GHANA'S ENERGY CRISIS

UNCLAS ACCRA 000847 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ENRG ECON ETRD GH SUBJECT: GHANA'S ENERGY CRISIS REF: A) Accra 2006 00933, B) Accra 01634 ) Cotonou 232 D) Lagos 182 ¶1. (SBU) SUMMARY: his is the first in a series evaluting Ghana's energy crisis, focusing on near-term remedial power generation measures. Providing over 65 percent of the country's energy, the water level at Akosombo Dam is at a record low; dam operations are limited, load shedding is more frequent throughout the country, and the state-owned aluminum company suspended activities. The World Bank estimates that power shortages will cost Ghana's economy $980 million, or 12% of GDP, from September 2006-December 2007. The GoG is belatedly seized with the issue. The President approved the purchase of stopgap generating capacity from U.S. firms, appointed a consultant to advise him directly on energy matters, and is moving toward institutional changes such as separating generation and transmission entities. Septels will assess Ghana's longer term energy plans and sector reforms needed to alleviate the crisis. End Summary. THE CRISIS: NO SURPRISE -------------- ¶2. (SBU) Ghana's energy crisis is neither new nor surprising. Three ministers of Energy have been unable to implement tariff reform or investment strategies to address the problem. The Akosombo and Kpong dams generate 65 percent of the country's energy (1180MW); Akosombo's lowest safe operating level is 240 feet and the Volta River Authority (VRA) has confirmed it will stop over drafting and shut the Dam down when the level falls to 236 feet. On April 17, the water level was 236.7 feet. In January 2006, the water level was only 253 feet, which meant even heavy rains during the year could not have adequately replenished the lake. ¶3. (U) Not since 1998 has electricity been curtailed to either public or private entities in a crisis so severe. That crisis prompted Ghana to develop its thermal power industry, which now provides 550MW of the country's total 1730MW of power through two plants at Takoradi, T1 (330MW) and T2 (220 MW). The GOG prefers to use hydroelectric power because it is less expensive (less than three cents per kilowatt hour - kwh) than thermal power (up to fifteen cents per kwh). ¶4. (U) Ghana's current crisis is a result of: -- increasing demand (peak demand in 2005 was 1064MW domestically, 1325MW total while peak demand in 2006 was 1300MW domestically, 1420MW total); -- limited supply (until the emergency power from the U.S. firms came on line last week, no new capacity had been added since 2000); -- financial instability within the government-run power sector as costs rose without tariff adjustments to end-users or subsidy reductions. WHAT'S NEEDED? -------------- ¶5. (SBU) To mitigate the crisis, experts estimate that Ghana needs to: -- construct or procure the equivalent of 400 MW in the next two to three years; -- expand total energy supply by 35 percent by 2015 to keep up with demand (July 2006 report by Ministry of Energy's National Energy Policy); -- attract investment of $5 billion through 2015 to build generation capacity and infrastructure for distribution and transmission. (Comment: this is an estimate from the Ministry of Energy and may be somewhat high. End comment.) WHAT'S BEING DONE? -------------- ¶6. (SBU) Nation-wide load shedding began in August 2006. The Volta River Authority (VRA),which manages the Akosombo Dam, advised that outages needed to be at least 12 hours every three days, but after a few months VRA was overruled and the schedule was changed to every five days. The reprieve was short-lived. -- In late March, VRA cut back the number of operating units at Akosombo to forestall a total shutdown. This necessitated a shift in the load shedding to a cycle of 12 hour outages every second day. -- Load shedding has been officially suspended three times for political/social reasons (but outages still occurred): November 1 to 5; December 23 to January 5; and for two weeks during the March Golden Jubilee celebrations, with each suspension stressing the system even more. -- State-owned Valco Aluminum suspended operations in March. While it was operating at only about 35 percent capacity, the shutdown was a painful blow. About 500 workers were laid off and the supply of aluminum products needed for construction and manufacturing has been affected. -- On February 2 the GoG signed Letters of Intent worth $74 million with three different U.S. firms to supply a total of 90MW of power. This was subsequently revised to at least 110MW from two companies. Caterpillar generating units supplied by Ring Power with a capacity of 52MW are now operating in Tema. The government is negotiating the purchase of an additional 20MW from Ring Power. A second 20MW deal from Unatrac, another Caterpillar distributor, is slated to come on line in late April. The third deal has fallen through but the other two firms have more than made up the difference, and we understand the GoG may be planning to buy an additional 26MW from Ring power and Unatrac. -- Installation of 126 MW Tema Thermal 1 Power Plant: This $60 million turbine project is to be completed in August. It will operate on crude oil until gas is available through the West African Gas Pipeline (WAGP),which is expected to be operating by late 2007. VRA signed this deal in October and the plant is currently being constructed in France. -- Moving and/or operating 125MW Osagyefo Power Barge, currently located in Effasu (far Western coast): The never-before-used barge was built in the late 1990s. The government announced in September a plan to move it to Tema to take advantage of the WAGP. Skeptics argued the estimated $45-$60 million cost of moving and preparing the barge for operation would keep the project from moving forward. The government recently announced that there are four firms interested in operating the barge in Effasu so the plan to move is off. Comment: regardless of operating location, we do not expect the barge to be operational within the next six months. End comment. -- 30MW Thermal Power Plant at Tema: This decades-old diesel-powered plant was used before the Akosombo Dam was built and sporadically since. It was refurbished in 2003 and used briefly in 2006 but is now inoperable. The likelihood of resurrecting these plants is slim to none. INTERNATIONAL RESPONSE -------------- ¶7. (SBU) Nigeria's President Olusegun Obasanjo reportedly offered to cover Ghana's energy obligations to Togo and Benin beginning February 23 and to provide a total of between 80-150MW of energy over the medium term. Ghana is contracted to export about 80-100MW of power per day to Communaut Electrique du Bnin but is currently exporting only 25MW to Benin. Nigeria is facing its own serious energy problems and has not delivered fully. Nigeria is sending some additional power to Benin but grid issues, quality, and domestic shortages have limited the benefit and do not make up for the shortfall from Ghana. ¶8. (SBU) Cote d'Ivoire: Some observers estimated that Ghana could receive as much as 200MW from the combined input of Nigeria and a soon to be implemented agreement with Cote D'Ivoire (CDI). Comment: While 11 percent of VRA's needs in 2005 were met through imports from CDI (and much of that was passed through to Togo and Benin), Post and senior GoG officials see little prospect of support from neighbors. End comment. ¶9. (SBU) Brazil's President Lula met President Kufuor in Abuja in late November and offered to assist with additional thermal energy generation. From December 9-13, 2006 Brazil sent a high-level delegation to Ghana to conduct a technical assessment of Ghana's energy needs. After the visit, staff at the Brazilian Embassy in Accra said it is "highly possible" that President Lula would announce a plan for energy assistance around the time of the Jubilee; this help has not come. COMMENT -------------- ¶10. (SBU) The GoG is seized with finding solutions to the energy crisis but is still behind in planning and unable to make timely decisions. It is left taking expensive emergency measures that use resources needed to address other pressing development challenges. President Kufuor deserves considerable credit for his stewardship of Ghana's economy over the past six years but he is in danger of leaving a less positive and more lasting legacy of failing to address the country's energy needs and thereby undermining prospects for future growth, investment and prosperity. Ghana needs to take some politically difficult decisions to put in place sustainable solutions to its energy challenge. Among them is raising and collecting utility tariffs in order to attract private investment in the sector and provide the power and productivity increases needed to support growth. With an election pending and the rainy season just around the corner, the GoG may be tempted to postpone making decisions in hopes of a strong rainy season that will ease the pressure in the short-term. Doing so risks continuing a vicious cycle of energy crises over the medium and long term as demand grows and generation capacity increases only incrementally in response to each crisis. End Comment. Bridgewater