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IMANI and ACEP: Botched Tema Gas deal can cause $1.5bn loss to Ghana

Ghana’s President Akufo-Addo has been working with other African presidents during the 27th Conference of the Parties (COP 27) of the United Nations Framework Convention on Climate Change (UNFCCC) this year in Egypt to pressure rich nations that pollute the most to release the $100 billion in climate finance promised to developing nations to help them green their economies and better adapt to climate change.

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However, the emphasis on a quick delivery of billions of dollars to African economies raises concerns about accountability, transparency, and the standard of governance, both as support for helping Africa adapt to the unavoidable effects of climate change and as reparations for loss and harm.

In the past, substantial amounts of funding for development in Africa have been squandered due to mismanagement, bad policy design, and corruption. How can we keep the nascent field of “climate finance” from falling victim to outdated prejudices?

African officials are also actively exploiting the climate negotiations to persuade wealthy countries to keep funding the fossil fuel industries on the continent, which they view as essential to growing economies and increasing access to power. Due to bad strategic decisions, incoherent policies, and open corruption, decades of oil and gas investment have typically failed to provide Africa’s poorest consumers with affordable and consistent energy supply.

A collection of African think tanks and Civil Society Organizations (CSOs) were brought together by the Africa Centre for Energy Policy (ACEP) and the IMANI Center for Policy & Education (IMANI) to discuss these issues on the virtual fringes of COP 27 on November 9, 2022.

At the occasion, the partners unveiled a number of case studies to demonstrate how, at a time when growing energy prices are causing a cost of living crisis throughout the continent, corruption, bad management, and onerous offtake terms have limited the strategic options available to African governments.

This quick brief presents the first case study. It examines the Tema LNG Terminal (Tema LNG), a Helios Investment Partners-led project to import LNG into Ghana that is backed by a number of development financing organizations.

Although the project was supposed to begin operations in 2020, as of November 2022, it has not. Even though officials acknowledge there is no demand for the gas, Ghana’s state oil corporation, Ghana National Petroleum Corporation (GNPC), is dedicated to go forward with the project. The project’s viability is currently seriously questioned, not just for 2023 but for all time.

The already stressed financial state of GNPC is significantly threatened by Tema LNG. According to calculations by ACEP and IMANI, the GNPC may be shelling out between $790 million and $1.357 billion year for gas that the nation doesn’t require.

Despite having purchased gas from the Tema LNG Terminal Company (TLTC) for more than $13/MMBtu given the current state of the oil market, the GNPC is required by law to resell the gas to the majority of Ghanaian power utilities for $5.99/MMbtu.

For “important industries” that have been secretly chosen, gas costs just $4.2/MMBTU. Even with promises to further reduce prices to $1.72/MMBTU on dubious pipeline-barter grounds, GNPC has signed a deal to sell gas to Genser Energy Limited, an off-grid power provider to Ghanaian gold mines, for as little as $2.79/MMBtu.

The corruption risk linked with the Tema LNG project has also increased due to the project’s origins in shady bid-rigging and related procurement issues.

Tema LNG is but one illustration of how poorly managed investments in Ghana’s gas and power infrastructure projects are financially hurting the nation and failing to provide consumers with affordable or reliable energy.

Ghana’s power sector arrears, already in the billions of dollars, continue to mount. In November 2020, the ex-head of Ghana’s Energy Commission estimated that the country was paying a combined $1.2bn annually for excess power capacity and gas supply it does not use. These costly investments in oil and gas have been backed by the international community.

Development finance institutions have spent at least US$2.8bn in direct project finance to support the development of upstream and downstream fossil fuel projects in Ghana since 2010. Meanwhile, Ghana’s vast renewable energy potential has generally been overlooked.

Less than 1% of Ghana’s total generation capacity will come from modern renewable sources in 2020. This is true even though, according to the International Energy Agency, renewable electricity sources, including solar, are currently the least expensive source of energy in many regions of Africa.

By 2030, solar and other renewable energy sources are expected to dominate the global energy market.

The Alliance of Policy Think Tanks, which promotes good governance to spur green growth in Africa, makes the following recommendations in light of the foregoing:

A public release of all contracts, agreements, restated/amended agreements and constructive understandings entered into by GNPC, TLTC and all other actors connected in any commercial sense to the Tema LNG project.

An immediate suspension of the Tema LNG project and a standstill arrangement in respect of all obligations of the Ghanaian state concerning the project.

A complete renegotiation of the financial and commercial terms of the project to better reflect the current strategic situation in the global and domestic energy markets.

A halt to further funding and financing for the project, particularly from DFIs, MDBs and international development agencies until a sound ESG framework is in place.

An upgrade to the governance of the project and others like it by instituting a credible stakeholder participatory model and set of consultative practices.

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