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Investing in the
African electricity sector
Ghana
Ten things to know
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Investing in the African electricity sector – Ghana – ten things to know
Investing in the African electricity sector – Ghana
01 | Why consider Ghana?
The power sector in Ghana has approximately 2,443MW
of installed capacity, of which a proportion is already
provided by independent power producers (IPPs). Demand
is predicted to exceed 5,000MW by 2016, primarily as a
result of the Ministry of Energy’s objective of becoming a
major exporter of electricity into the West Africa Power Pool,
coupled with an increase in demand domestically, as the
government seeks to increase the electrification rate to 80
per cent by 2016. This is further fuelled by a high annual
GDP growth rate (14.4 per cent in 2011). The Government
recognises the importance of IPPs to the achievement of
these international and domestic expansion objectives.
In terms of renewable energy projects, Ghana has wind and
solar energy resources, as well as biomass and hydropower.
Around 65 per cent of Ghana’s installed capacity is
currently provided by the large-scale Akosombo and Kpong
hydropower projects. Biomass also makes a significant
contribution to the energy mix. The government is targeting
to increase the contribution of wind and solar power to 10
per cent of the country’s capacity by 2020 and has recently
enacted the Renewable Energy Law to support this objective.
02 | What is the structure of Ghana’s power
sector?
The Ministry of Energy is responsible for setting energy
policy, including in the power sector. Prior to 2008, the
Volta River Authority (VRA) was the state utility responsible
for electricity generation, transmission and distribution
throughout Ghana. The VRA is wholly owned by the
Government of Ghana and was established in 1961 under
the Volta River Development Act. Through its subsidiary
company, the Northern Electricity Department (NED), the
VRA remains responsible for (and is the sole distributor
of) electricity in the northern regions of Ghana (being
the Brong-Ahafo, Northern, Upper East, Upper West, and
parts of Ashanti and Volta Regions of Ghana). As a result
of the unbundling process completed in 2008, another
state utility, the Electricity Company of Ghana (ECG), was
established for the purpose of purchasing electricity from
the VRA at a bulk tariff and distributing power in the
southern regions. ECG is a private limited company that is
wholly owned by the Government of Ghana.
As part of power sector reforms implemented in 2005, the
VRA’s mandate was restricted to electricity generation and
the electricity transmission functions of VRA have been
transferred to the Ghana Grid Company Limited (GridCo)
02 Norton Rose Fulbright
(a process completed in 2008). GridCo is responsible for
operation of the National Interconnected Transmission
System (including dispatch), bulk power purchase of
electricity from generators and sale to NED and ECG. It
is also intended that the VRA’s distribution functions in
the northern region of Ghana, currently vested in NED,
will be transferred to the ECG, thereby creating a national
distribution utility.
Generators wishing to be connected to the transmission
system must enter into an electrical connection agreement
with GridCo.
Ghana has two regulatory entities for the electricity sector.
Generation licences are granted by the Energy Commission,
which is also responsible for formulating electricity policy
and rules governing the electricity sector, including a grid
code. The Energy Commission is essentially a technical
regulator. The Public Utilities Regulatory Commission
(PURC) is responsible for the economic regulation of the
electricity sector in Ghana (as well as gas and water),
including the setting of tariffs.
03 | Does the Government participate in IPPs?
The government has interests in most of the four IPPs in
Ghana, indirectly, as a result of the participation of VRA
or the Social Security and National Insurance Trust in the
equity of the project. However the government’s main role
in IPPs is as the power purchaser. Whilst VRA, GridCo and
ECG all have the ability to purchase power from IPPs, none
of them has sufficient covenant strength to facilitate the
financing of a project where they are the offtaker without
some form of government support.
There is no consistent approach to providing government
support for the IPPs that have been developed in Ghana to
date. The issue has been approached in slightly different
ways on two of the more recent IPPs for which power
purchase agreements (PPAs) have been signed. In one case
the Ministry of Energy entered into the PPA directly with
the project company. In the other case the PPA was entered
into by ECG and the Government of Ghana entered into a
support agreement with the project company to augment
the risk allocation and credit profile of the project.
The Ministry of Energy has recently commented, in the
context of renewable energy projects, that it is reluctant to
provide government guarantees to support power projects.
Instead it prefers developers to seek World Bank support
Investing in the African electricity sector – Ghana – ten things to know
in the form of MIGA/partial risk guarantees. It remains to
be seen whether this signals a shift in policy and, if so,
whether it is confined to the renewable sector or will apply
to thermal power projects as well.
04 | How are tariffs established?
Historically, one of the disincentives to private sector
investment in power generation projects in Ghana was the
prevailing level of tariffs, which were considered to be too
low to be economic. This was partly due to the legacy by
which the majority of Ghana’s power was generated by
hydropower projects, as the costs per kilowatt hour are
lower for hydropower than for a thermal power project.
Tariffs have been increased on numerous occasions
by PURC, with the aim of moving towards a more cost
reflective tariff. However there is competing pressure to
keep consumer tariffs as low as possible, which hampers
the establishment of fully cost-reflective tariffs that would
support IPPs.
IPP developers have preferred to enter into power purchase
agreements directly with the Government of Ghana or
with the ECG, in order to establish an economic tariff.
Notwithstanding this, the continued move towards costreflective tariffs by PURC will be a key factor in the growth
of the IPP sector in Ghana.
05 | What are the fuel supply risks?
Possibly the biggest constraint to the development of
thermal IPPs in Ghana, as is the case in many emerging
markets, is the availability of a reliable fuel supply. Take
for example, the privately developed Sunon Asogli 560MW
power plant at Tema. The project is a Ghanaian and
Chinese joint venture which was not project financed and
therefore not subject to the usual bankability requirements
of a project financed IPP (such as a secure long-term fuel
supply). Although construction of the first phase of the
project was completed in mid-2009 it is not currently
generating electricity, as it is reliant upon gas supply from
the West African Gas Pipeline (WAGP).
It had been anticipated that WAGP would play a major role
in delivering Ghana’s energy security and is encouraging
the development of gas fired IPPs. However, the supply
of gas through WAGP has been repeatedly delayed or
suspended through a combination of vandalism in Nigeria
and other Nigerian supply constraints.
It is unlikely that developers, lenders and indeed the
Ghanaian government acting as offtaker would be willing
to assume the supply risk that would be inherent in
relying on the delivery of gas from WAGP until a regular
and reliable supply of gas through WAGP is established.
The only alternative supply of gas, being associated gas
from the Jubilee field development in the West of Ghana,
is unlikely to come on-stream for at least two years and is
dependent upon the construction of suitable processing
and pipeline infrastructure.
The lack of a reliable gas supply has resulted in a number
of existing power plants being configured to operate on
both gas and liquid fuel, such as the 340MW Cenpower
project in Tema and the nearby Kpone Project being
developed by African Finance Corporation and Infraco.
06 | What is the typical risk allocation
for IPPs in Ghana?
As discussed earlier there is no standard form of PPA in
the Ghanaian market. Nevertheless, the power sector is
relatively small and the negotiation of new PPAs tends to
be supervised from the government’s perspective by staff
who have been involved in earlier PPA development and
negotiations. Some of the PPAs that have been entered
into to date have provided developers with a robust risk
allocation that is in line with project finance norms for
emerging markets. Therefore developers should be able
to achieve a bankable risk allocation.
The tariff structure under precedent PPAs in Ghana (which
are for thermal plants) provides for the payment of capacity
charges for dependable capacity and energy charges for
electrical energy delivered. Fuel is sometimes tolled by
the offtaker, therefore the need for fuel costs to be passed
through the project company is avoided. However, a fuel
adjustment payment/deduction is included to ensure that
the project company takes the energy conversion risk.
It has been customary for the government to accept
responsibility and to provide revenue protection to the
project company for risks typically classified as “political
risks” (ie, by paying capacity charges on the basis of a
deemed available capacity during periods when the project
company (or offtaker, where applicable) is adversely affected
by political risks). This includes risks such as war, civil
commotion, expropriation, embargo, changes in law, etc.
Whilst revenue protection is not provided for natural
force majeure events (as is customary in project financed
transactions in emerging markets), some PPAs provide
for an extension to the term of the PPA that is sufficient to
enable the project company to receive capacity charges that
it was not able to earn as a result of a natural force majeure
event together with any increased costs suffered as a result
of such natural force majeure event.
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Investing in the African electricity sector – Ghana – ten things to know
PPAs have also imposed a requirement on the offtaker to
provide a stand-by letter of credit in an amount equal to three
months’ capacity and energy payments on a revolving basis.
This provides increased credit enhancement for projects.
service costs and distributions of equity following the
winding up of the business are freely convertible without
restriction. An authorised dealer bank must be used to
execute the conversion.
07 | What governmental approval is required
for PPAs?
09 | What is the scope of a typical Ghanaian
security package?
Article 181(5) of the Ghanaian Constitution provides that
any international business or economic transaction to
which the State is a party requires parliamentary approval
before it can become effective. Prior to May 2012 it was
generally considered by Ghanaian lawyers, in the absence
of judicial interpretation, that Article 181(5) applied
to transactions to which the State and international
companies were parties. Therefore, where the Government
of Ghana contracted with a Ghanaian project company,
albeit one that was majority owned by international
sponsors, the general view was that such contracts did not
constitute international business transactions and therefore
parliamentary approval was not required for them to
become effective. However, in the case of Attorney General
v Balkan Energy Co. LLC (a project company supplying
power generated by a power barge to the Government
under a PPA), the Supreme Court of Ghana found that the
PPA constituted an international business transaction for
which Parliamentary approval was required but had not
been obtained.
As a result of the decision in the Balkan case, developers
and investors are advised to obtain either: (a) Parliamentary
approval for the transaction; or (b) certification by the
Attorney General in respect of the particular transaction,
post structuring of the transaction, to confirm that the
substance of the transaction is not international and the
transaction is an ordinary commercial transaction rather
than a major transaction that could fall within Article 181(5)
of the Constitution. It is possible that future legislation
will clarify the scope of Article 181(5) of the Constitution.
However, in the interim, developers and investors should
take a cautious approach to ensuring that any contract with
the Government is binding on the Government.
In our experience the typical Ghanaian law security
package on a project financed power project in Ghana
has included:
• legal mortgage over the land forming the site (which
can also be granted over leasehold interests in land,
including sub-leases which are commonly encountered,
particularly on projects located in the Tema industrial
area, as well as freehold interests);
• fixed charges over movable assets, account balances,
book debts, contractual rights, goodwill and intellectual
property rights;
• floating charge over the entire undertaking of the project
company; and
• a pledge of shares in the project company (usually a
Ghanaian limited liability company).
A legal mortgage is a registrable security interest under
the Land Titles Registration Law 1982 (in the case of land
situated in a registration district) and under the Land
Registry Act 1960 (in the case of other land). It creates a
right for the mortgagee to take possession and to obtain an
order for the sale of the mortgaged property in the event
that the mortgagor defaults on the loan secured by the
mortgage. If a legal mortgage is not registered it will be
void. Certificates of registration take a significant amount of
time to be obtained, therefore the practice is for lenders to
allow financial close to occur in reliance on evidence that
the document creating the mortgage has been lodged for
registration with the relevant registry.
Ghana’s exchange controls were relaxed substantially in
2006, so that now it is only necessary for the repatriation of
funds to be done by authorised dealer banks. These banks
report foreign exchange transactions to the Bank of Ghana,
but no exchange controls are imposed.
Fixed and floating charges over assets of a company are
subject to registration with the Registrar of Companies
pursuant to the Companies Code 1963 and also with the
Collateral Registry maintained by the Bank of Ghana
under the Borrowers and Lenders Act 2008. Filing must be
completed within 28 days of creation of the charge, failing
which the charge will be void (and all monies secured by it
become immediately due and payable).
Businesses with foreign investment in Ghana are
required to register with the Ghana Investment Promotion
Centre, which guarantees that dividends, foreign debt
A share pledge is created by an agreement requiring the
chargee to deposit share certificates and an executed share
transfer form with the chargor to enable the chargor to
08 | What protections do foreign investors
receive?
04 Norton Rose Fulbright
Investing in the African electricity sector – Ghana – ten things to know
effect a transfer of the shares upon an enforcement event
under the share pledge agreement. Share pledges must be
registered with the Collateral Registry. The chargor should
also serve notice on the company of its interest in the shares
to ensure that the company is required to note the security
interest in its register of members. Following notice, the
company is prevented from registering any transfer of the
secured shares without the chargor’s consent.
Stamp duty is payable on any instrument executed in
Ghana, or which relates to property in Ghana. Documents
creating security over assets in Ghana are therefore subject
to stamp duty. The rate of stamp duty varies, but can be up
to 1 per cent of the value of the secured property. The effect
of a failure to have a document stamped is that it cannot be
used as evidence in any proceedings in Ghana and, in the
case of a security document, it cannot be registered.
projects (such as VRA’s 2MW solar PV plant that has been
constructed in the north of Ghana).
The lack of clarity on the level of the feed-in tariff and the
determination of renewable energy procurement targets
would appear to somewhat undermine the effectiveness of
the Renewable Energy Act in the short term.
Prepared by Norton Rose Fulbright LLP in conjunction with
Oxford & Beaumont Solicitors (Ghana).
Ghanaian law security can be held on trust for the secured
finance parties. Enforcement of security is subject to
a minimum 30 days waiting period pursuant to the
Borrowers and Lenders Act 2008, following the expiry
of which the security trustee can take possession of the
charged asset and dispose of it without the need for court
enforcement proceedings.
10 | Are incentives offered to renewable
energy producers?
The Renewable Energy Act 2011 introduces a feed-in tariff
and provides for the establishment of a renewable energy
fund which will be used to pay for the promotion and
development of renewable energy sources as well as to fund
the feed-in tariff. Ghana already has extensive hydropower
and biomass generation capacity but it is intended that the
Renewable Energy Act will stimulate a significant increase
in the country’s solar, wind and biomass installed capacity.
The Act provides renewable power producers with rights of
grid access.
The feed-in tariff levels are being established by PURC on
the basis of, among other things, the technology and the
installation costs. The Renewable Energy Act also imposes
minimum renewable energy purchase quotas on the
distribution companies, however the actual quantification
of the quotas is under development by PURC.
The government is looking to pay for the renewable
energy fund through a mixture of a levy on biofuels
exports, government money and EU funding. In addition
to providing fiscal incentives, the fund will be used to pay
for capacity building in the renewable energy sector, grid
expansion and the development of technology and pilot
Norton Rose Fulbright 05
Investing in the African electricity sector – Ghana – ten things to know
Total package
We have been active throughout Africa as legal advisers
on transactions in the power sector for many years. Power
generation and transmission projects are a core part of
our business. We have extensive experience working with
and advising sponsors, lenders, developers, bilateral and
multilateral organisations and governments in Africa. We
also advise on the regulatory changes which are being
introduced in the energy sector of many African countries.
More generally, teams from across Norton Rose Fulbright
have worked on a wide range of project and trade
financings, mergers and acquisitions, securities offerings,
investment trusts, privatisations and dispute resolutions.
Most of these transactions have involved substantial
due diligence and extensive dealings with the relevant
governmental authorities, companies concerned and local
counsel. Accordingly, we are familiar with the requirements
and structures usually sought by project sponsors, lenders
and governments alike.
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Investing in the African electricity sector – Ghana – ten things to know
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