The United Nations Commission on International Trade Law (UNCITRAL) Tribunal recently awarded almost $170 million against the Government of Ghana (GoG) for the cancellation of the Power Purchase Agreement (PPA) with the Ghana Power Generation Company (GPGC) Limited. The ruling has drawn reactions from industry stakeholders. The ruling, according to some, may open the floodgates of lawsuits against the Ghanaian Government for its recent cancellation of 11 PPAs.
Background
By the end of 2016, the Government of Ghana, through the Ministry of Energy, decided to review Power Purchase Agreements (PPAs) signed under the administration of former President John Mahama. The Electricity Company of Ghana (ECG) had signed 32 PPAs totalling 7,104MW which were at various stages of execution, and another 8 PPAs with a total capacity of 2116MW were being discussed.
According to the GoG, in addition to existing hydro and thermal generation plants, the addition of the new PPAs will result in a combined capacity of 11,000MW of generation capacity for a country whose peak demand stood at 2,400MW with an annual demand projection of 10%. The GoG, therefore, decided to review the PPAs due to what it called an ‘over contracting of generation capacity the country could not utilise, which put the GoG in a Legal and financial chokehold. Therefore, the Ministry of Energy set up a committee to review the PPAs to reduce the financial burden on the government.
The committee reviewed 30 signed PPAs, and among other recommendations, approved the termination of 11 signed PPAs. According to the committee, the Ghanaian government would pay an estimated $402.39 million for abruptly terminating these PPAs. The GoG posited that terminating these contracts would save the country $6.8 billion throughout the PPA tenure (2018-2030).
The GPGC PPA
In 2015, the Government of Ghana (GoG) signed a Power Purchase Agreement (PPA) with the Ghana Power Generation Company (GPGC) Limited for the relocation of two combined cycle gas plants from Italy to Ghana to provide a temporary solution to the epileptic power supply in the country. The power plants were to add 107MW to the national grid. The PPA was signed June 3rd, 2015, by the administration of President John Mahama and ratified by the Parliament a little over a month later, July 23rd 2015.
In 2017, the administration of President Mahama was defeated in the general elections by current President Nana Akufo-Addo. The new administration set up a committee that reviewed existing PPAs and subsequently cancelled the GPGC PPA. In its review, the Ahenkora committee stated that the plant was likely to be idle. “The likelihood of the plant being idle is further heightened by the fact that it is a pure natural gas-fired turbine to be located in Tema where there is inadequate gas to feed it.” the report stated.
Following several meetings with the GPGC, the GoG in February 2018, terminated the PPA with the GPGC on the following grounds
- GPGC had not reached financial closure nor achieved full commercial operation date
- The GPGC had not obtained a license for the sale of electricity from the Energy Commission contrary to S. 11 of the Energy Commission Act (ECA)
- The GPGC began construction works without the mandatory permits
- The failure to meet the conditions precedent were solely or wholly the fault of GPGC through its “action or inaction”
While the GPGC refuted the above claims blaming the GoG for failing to keep to its obligation under the PPA on time, it agreed to terminate the PPA in August 2018.
The Legal Battle
The GPGC refuted all the claims made by the GoG as reasons for the termination of the PPA and stated that the termination was “suddenly and without any credible contractual or legal justification”. The GPGC maintains that the GoG failed to meet its obligations under the PPA.
Following the termination of the early termination of the PPA by the Government of Ghana (GoG), the GPGC were entitled to receive a payment for early termination by the government. The GPGC claimed that according to the PPA, it was entitled to four termination costs components
- US$ 69,361,680 in early termination fee outlined in Clause 25(b)(i) of the EPA
- US$ 58,492,005 in Mobilisation Costs incurred by GPGC in connection with the mobilisation of the GPGC Equipment
- US$ 32,448 in Maintenance and Preservation costs reasonably incurred by GPGC as a result of the termination of the EPA
- US$ 6,462,528 in Demobilisation Costs associated with demobilising the GPGC Equipment from Ghana
The ruling
United Nations Commission on International Trade Law (UNCITRAL) Tribunal chaired by John Beechey and Co-chaired by Prof Albert Fiadjoe. In the ruling, the GPGC was awarded termination costs and accrued interests to the tune of almost $170 million.
Just like the Nigerian case involving the P&ID ruling, the Ghanaian government failed to challenge the ruling within the stipulated time for appeals. The Court approved the application for an extension by the Government of Ghana (GoG) by twice the statutory limit. The GoG, however, failed to show up.
In the final ruling, the presiding Chair of the tribunal stated that the GoG had no valid reason for failing to challenge the ruling within the statutory time. The GoG was also ordered to pay US$ 3,309,877.74 in legal fees for the GPGC and the tribunal fees.
Conclusion
As the implications of the cancellation of 11 PPAs begin to trickle in for the Government of Ghana, it remains to be seen what measures the Ghanaian government would take to avert further lawsuits.