Gov’t gives reasons for terminating PDS Concession

• Posted on October 21, 2019October 21, 2019
• by Nana Kwesi Coomson
• Comment

The ruling New Patriotic Party (NPP) has offered explanations for the termination of the Power Distribution Services (PDS) power concession.

In a nine-pages document signed by the Finance Minister, Ken Ofori-Atta titled: Termination of Power Distribution Services (PDS) Concession, the Finance Ministry explained that the Government’s decision to terminate the PDS Concession and find a replacement in a timely manner to successfully conclude the Compact was based on two key points.

According to the document addressed to the Chief Executive Officer of the Millennium Challenge Corporation (MCC), Sean Cairncross, one reason for the termination of the concession was that the Government of Ghana viewed that the meeting between the CEO of MCC and the President of Ghana produced an understanding that the existing concession would be discontinued and a concession restoration and restructuring plan executed within existing timelines and in any event before December 31, 2019.

Secondly, it noted, the cancellation of the concession does not in any way diminish the Government of Ghana’s commitment to private sector participation in Ghana’s energy sector.

“Indeed, Government intends to see this PSP through in a manner that respects due process and fidelity to the relevant transaction documents and underlying Compact,” it noted.

The termination decision follows a meeting between the Secretary to President Akufo-Addo, Nana Bediatuo Asante, and Ofori-Atta on one hand, and the Principal Deputy Vice President of MCC, Kyeh Kim, and the Resident Country Director-Ghana of the MCC, Kenneth Miller, on the other hand, held in Washington DC on Friday, October 18, 2019.

Government in August this year suspended the PDS Concession and Information Minister, Kojo Oppong Nkrumah, announced to journalists that within 30-days, a fact-finding Committee set up by Government would come out with its findings on the alleged breeches of the power concession by PDS.

The Committee is yet to come out with its findings since then.

The Millennium Challenge Compact (the Compact) was signed on August 4, 2019 between the MCC acting on behalf of the Government of the United States and the Government of Ghana acting through the Finance Minister.

A key condition under the private sector arrangement was to introduce a concessionaire into the distribution sector, who would inject private capital into the operations of the Electricity Company of Ghana.

The two key advisors to the managers of the Compact, the Millennium Development Authority (MiDA), were the International Finance Corporation (IFC) and Hunton and Williams, an international law firm based in New York.

Through an international competitive tender, Meralco of the Philippines was selected as the concessionaire, the document recounts.

In order to satisfy the local content requirement under the transaction, a special purpose vehicle, Power Distribution Services, was incorporated in Ghana to be the operator, with PDS shareholding being Meralco (Philippines) 30 percent shares; AEnergia S.A. (Angola) 19 percent shares; GTS Engineering Services of Ghana, Santa Baron Ventures of Ghana and TG Energy of Ghana – together 51 percent shares.

Over 40 conditions precedent, five considered critical were required to be fulfilled by PDS under the LAA and BSA.

Two of the essential and critical conditions precedent, according to the document, were the provision of a BSA Payment Security and an LAA Payment Security (Conditions Precedent 24 and 31 respectively.)

They were preconditions to the occurrence of the Transfer Date and the exercise of the rights and obligations of the parties, and in terms of the Transaction Agreements, constituted security for PDS’ obligations under the BSA and LAA, according to the document.

Conditions Precedent 24 and 31 required PDS to furnish to ECG payment securities in the form of either a Demand Guarantee or a Letter of Credit issued by a Qualified Bank, it noted.

Owing to difficulties experienced with raising a bank guarantee, PDS formally requested MiDA to accept a demand guarantee issued by an A-rated insurance company, it said.

Upon the advice of IFC and Hunton and Williams, the MiDA Board accepted the request of PDS, it added.

Consequently, PDS submitted the Payment Securities in the form of Demand Guarantees issued by a Qatari insurance firm, Al Koot Insurance and Reinsurance (Al Koot) on 27th February, 2019, two days before the Transfer Date of 1st March, 2019.

Following failure to receive satisfactory confirmation by IFC and Hutton and Williams of whether adequate due diligence had been performed on the validity of the Demand Guarantees purportedly issued by Al Koot, by a letter dated 28th February, 2019, ECG took the initiative to ascertain from Al Koot itself proof of or confirmation of the due authorisation for the execution of the Demand Guarantees by that firm.

ECG also requested Al Koot to confirm compliance with relevant laws and regulations to which the Demand Guarantees would be subject, in relation to the substantial exposure in the total sum of $350, 000, 000.00) that Al Koot had undertaken in favour of ECG, it said.

ECG did not receive the requested confirmation and proof of due authorisation from Al Koot by the Transfer Date, it added.

BY Melvin Tarlue