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
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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?
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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?
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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
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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