GHANA'S ENERGY CRISIS: DAM AT CRITICAL LEVEL; EMERGENCY

UNCLAS SECTION 01 OF 03 ACCRA 001791 SIPDIS SIPDIS SENSITIVE E.O. 12958: N/A TAGS: ECON ENRG GH SUBJECT: GHANA'S ENERGY CRISIS: DAM AT CRITICAL LEVEL; EMERGENCY GENERATION UNDERWAY Ref: A) Accra 847; B) Accra 1012; C) Accra 282 ¶1. (U) SUMMARY: This is the third in a series of cables on Ghana's energy sector. The first, ref A, provided background on the crisis and near-term remedial measures. The second, ref B, focused primarily on the impact of the crisis on the mining sector. This cable provides an update on the crisis and progress in putting in place new generation capacity. Septel will address transmission and regulatory issues. Ghana continues to face serious energy shortages. The Akosombo Dam, which historically met 60%-70% of Ghana's energy needs, is operating at one-third of its capacity. Ghanaians continue to face frequent power outages, industry is suffering production losses, and investors are increasingly cautious. Immediate plans for new generating capacity include the expansion of an existing thermal plant and refurbishing a never-used power barge. The government's longer term plans include managing demand, constructing the 400 MW Bui Dam, and pursuing nuclear energy. End Summary. -------------- CURRENT ASSESSMENT -------------- ¶2. (U) The Akosombo Dam is functioning on only two of six turbines, and the water level in the lake remains below stated "minimum" levels and hovers around the "critical" operating level. While there has been no serious discussion of abandoning the Dam, there is a growing realization that the current low water levels may be more chronic than acute and Ghana will need to look elsewhere to meet its power needs. Even with a strong rainy season, water levels in Lake Volta are unlikely to recover to levels that would enable the Dam to contribute more power next year than it did this year. On July 18, the Daily Graphic reported that a Meteorological Department spokesperson said: "...considering the time of the year, it [is] not probable for the country to get more rains in the catchment areas of the dam, a situation which makes dependence on the dam a hopeless situation." ¶3. (U) Officially, load-shedding is scheduled for 12 hours every second or third day but the Minister of Energy, Joseph Kofi Adda, was pleased to report that some relief from the load-shedding schedule is already being felt. He reiterated the GoG goal of ending load-shedding by the end of September, but many observers expect load-shedding to continue beyond 2007. The relief being experienced, in the form of unannounced respite from scheduled outages, could be due to temporary reduced demand due to relatively cool weather. Some relief is also due to resumption of a portion of power imports previously received from Cote d'Ivoire. Ghana is currently regularly receiving 30MW. Minister Adda said his largest current concern is the cost of fuel. -------------- EMERGENCY FUNDING -------------- ¶4. (U) On July 30 Parliament approved an 8.2 trillion cedi (about $885 million) 2007 supplementary budget financed primarily by divestiture proceeds and a planned sovereign bond issuance. Seven trillion cedi (about $756 million) will go to the Ministry of Energy. This represents a 734.9% increase in the Ministry's resources for 2007. Planned allocations from divestiture proceeds include: $40 million to the Volta River Authority (VRA),$29 million to the Electricity Company of Ghana (ECG),$112 million for a Reserve Fund for crude oil purchase for VRA, $150 million for crude oil for emergency plants, and $40-50 million for an escrow for purchase of gas from the West Africa Gas Pipeline (WAGP). Planned allocations from the potential bond are: $202 million investment for VRA, $65 million investment for ECG, $60 million for an upfront payment on the Bui Dam, and $30 million to buy 40% of the shares in TAQA (the UAE-based energy investment company that purchased CMS Energy) to make the GoG a 50% owner in the joint-venture thermal plant in Takoradi. -------------- IMMEDIATE GENERATING CAPACITY -------------- ¶5. (SBU) GoG has outlined the following emergency measures to meet - and surpass - the estimated 384MW deficit for 2007. [NOTE: The deficit estimate is based on the shortfall compared to power provided last year, which may still be well short of meeting actual demand. END NOTE.] The Technical Director at the Ministry of Energy, Michael Opam, estimated that 90MW of emergency power is already consistently available. Unless otherwise specified, all measures will operate on diesel in the immediate-term. --136MW/Emergency plants: The GoG purchased 127 emergency high-speed diesel generators (for a total of 126MW) from U.S. companies (ref C). As of August 10, 106 MW located in Tema were in operation, but not always in use. The GoG is currently working on commissioning ACCRA 00001791 002 OF 003 the remaining 20MW located in Kumasi before September. The GoG provides the remaining 10MW by running rehabilitated diesel plants at peak times at the Burma Camp military base in Accra. [NOTE: A VRA employee on site in Tema said that such containerized generation units are difficult to acquire in the face of growing global demand. He said it is rumored that China has laid claim to the next five years' worth of net new production. END NOTE.] --80MW/Mining firms' plant at Tema: Paid for collectively by the big four mining companies, this plant is currently not generating any electricity, but 40MW is expected by the end of August and 80MW by mid-September. --50MW/Wood Group plant at Tema: 25MW of this diesel-powered thermal plant is operational. It was supplied by Wood Group, a U.S. affiliate to a Dubai-based company. The remaining 25MW should be online by the end of September. --126MW/Tema 1 Thermal Plant: Originally slated to be operational in August, VRA now projects the plant will be operational, using oil, by the end of 2007. The GoG also plans to expand this plant to 330MW through the addition of a combined cycle. The plant is expected to run on natural gas beginning in 2008. --125MW/Osagyefo Barge near Effasu, Western Region: Under a lease agreement supported by a Power Purchase Agreement (PPA) with U.S.-owned Balkan Energy Company (BEC),the never-used barge will be refurbished and operational by the end of 2007 at a cost of $40 million. Nine months later it is slated to be converted to a combined cycle power plant, adding 60MW at an additional cost of $100 million. The deal is part of a 20-year contract that includes BEC's commitment to invest half a billion dollars to develop new fuel sources (most likely offshore gas reserves). [COMMENT: There is skepticism about whether the GoG can sustain its end of the deal, including the high cost of diesel and payment under the PPA. END COMMENT.] -------------- MEDIUM-TERM GENERATING CAPACITY -------------- ¶6. (SBU) The Minister of Energy announced recently that Ghana's energy supply will cross the 2000MW mark by mid-2008. Among the measures expected to help reach this goal are the following: --84MW/Ranhill Engineering plant in Tema: The GoG is currently finalizing an agreement with Malaysian-owned Ranhill Engineers and Contractor SDNBHD to pay 20% of the $55 million contract price upfront for a plant which will be comprised of two gas turbines, two generators, and accessories. --110MW/Expansion of existing Takoradi 220MW plant (T2): The GoG continues to keep plans to add a combined cycle turbine to increase the plant's capacity to 330MW. T2 was formerly 90% owned by CMS Energy but the parent company of CMS Energy was sold to TAQA, and the CMS interest in the plant went with the deal. The GoG voiced displeasure at not being consulted about the sale and is exercising its option to purchase additional shares in the plant to become a 50% owner. [NOTE: The expansion of T2 has been part of the GoG's plans for six years and was most recently stalled over inability to reach agreement on terms with the IFC. According to the Minister of Energy, the GoG is working out a plan to move ahead with the project with TAQA. Estimated completion for the project is two years from signing. END NOTE.] --230MW/Alstom Turbine Units in Tema: The GoG has purchased turbines from Switzerland to produce 230MW by September 2008. A contract is expected to be finalized this week that will outline the eventual conversion to a 330MW combined cycle. --200MW/Chinese IPP at Tema: An agreement was signed three months ago for this natural-gas powered plant, scheduled for 2008 completion. Its future capacity is 500-600MW. --400MW/Bui Dam: Parliament approved a $562 million mixed commercial and concessionary loan facility between Ghana and the Export-Import Bank of China for the construction of a hydroelectric dam at Bui. The supplementary budget includes using $60 million of the proceeds from the sovereign bond offering for an upfront payment on the Dam. The Dam, located on the Black Volta River near the border with Ivory Coast, is expected to be operational by 2012. A sod-cutting ceremony is scheduled for August 24. [COMMENT: The Bui Dam will be fed by the same watershed that cannot fully accommodate the Akosombo Dam. Power demand is growing throughout West Africa, which is putting additional strains on hydro resources in the watershed. END COMMENT] --Independent Power Producers (IPP): At least four private sector groups are discussing IPP deals of 200-330MW each with the GoG. Among the companies submitting proposals, at least one is U.S.-based ACCRA 00001791 003 OF 003 and there is potential U.S. interest in a second. A UK firm is interested in placing a 200MW barge near the Osagyefo Barge. --Additional projects in Effasu: The GoG has set aside 239 acres of land to accommodate the needs of the offshore barges as well as two potential coal-powered onshore projects (one under consideration by BEC, the other by the Chinese). -------------- DEMAND MANAGEMENT -------------- ¶7. (U) In the regular 2007 budget the GoG created an energy-conservation program that focuses on reducing consumption, first in industry then with the general population through initiatives such as promotion of energy-saving light bulbs. Six million compact fluorescent lamps (CFLs) will be distributed free throughout Ghana. The Ministry of Energy's Technical Director estimated that as a result, peak time energy demand will be reduced by 200-240MW. Since November 2006, Legislative Initiative 1815 has limited the manufacturing, importing, selling, and distributing of light bulbs, air-conditioners, and refrigerators and freezers that do not meet specified energy efficiency standards. -------------- LONG-TERM: NUCLEAR POWER -------------- ¶8. (U) Ghana owns a Chinese-supplied 30kw research reactor that has been operational since 1994. A Presidential Task Force on Nuclear Energy is expected to complete its report by the end of the year on the feasibility of developing nuclear power in Ghana. The nuclear option is appealing to the GoG as a means to meet its own energy shortfalls and as a potential source of revenue for Ghana within West Africa. While nuclear power would take at least 10 years to develop, the Ghana Atomic Energy Commission is already working with the International Atomic Energy Agency to develop a support plan to protect civilians and the environment from a radiological accident. -------------- COMMENT -------------- ¶9. (SBU) COMMENT: With a presidential election looming in December 2008, the ruling NPP is under intense pressure to show progress in addressing the energy crisis. As outlined above, the GoG is taking action but much of it is in the form of short-term expensive emergency plants. This may quell the immediate crisis but must be accompanied by a long-term vision that addresses generation, demand management, transmission, and tariff reform if Ghana is to attract private sector investment in energy (or other sectors) that is crucial to long-term growth. ¶10. (U) The ongoing uncertainty about reliable energy supply will undermine Ghana's ability to attract and keep investors. For example, the mining sector is falling short of predicted earnings and a long-time investor in Ghana told EconOff that expansion of his business, including a new joint venture investment with an American partner, depends on resolution of the energy crisis. End Comment. BRIDGEWATER