OBG talks to Kirk Koffi, CEO, Volta River Authority

Interview: Kirk Koffi

How big an impact do you expect the Ghana Gas Project to have on power generation?

KIRK KOFFI: Ghana has installed thermal capacity of 1200 MW, requiring 280m standard cu feet per day (scfd) of gas. Our contractual quantity with Nigeria is 120m scfd, of which we have received an average of 55m scfd since January 2014. On this basis, the deficit in supply is over 220m scfd. Insufficient gas supply from Nigeria means we have had to rely on crude oil, at twice the cost of gas. This translates into higher costs for the consumer. Also, some plants, such as the Sunon Asogli Plant, can only run on gas, and have to shut down when the gas supply is disrupted, making an already tight supply situation worse. So the current situation of insufficient and unreliable gas supply affects us by increasing our costs and reducing the reliability of electricity supply. Gas from Ghana will alleviate the situation but will not solve it. The gas quantity could amount to 90m120m scfd, which is still less than the deficit. We are yet to find out what the cost of gas from Ghana will be, but it will definitely be cheaper than crude oil. It will therefore lead to a reduction in the cost of generation and may make electricity more affordable.

What are the key challenges in attracting independent power producers (IPPs)?

KOFFI: Without an improvement in the financial situation of the distribution companies, the likelihood of IPPs entering the market in sufficient numbers to meet growing demand is low. The distribution firms collect money from consumers then pass it up the supply chain to pay for transmission, generation and fuel supply. Any revenue shortfall will mean someone upstream will not be fully paid, as the distribution companies take their share first. Over the years there have been shortfalls in revenues due to tariffs being below actual cost, as well as the high level of technical, commercial and collection losses. The Electricity Company of Ghana (ECG) has signed many power purchase agreements with IPPs, but only one has actually built a plant. Most IPPs want a government guarantee of ECG’s obligation, but that has also been difficult to obtain. The second issue inhibiting the entry of IPPs is insufficient gas supply. IPPs are concerned about the affordability and competitiveness of their product, and are not willing to operate their plants on crude oil. However, gas is currently not available in sufficient quantity. A number of IPPs are therefore considering the use of liquefied natural gas, which, though more expensive than gas from Ghana or Nigeria, is still cheaper than crude oil.

What can be done to improve access to electricity in the north of the country?

KOFFI: Electricity access in the north is 42%, compared to the national average of 72%. The government target is to provide 100% access by 2020. Yet the remaining communities are small, with large distances between them, making electrification difficult and expensive.

While distribution infrastructure remains a challenge, additional generation capacity in the north is not. Total demand in the north is around 110 MW, compared to national peak demand of 2000 MW. The 400-MW Bui Hydro Plant is located in the north. Two other hydro projects are planned for the region, as well as a number of solar projects. The north will be a net exporter of power for the foreseeable future.

What is your outlook regarding the sector’s ability to secure debt financing overseas and locally?

KOFFI: There is awareness of the need to ensure the financial health of utilities. Power sector reform that began in the mid-1990s has always sought to do that, but at the time we could meet demand predominantly through hydro. With increased thermal generation, costs have escalated and surpassed government capacity, and the only option for investment is for the sector to achieve financial sustainability. There has always been investor interest in power, and we believe that this will translate into actual investment once we demonstrate the commitment to keep tariffs cost-reflective.