An Assessment of the Implementation Challenges of the Power Compact

Government of Ghana (GoG) and the Millennium Challenge Corporation (MCC) of the United States signed the second compact of the Millennium Challenge Compact (The Power Compact) in 2014 to improve the efficiency of Ghana’s power sector to support economic growth and reduce poverty. Under the terms of the Compact, Government of Ghana through its implementing agency, Millennium Development Authority (MiDA) was to be granted US$498.2 million. The program was to implement, among five other projects, the Electricity Company of Ghana (ECG) Financial and Operational Turnaround Project through a Private Sector Participation (PSP) agreement.

The government with advice from International Finance Corporation (the transaction advisors) chose a concession under the various PSP options, which eventually led to the selection of Manila Electric Company (MERALCO) as the concessionaire to manage the assets of ECG. As per the terms of the Request for Proposals (RfP), the new company had to meet a minimum 51 percent local content requirement. Consequently, MERALCO, after winning the bid, partnered three local companies and an Angolan company to form a consortium known as Power Distribution Services (PDS) Ghana, to enter into an agreement with Ghana.

Prior to the transfer of ECG’s assets, PDS was required by the Transaction Agreements – Lease and Assignment Agreement (LAA), and Bulk Supply Agreement (BSA) – to satisfy 45 Conditions Precedent. Critical among these conditions was the provision of a Demand Guarantee or Letter of Credit issued by a qualified bank. PDS however could not produce the required demand guarantees and proposed an alternative in the form of insurance guarantees. This was approved by government on the advice of MiDA and the transaction advisors (IFC and Hunton).

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