GPGC judgment debt: Attorney General requests formal CID investigation

The Attorney General and Minister of Justice, Godfred Yeboah Dame, has written formally to the director general of the Criminal Investigation Department (CID) of the Ghana Police Service to investigate the circumstances leading to the execution of an emergency power purchase agreement between the Government of Ghana and Ghana Power Generation Company Ltd (GPGC) which has resulted in a judgment debt of roughly US$170 million against Ghana.

In a request letter dated 6 July 2021 and addressed to the CID boss, Commissioner of Police Isaac Ken Yeboah, Attorney General Dame traces the circumstances leading to the incorporation of the GPGC as a company in Ghana on 12 May 2015.

The company’s functions were essentially to “provide, install, maintain and operate power generation, equipment and other related support services, to supplement the power requirements of power users in Ghana”.

The letter shows that, on 3 June 2015, the Government of Ghana entered into an emergency power purchase agreement with GPGC for the supply of 107MW (ISO installed capacity) from two combined-cycle plants.

As clearly expressed in the “parties’ clause” of the agreement, the agreement was entered into supposedly on an emergency basis.

Thus, performance of the parties’ obligations was made contingent on satisfaction within 30 days of conditions precedent (CPs).

Review committee

The Attorney General points out that in September 2016, the then Ministry of Power constituted an interministerial committee (the PPA Review Committee) to review the fiscal and legal implications of power purchase agreements (PPAs) executed by the government.

Judging from the report by the PPA Review Committee, this had become necessary because the government of the day realised there was a need to provide adequate and affordable power to Ghanaian citizens while avoiding excessive capacity development, which would lead to increased capacity charge payments.

“The Committee reviewed 13 executed PPAs and grouped them into (i) Committed Projects – PPAs ready to commence commercial operations, under construction or which have reached financial close and (ii) Candidate Projects – PPAs whose requisite CPs are yet to be fulfilled or waived by ECG or the relevant IPP and, thus, could be terminated. The GPGC agreement was one recommended by the Committee to be terminated.

“The reasons for the recommendation of the PPA Committee that the GPGC agreement be terminated were that (i) it would run on an emergency plant with a 5 year PPA utilizing a used equipment with high tariff, (ii) the full capacity of the project would be excess or idle, resulting in a debt of about US$115 million, (iii) the likelihood of the plant being idle was heightened by the fact that it was a pure natural gas turbine located in Tema where there was inadequate gas,” the AG’s request letter explains.

Decision to terminate

On 28 August 2017, the Akufo-Addo government terminated the GPGC contract.

GPGC rejected the Government of Ghana’s (GoG’s) termination, arguing that it constituted a repudiation of the contract, and gave GoG further opportunity to remedy the arrangement.

Inconclusive exchanges between GoG and GPGC resulted in the company finally accepting the GoG’s alleged repudiation of the contract when GPGC issued a notice of termination of the contract on 13 August 2018.

Arbitration award

Following the termination, GPGC proceeded to the United Nations Commission on International Trade Law (UNCITRAL).

On 26 January 2021 the arbitration court found Ghana to have breached its obligations under the agreement and ordered the payment of $134,348,661 together with interest dating from 12 November 2012 until the date of final payment.

The court also awarded costs of arbitration in the sum of $309,877.74 and further costs of $3 million.

Undue financial burden

According to the Attorney General, a sincere examination of the circumstances of the execution of the GPGC agreement, as well as factors accounting for the company’s success in securing an arbitral award of the substantial sum of $134 million against the government, points to the recklessness of officers involved in executing the contract.

“The decision to bind the government in obligations under PPAs unnecessarily executed, without regard to the nation’s demand and supply electricity situation, clearly represented a risk of saddling the nation with undue financial burden through a discharge of those obligations, or consequences resulting from a termination of those obligations.

“As was observed by the PPA Committee constituted by the Ministry of Energy in 2016, capacity additions were no doubt required between 2018 and 2030,” the AG’s letter reads.

“The fundamental problem, however, was that by 2016, the scheduled capacity additions from various executed PPAs far outweighed the required capacity addition for the nation inclusive of 20% reserve margin from 2018 to 2030.

“This meant that if the PPAs were left to proceed and projects completed (business as usual), there would be excess or surplus capacity. Some plants may in fact not be dispatched, yet astronomical charges will have to be paid.

“Under the ‘business as usual’ model, Ghana’s excess or surplus capacity increased from a low of 524MW in 2018 (when a few of the PPAs would be completed) to a maximum 2,887MW in 2021 (when all the projects with fully executed PPAs would have been completed).

“This would result in an average annual excess capacity of 1,463MW and costs in excess of US$586 million per annum or a cumulative cost of US$7.619 billion between 2018 and 2030,” the AG further explains.

“It is my respectful view [that] public officers in charge of the nation’s effort to boost electricity generation owed a duty to ensure the provision of affordable and adequate power whilst avoiding unwanted charges from excessive capacity development. Committing the state to PPAs generating excess or surplus power, with attendant monumental charges, is incompatible with this duty of a public officer.

“To avoid the payment of such huge capacity charges for excess or surplus power whilst the plants sat idle, the government was left with no option but to terminate some of the PPAs, following the presentation of the PPA Committee’s report,” the letter further says.

Possible criminality

In sum, the Attorney General identifies five grounds upon which he believes the agreement with GPGC represented a sure way of occasioning financial losses to the state:

i. It was one of the PPAs whose performance was totally unnecessary and was bound to result in excess supply to the nation at monumental costs at the time the Mahama administration ended.

ii. The provisions of the GPGC EPA executed in 2015, rather inexplicably, exposed the nation to liability for compensation to GPGC of amounts covering all expenses incurred by the company in mobilising its equipment, expected profits and costs of demobilising its equipment from Ghana in the event of a termination by GoG, even when CPs had not been fulfilled.

iii. The stipulation in Clause 2(a) that the “term” of the agreement shall “commence on the signature sate and continuing until forty-eight months after the full commercial operation date”, and Clause 2(b) that, the term “shall be a guaranteed period” effectively implied that the non-satisfaction of conditions precedent, as witnessed in the arbitration proceedings, still rendered GoG liable to payment of the astronomical penalty determined by Clause 25.

iv. In a complete departure from generally accepted principles of Ghana law (as is the case at common law), Clause 3(d) stipulated that a failure to satisfy a condition precedent vested the party not in default with the right to claim such payments as GPGC did.

v. GPGC’s CPs were dependent on GoG’s conditions subsequent – usually required to be fulfilled in agreements after satisfaction of CPs. This put paid to any consequence that flowed at common law from non-satisfaction of CP.

vi. The agreement, as observed by the tribunal, created no distinct timelines for CPs, conditions subsequent and other conditions, and in fact lumped their satisfaction together, showing that the parties intended the entire agreement to have full force and effect with full rights accruing to GPGC even when CPs had not been fulfilled.

Request for in-depth Investigation

Flowing from the history, analysis, findings and recommendations with regard to all that has happened with the GPGC/Government of Ghana EPA agreement, the Attorney General is convinced that some public officers along the line may have willfully caused financial loss to the state.

“I request you to make an in-depth investigation into the full circumstances of the transaction and related matters and take such action as is consistent with law,” the AG’s request concludes.

Wilberforce Asare

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