The West African nation is preparing to import LNG under a long-term agreement with Shell which critics say Ghana doesn’t need and can’t afford.
For 15 years, John Gakpo has milled corn to make kenkey – a cornmeal dumpling and Ghana’s staple food – in a dimly lit wooden shack in a suburb of Accra, the country’s capital.
In the past, his earnings have been sufficient to provide for his family. But Gakpo is now struggling to make ends meet.
Once the poster child economy for West Africa, Ghana is suffering from its worst economic crisis in a generation. The debt-laden nation is gripped by soaring inflation and a depreciating currency that has pushed it to default on some of its debt payments.
The energy sector has been a major contributor to the country’s financial woes. A lack of planning and unfavourable fossil fuel contracts have previously locked Ghana into paying for gas power far in excess of what it could use, pushing the sector into spiralling debt.
Electricity tariffs have increased around 50% for small businesses and households since September alone. Gakpo says his electricity bill has doubled in a year. To cope, he is cutting back buying food for his family.
John Gakpo milling corn flour in his workshop in Accra. (Photo: Emmanuel Ameyaw)
Yet opposition lawmakers, energy analysts and local NGOs have warned that Ghana’s plans to import liquified natural gas (LNG) under a 17-year agreement with oil giant Shell could make things worse.
The agreement, they say, risks pushing electricity prices even higher, perpetuate a cycle of fossil-fuel related debt and leave little space for renewable energy.
Until 2020, the UK, Germany and the African Development Bank indirectly channelled development funds for a new LNG terminal in the country.
The project is part of a $245 billion expansion of gas infrastructure in Africa, according to Global Energy Monitor. But it is among the first to allow commercial LNG imports to a Sub-Saharan African nation.
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A gamble for economic development
Ghana is heavily relying on gas to meet its growing power needs. Gas generates half of its electricity, while less than 1% comes from solar.
The government argues importing LNG will shore up Ghana’s energy security as electricity demand is projected to double between 2022 and the early 2030s.
Proponents say gas power will need to meet virtually all of this added demand, arguing that domestic gas production is reaching capacity and imports from Nigeria are unreliable.
LNG, they say, will help power the country’s industrial development, displace dirtier and more expensive heavy fuel oil and support the roll out of intermittent renewable energy.
This is tied to the construction of a $400 million LNG terminal in the port of Tema. The project aims to turn Ghana into a hub for providing LNG to the West African market.
But critics have denounced the LNG terminal as an example of how mismanaged gas and power investments are financially crippling the country and failing to deliver reliable and affordable energy. They have urged the government to suspend the project.
Analysts agree that additional gas supplies could be needed in future. But under the deal, Ghana will have to pay charges for some of the LNG even if it unable to use it –– a type of gas contract known as “take-or-pay”.
However, neither the contract nor the liabilities Ghana could incur have been made public.
For many developing countries, take-or-pay obligations can become a form of public debt, explained Accra-based analyst Rushaiya Ibrahim-Tanko, of the Energy for Growth Hub. “That’s why we are asking for these contracts to be made transparent,” she said.
Opponents say Ghana cannot afford such an opaque deal at a time when the country is receiving its 17th bailout from the International Monetary Fund (IMF), the lender of last resort.
Denis Gyeyir, the Africa programme officer at the Natural Resource Governance Institute in Accra, likened the deal to a rope “hanging around our necks” that could leave cash-strapped Ghana to “suffocate” in more debt.
Containers in the port of Tema in Accra, Ghana. (Photo: Jonathan Ernst / World Bank)
Energy sector crisis
Ghana is still unable to pay for all the power it consumes. Independent power producers have threatened to shut down their plants if the government doesn’t find a way to pay $1.7billion in outstanding debt it owes.
At the same time, the country isn’t using all its own resources. The government has allowed British oil company Tullow to flare gas from its TEN and Jubilee oil fields because it is unable to process the gas.
Flaring is a wasteful practice that releases climate-heating carbon dioxide and methane into the atmosphere and is harmful to human health.
Analysis of government data shows that between 2019 and 2022, Tullow flared or re-injected into its oil fields 325 billion cubic feet of gas – worth close to $400m, according to the Africa Centre for Energy Policy (Acep).
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In 2022 alone, Tullow flared or re-injected two and half times more gas than what Ghana could receive in LNG in the first year of the deal.
“With the amount of gas that we are flaring we could meet a lot of demand for power generation if we are able to create new processing capacity,” Charles Ofori, climate policy lead at Acep, told Climate Home.
The company, which has committed to end routine flaring by 2025, says it is committed to agree a long-term gas sales deal with the Ghanaian government.
The Tema project
Located in the eastern port of Tema, in Ghana’s industrial enclave, the LNG terminal will combine a purpose-built floating regasification unit and a former tanker converted to receive and store the liquid gas.
The project developers say the terminal will have the capacity to process 1.7 million tons of LNG a year – or around 30% of Ghana’s electricity generating capacity.
It is developed by a partnership between two leading Africa-focused private equity firms: London-based Helios Investment Partners and the Africa Infrastructure Investment Managers (AIIM).
AIIM’s investments in the project included funding from the African Development Bank, and the UK and Germany’s development finance institutions. Both the UK and Germany defended their investments in AIIM, arguing the firm funded necessary infrastructure to meet growing energy demand in Africa.
The Emerging Africa Infrastructure Fund, which is backed by European donors, and the Development Bank of Southern Africa also contributed finance.
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Keeping a low profile
First expected in 2020, the LNG terminal has been repeatedly delayed – something critics have described as “lucky”. Europe’s soaring demand for LNG to replace Russian gas pushed up prices and contributed to the delay.
Commercial operations are now expected to begin in 2025 and LNG deliveries will be phased in to reach capacity towards the end of the decade. Plans for Ghana to re-export the LNG to neighbouring countries remain elusive.
The project partners are keeping a low profile about the plans. AIIM is the only partner to have responded to Climate Home’s questions.
It said the project will ensure “a significant portion of the population in Ghana can benefit from cleaner and more economical energy sources” and help reduce the cost of power generation.
But energy analysts are concerned the opposite may be true. Extracts of the contract obtained by Acep show the price of LNG is indexed on the price of crude oil – a common practice for long-term LNG contracts which exposes countries to volatile crude prices.
Several analysis found LNG could be Ghana’s most expensive gas supply.
“What Tema LNG will do is make the electricity much, much more expensive,” opposition lawmaker John Jinapor, former deputy minister of energy, told Climate Home. “It could result in huge financial debt. It’s really serious,” he said.
A woman sets up her breakfast stand near a mobile money box on the side of the road in Accra, Ghana. (Photo: IMF Photo/Andrew Caballero-Reynolds)
Take-or-pay contracts: Ghana’s curse
Former minister Jinapor is familiar with the consequences of excessive gas contracts.
In response to a period of power shortages in 2012-2016, known as “dumsor” – literally “off -on” – his party, then in power, signed dozens of emergency “take-or-pay” power agreements with support from development finance institutions.
From a severe undersupply crisis, Ghana soon experienced the opposite problem: it became contracted to purchase gas and power beyond what it could use.
The IMF estimates that the take-or-pay contracts and inadequate power tariffs cost the country 2% of its GDP annually since 2019. At the end of 2020, a former energy official revealed excess power and unutilised gas were costing Ghana $1.2bn a year.
Among the reasons for this bloating bill was an unfavourable “take-or-pay” agreement with oil company Eni to buy 90% of gas produced from its deepwater Sankofa field off Ghana’s western coast at a high price. It was backed by $1.2bn in World Bank Group guarantees and debt financing.
But a lack of infrastructure meant Ghana was unable to use all the gas it purchased despite paying hundreds of millions of dollars annually for it. The deal was widely criticised for putting undue burden on the country’s finances.
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The World Bank argued the take-or-pay clause was necessary to make the project viable for private investors. A spokesperson told Climate Home the Sankofa development has been “key to providing energy security to Ghana”.
While there are no formal discussion to restructure the deal, the World Bank is considering another $300m loan to help Ghana clear its power sector arrears.
Tess Woolfenden, senior policy officer at Debt Justice, told Climate Home the proposed loan “exemplifies that Ghana is in a lose-lose situation with these take-or-pay contracts,” describing “a very toxic cycle” of fossil fuel investments that exacerbate debt.
Omar Elmawi, of the ‘Don’t Gas Africa’ campaign, urged African countries to stay away from “expensive and inflexible take-or-pay gas contracts” and prioritise renewable energy.
Impact on the energy transition
The fallout of Ghana’s energy sector debt has diverted investments away from sustainable development and left little room for the deployment of renewable energy.
In its 2023 budget, the government has planned to spend three times more to offset the energy sector shortfalls than on investments in the agriculture, fisheries, roads, education, gender, social protection and health sectors combined.
To address the power oversupply issue, the government suspended licences for grid-connected solar and wind projects. The six-year-old ban was only lifted in April. In 2019, Ghana postponed by 10 years a goal to achieve 10% of renewables in its energy mix by 2020.
Dennis Asare, of the think tank Imani, told Climate Home the LNG deal will continue to incentivise the use of gas and “delay the energy transition”.
“We have enormous renewable resources to meet our energy needs but the government is more focused on this LNG agreement,” he said, warning that lower-income households, like the miller Gakpo and his family, will “bear the brunt” of a deepening crisis.
Emmanuel Ameyaw contributed with additional reporting.
The reporting for this article was supported by a grant from The Sunrise Project. The story was published in partnership with The Guardian and Floodlight News.
Source link : https://www.climatechangenews.com/2023/08/04/gas-fossil-fuel-africa-ghana-debt-pollution-emissions/
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Publish date : 2023-08-04 07:00:00
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