporate governance, with tariff setting based on a transparent technical formula, we shall not find a strategic partner willing to put in the considerable investment required to modernise the grid.
- If we also want high local content, then we need to institute a competitive and transparent process for all local investors to participate in a process of price discovery.
- The government’s preference for backroom dealing, exemplified by its proposal to use restricted tendering to select new partners, after all that has happened, is completely needless. This posture should change completely. We are tired of botched utility reform projects in this country.
