ECG privatisation: Gov’t opts for concession, implementation begins in 2yrs

Power Minister Dr Kwabena Donkor has confirmed that the Government of Ghana has decided to privatise state-owned power distributor Electricity Company of Ghana (ECG), but through a concession option rather than selling of equity.“When they say the ECG is to be privatised, what exactly do we mean by privatisation? I think that is the crux of the matter. Is it selling equity to the private sector? And the answer to that is no. The Government has no intention of selling ECG – partially or fully. It will be a 100 percent state-owned so that it belongs to all of us.

“There is also another aspect of privatisation where private sector practices are introduced into publicly owned assets or entities. Yes we will be doing that,” Dr Donkor confirmed in to Morning Starr’s Kafui Dey on Starr 103.5FM on Monday.

The privatisation of the ECG forms part of the conditions that Ghana must meet before it starts accessing the US$500-million dollar Millennium Challenge Compact Funds from the US government.

Dr Donkor said: “Under the Compact, the Government of Ghana and by implication the people of Ghana had to make a choice between what they call partial privatisation, in which private sector players will bring in capital for equity and the second option of concession, where part of ECG could be concessioned out to the private sector, especially direct interfacing with the public, where private sector players could be given concessions – areas to manage under defined rules, and in which they can inject capital to improve transformers, improve collections, technology to do those things, but all the assets will still be owned by the state.”

“So that is the option that the state opted for. The concession. So every single asset, every single substation, every single eleven KV transmission line will still be owned by the people of Ghana.

“There is a road map, and the US Government through the Compact arrangement is providing some capital injection, but there is a road map and the road map should end in about two years when this concession system will become effective.

“We’ll still have ECG owning all the assets but ECG will subcontract certain aspects of their work at the retail level, at the customer level, to a concessionnaire or concessionaires,” he said.

According to Dr Donkor, the private sector particiapation will not be in perpetuity. “It will be a contract. To guarantee the level of investment that they will have to bring in, it’ll have to be over 10 years. The details are still being worked out and I’m very careful [about] what I say because the terms of the various contracts are yet to be negotiated,” adding that the whole process will be transparent. “Definitely not sole sourcing. It will be opened to international competitive tender.”

In February this year, intercepted a confidential document prepared by the International Finance Corporation (IFC) titled: Ghana Power Compact Private Sector Participation Options Study for ECG. It was commissioned by the Millennium Development Corporation and the World Bank.

The document said the private partner for ECG “is expected to strengthen and improve corporate governance and management, invest in needed infrastructure to expand services, reduce losses, and improve quality of service delivery.”

It said: “with election next year the government would not want to drag this beyond that.”

With partial privatisation, “the Government sells shares in ECG to a private partner and retain partial ownership of the company. While the government will still be a part owner of the company, the private partner will be responsible for operating and managing the company, as well as investing in upgrades critical to improving services,” the document stated.

However, with concession, “the Government will enter into an agreement with the private partner where the private partner will have the exclusive right to operate, maintain and carry out investment in ECG for a given number of years. The Private Partner will have the responsibility over the operation and maintenance of all assets and investment during the period, but the government will remain the sole owner of ECG. Once the concession expires, the government will assume total control of the company. The number of years under this concession option is typically around 20 to 30 years.”

The document went on to explain further: “It is important to have a clear understanding of GoG’s principle on “Assets to remain in Government ownership or to have joint ownership through a PPP arrangement”. Two issues stand out which have been discussed with the GoG team: ownership of assets and control over those assets (and control of ECG’s operations).

Regarding the ownership of assets the issue is fairly straightforward: under a concession ECG, which is 100% owned by GoG, is the sole owner of all existing assets and the private partner is granted the exclusive right to operate those assets.

“Under partial privatisation, there is joint ownership between GoG and the private partner of ECG, with ECG owning all assets. The control of those assets, and the control over the use of those assets (and the operation of ECG), merits further review. Under either PSP option, GoG may want to have a voice in the operation of ECG, but this needs to be managed responsibly in a predictable and transparent manner…

“Under a concession, control of the assets is passed on to the private partner but ECG as conceding authority retains key monitoring powers as set out in the concession contract. GoG control is largely covered by statute through economic and technical regulation.

Under partial privatisation, GoG control can be exercised by other mechanisms other than ownership, these include a special class of shares, a golden share, and a shareholders’ agreement. The extent of GoG’s powers needs to be well understood and defined as it may have great impact on the success of the PSP option.”

The Government of Ghana was given up to the end of December last year to make a decision on the option to be used for ECG. –

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