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Continuity and challenges for Ghana’s returning president

Ghana's returning government faces debt challenges and a slim majority in parliament, complicating its plans to tackle power problems.
Celebrations for the re-election of Ghanaian President Nana Akufo-Addo

The election in Ghana sets the path for continuity but there are challenges ahead for the incumbent, who will continue to face difficulties in the power sector.

Ghanaian President Nana Akufo-Addo won the election, receiving a mandate for another four years with 51.6% of the vote. His rival, John Mahama won 47.4%.

Akufo-Addo’s New Patriotic Party (NPP) has 137 seats in the parliament, while the opposition National Democratic Congress (NDC) received 136 seats, as of December 10. There is one independent and the results from one seat was outstanding.

There were some challenges in the election and the opposition has objected to the results.

Collaboration

Songhai Advisory’s Kobi Annan said that while the presidential vote marked a continuation, the parliamentary election may pose some challenges for governmental progress.

“Everything needs parliamentary approval but with the parties so closely tied, there will be a need for real consultation and collaboration,” Annan said.

This need to work together was noted by Akufo-Addo. “The Ghanaian people, through the results, have made it loud and clear that the two parties, the NPP and NDC, must work together, especially in Parliament, for the good of the country.”

Given the closeness of the vote this marks a shift away from the previous model of winner takes all. “The electorate is becoming more demanding. The ruling party appears to have woken up and accepted that, it remains to be seen whether the opposition will feel the same way.”

Earlier in December, the Ministry of Finance said it planned to raise $5 billion in 2021 to support government spending plans. Akufo-Addo has talked of plans for a $17 billion spending programme to support the economy. In remarks following the electoral win, the president highlighted the impact of COVID-19 on the Ghanaian economy.

Capital Economics predicted financial stimulus in the near term, although warning that the “precarious state” of Ghana’s finances “mean that austerity is likely to become the order of the day before too long”.

Upstream

In the upstream sector, the theme will be of continuity. The Songhai analyst raised some concerns about the country’s fiscal situation. Given Ghana’s “precarious debt position”, the country may seek to squeeze more revenues from oil producers.

“There have been some questions in the last two years over tax breaks in the oil and gas industry and this election may provide the administration with a chance to reset and review terms,” Annan said.

One of the key areas in the oil and gas sector that will pose a challenge are questions around the unitisation of the Afina and Sankofa fields.

The Ghanaian government has endorsed a unitised agreement. Springfield Group, which holds the Afina discovery, has welcomed the move while Eni, operator of Sankofa, has called for more information.

A Ministry of Energy representative, speaking in November on Asaase Radio, said that the necessary conditions for unitisation had been achieved.

“The minister ordered that Eni and Springfield exchange data sets. For some reason, that never happened. The interest of the government of Ghana is the oil in the ground … we want to recover as much as possible in the most efficient manner,” the official said. Unitisation is in the interests of the state, he continued.

In the NPP manifesto, the party said it had managed to reduce the price of gas from $8.8 per mmBtu to $6.08 per mmBtu. Further reductions would have been possible “if Sankofa gas was less expensive”, it said.

Opportunities

Another test of Ghana’s investment opportunities will come with Aker Energy and its Pecan field. The Norwegian company bought the assets from Hess but has struggled to make progress and has cut spending this year. Its initial plan was overly broad and it has narrowed its scope, with talk of a phased approach to development.

The Ghanaian Parliament passed a bill approving the establishment of the Petroleum Hub Development Corporation in October. This is intended to establish a new private sector hub in Bonyere, in the Western Region.

This hub plan will consist of a number of facilities, including refineries, petrochemicals and oil storage. Three contenders are competing for work, with the government expected to announce winners in January.

The plan is extremely ambitious, with the first phase targeting investment of $12 billion. Ghana National Petroleum Corp. (GNPC) has allocated $10mn to acquire land for the plan.

Power plans

This revenue challenge is manifesting particularly in the power sector. While many African states struggle with a lack of capacity, Ghana is over-contracted.

The West African state’s problem centres on paying the bills for power agreements reached during the 2015-16 dumsor crisis. Ghana pays around $500 million per year for power it does not use.

Accra lacks a “viable plan” for the power sector, said Annan, although there is clearly a desire for a solution. “The government may try to flex its authority a little more, there may be some scope for auditing the power companies.”

Ghana must pay the debts, independent power producers (IPPs) have recently warned, otherwise power shortages may return. Annan agreed that this was a possibility.

“The problem was caused in the first place by a lack of capital and that problem hasn’t been solved. Debt pervades the sector,” the analyst said.

Ghana has made some progress on tackling its power problems. Cenpower agreed in October to shift to natural gas, from oil, for power generation. The state will receive the savings made in this regard.

In the NPP manifesto, the party said it would review and restructure the energy mix to secure cheaper generation, renegotiate existing power purchase agreements (PPAs) to save money, rationalise the fuel mix for thermal plants and reduce transmission losses.

Work in progress

Ghana has paid $1 billion to the IPPs this year. The government has established the Energy Sector Recovery Programme (ESRP), in co-operation with the World Bank.

“President Nana Akufo-Addo’s re-election has further bolstered our commitment to the ESRP. We will continue to build on our previous success, including, saving Government $5 billion through bilateral negotiations with IPPs,” said a government spokesperson.

“To this end, Government calls on IPPs to continue working with Government to conclude the negotiations as soon as possible. This is all in order to reduce the financial burden and debt in the energy sector, to help achieve Government’s vision of a Ghana Beyond Aid.”

There are also potential problems on the horizon. Ghana’s power demand is growing but the government has imposed a moratorium on new plans.

Annan called for the government to take steps now to navigate the challenge. “Signing deals in an emergency puts the government on the back foot. There’s an opportunity now to think about managing that process of adding more capacity to meet future demand,” the Songhai analyst said.

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