[PPT] - Ghana Power Sector Ghana Power Sector Review of Refor Review of PowerPoint Presentation

SLIDE 1

ECONOMIC C ECONOMIC CONSULTING NSULTING ASSOC SSOCIATES LIMI ES LIMITED TED 41 Lonsdale Road London NW6 6RA UK tel +44 (0)20 7604 4545 / fax +44 (0)20 7604 4547 www.eca-uk.com

Ghana Power Sector Ghana Power Sector

Review of Refor Review of Reform Programme Programme Ray Tomkins (ECA)

Workshop on 7 February 2003, Acc Workshop on 7 February 2003, Accra

SLIDE 2

Aims and Aims and Scope Scope

ECA’s consulting assignment:

Assist the Government of Ghana

Assist the Government of Ghana (GoG) to take stock of the power (GoG) to take stock of the power sector reform measures to date sector reform measures to date

Advise on further development of

Advise on further development of institutional reforms institutional reforms

Scope:

analysis of power sector restricted to

analysis of power sector restricted to review of previous documents and 1 review of previous documents and 1 week visit week visit

We were not required to carry out any

We were not required to carry out any new analysis of performance new analysis of performance

SLIDE 3

Drivers Drivers for for Change Change

Increase access to electricity

Improve efficiency to keep prices

Improve efficiency to keep prices as low as possible as low as possible

Increase management

Increase management effectiveness and effectiveness and accountability accountability

Promote private sector investment:

to help meet financing requirement for the

to help meet financing requirement for the growth, including electrification growth, including electrification

attract private investors while minimising t

attract private investors while minimising the future requirement for GoG guarantees future requirement for GoG guarantees

This needs a more mo

This needs a more modern structure for dern structure for the industry, a market, and a strong the industry, a market, and a strong regulatory framework regulatory framework

SLIDE 4

Statu Status of

f

reform reform programme programme

Create 5 distribution concessions (Distco), privatise

Not done 1997 refo 1997 reform proposal rm proposal Indic dicative tive tim time

Large consumers. Rationalise and establish basis for bilateral contracts with IPPs

EC considering new definition of eligible consumers

VRA - unbundling into 4 main activities VRA has started some work on separating accounts ECG set up a holding company for 5 DistCos

Not done

Establish separated activities as business units

Not done

Put in place performance contracts for ECG and VRA

Not done

Establish regulators and regulatory framework

2 regulators established with 2 acts, limited development

f regulatory framework

Issue regulations and technical rules for the grid and creation of wholesale market

Not done

SLIDE 5

Creating a Wholesale Market Creating a Wholesale Market

Central Central Mar Market Functi Functions

ns

Bala Balancing ncing Mar Market

TSO TSO

Dis Disco

G

IPPs IPPs

G VRA VRA

Dis Disco Dis DistCos

Elig Eligib ible le Co Consumer ers Elig Eligib ible le Co Consumer ers Fra Franchise ise Co Consumer ers Hydr Hydro

Imp Imp

rt
rts/

Expo Expo rt rts

Regulated Market Regulated Market Non-Regulated Market Non-Regulated Market

G

SLIDE 6

Current Current Situation Situation

VRA is the main producer and

VRA is the main producer and buyer of electricity, as well as buyer of electricity, as well as

perator of the transmission
perator of the transmission

system system

VRA is a dominant market player,

VRA is a dominant market player, this is a potential barrier to this is a potential barrier to competition and market competition and market development development

SLIDE 7

What is a What is a Market? Market?

An electricity market is defined by:

Who are the sellers

Who are the buyers

How they trade

SLIDE 8

Options Options for Sellers for Sellers

Sellers in Ghana will be VRA (hydro

Sellers in Ghana will be VRA (hydro plant, and thermal plant), importers, plant, and thermal plant), importers, new hydro and private thermal IPPs new hydro and private thermal IPPs

Short term competition is not

Short term competition is not possib possible with current generation e with current generation configuration configuration

too few power plants to operate a pool

o few power plants to operate a pool

Ghana is too risky for ‘merchant

Ghana is too risky for ‘merchant power plants power plants

Competition might be possible in 10

Competition might be possible in 10 years years

SLIDE 9

Options Options for Buyers for Buyers

Must be creditworthy ...

... to be able to guarantee

... to be able to guarantee financing for IPP (15 year financing for IPP (15 year bankable projects) bankable projects)

The Tico project developed by

The Tico project developed by CMS is reported to have a high CMS is reported to have a high ROE due to perceived risk ROE due to perceived risk

Three potential buyers for privately

Three potential buyers for privately financed power : financed power :

VRA

Large customers

Distribution companies

SLIDE 10

1. 1. VRA as VRA as Offtaker Offtaker

If VRA procured future thermal

If VRA procured future thermal power plants… power plants…

VRA’s current role as single

VRA’s current role as single buyer/seller would continue buyer/seller would continue indefinitely indefinitely

VRA is the most creditable buyer,

VRA is the most creditable buyer, but investors likely to continue to but investors likely to continue to seek government guarantees seek government guarantees

This is the single buyer

This is the single buyer market model market model

Need to kick-start the market

SLIDE 11

2. 2. Large Large Consumers Consumers as as Offtakers Offtakers

Private participants should have

pen access to
pen access to the transmission

the transmission network at fair and cost-reflective network at fair and cost-reflective prices prices

VRA as transmission owner must

VRA as transmission owner must be regulated: be regulated:

Transmission charges must be cost-

Transmission charges must be cost- reflective reflective

No discrimination between users

PURC should ensure transmission charges

PURC should ensure transmission charges do not do not ov

ver-recover costs

er-recover costs

ne opti
ne option is full unbundli
n is full unbundling of VRA

ng of VRA

anot

another option is t her option is the acc e accounting separat

unting separation
n
f VRA with third party access (TPA)
f VRA with third party access (TPA)

SLIDE 12

Market Model: Market Model: Bilateral Contracts with Bilateral Contracts with Balancing Market Balancing Market

Central Central Mar Market Functi Functions

ns

Bala Balancing ncing Mar Market

TSO TSO

Dis Disco

G

IPPs IPPs

G VRA VRA

Dis Disco Dis DistCos

Elig Eligib ible le Co Consumer ers Elig Eligib ible le Co Consumer ers Fra Franchise ise Co Consumer ers Hydr Hydro

Impo Imports /Exp /Export

rts

Regulated Market Regulated Market Non-Regulated Market Non-Regulated Market

G

SLIDE 13

Is Is Unbundling Unbundling

f VRA
f VRA

Necessary? Necessary?

Full unbundling of VRA would

Full unbundling of VRA would ensure ‘level playing field’ for IPPs ensure ‘level playing field’ for IPPs

Why not unbundle VRA

Why not unbundle VRA immediately? immediately?

cost

cost of restructuri

f restructuring woul

g would be hi d be high gh

still not certa

still not certain tha n that IPPs would come IPPs would come

First step should be:

Accounting separation and functional

Accounting separation and functional separation of system operator separation of system operator

Creation of market rules and grid code

Strong regulation

If this fails, move rapidly to

If this fails, move rapidly to complete unbundl complete unbundling ng

SLIDE 14

Eligible Eligible Consumers Consumers

Larg

Large consumers e consumers meeting the criteria meeting the criteria (5 MW) for eligibility in the (5 MW) for eligibility in the unregulated market unregulated market

Energy Commiss

Energy Commission is considering a

n is considering a

cha change of eligible customer ge of eligible customer definition definition

Wha

What is mos is most important is important is the the percentag percentage s share of the market are of the market

pened to competition and the
pened to competition and the

number of customers number of customers

Will the eligible customers be large

Will the eligible customers be large enough to support financing of next enough to support financing of next generation plant? generation plant?

SLIDE 15

Trading Trading Arrangements Arrangements (Market (Market Rules) Rules)

Competition in this market is for

Competition in this market is for bilateral contracts bilateral contracts

A potential new entrant must aim

A potential new entrant must aim to deliver lower average prices to deliver lower average prices than those from VRA than those from VRA

Issue

Issue: VRA currently has the VRA currently has the benefit of the existing hydro benefit of the existing hydro generation and could under-cut a generation and could under-cut a new thermal plant new thermal plant

Result

Result: VRA ends up building next VRA ends up building next thermal plant even though IPP’s thermal plant even though IPP’s plant could have been cheaper plant could have been cheaper

SLIDE 16

Competition Competition for for Contracts Contracts and Cost of and Cost of Generation Generation

VRA currentl

VRA currently sell sells at a bundl s at a bundled pri d price

The hydro is priced at financial cost

The hydro is priced at financial cost - low cost

low cost

thermal plant is

thermal plant is hig high cost cost

But VRA’s price would be lower than IPPs

One possibility

One possibility is: is:

all contracts including hydro (other t

all contracts including hydro (other than VALCo) an VALCo) priced at no less than LRMC priced at no less than LRMC

hydro-based contract offered to IPPs and large

hydro-based contract offered to IPPs and large customers customers

ffer different wholesale tariffs
ffer different wholesale tariffs

the windfall profit on hydro could be applied to

the windfall profit on hydro could be applied to rural electrification or transmission investments rural electrification or transmission investments

Pr

Problem

blem: it could raise prices

: it could raise prices

Opportunity

Opportunity: but offset by recycling : but offset by recycling the windfall profit the windfall profit

Benefit

Benefit: IPPs can compete with VRA on : IPPs can compete with VRA on equal terms equal terms

SLIDE 17

Contracts Require Balancing Contracts Require Balancing

Shortfall Shortfall Spill Spill Shortfall Shortfall An IPP and the An IPP and the set of large set of large customers they customers they supply can never supply can never exactly match exactly match the generation the generation to the load. to the load. VRA must supply VRA must supply the ba the balancing lancing service and service and recover its costs recover its costs (part of market (part of market rules) rules)

SLIDE 18

3. 3. DistCos as DistCos as Offtakers Offtakers

Could DistCos to be one of the

Could DistCos to be one of the principle offtakers? principle offtakers?

Might not be viewed as strong

Might not be viewed as strong creditable counter parties by IPPs creditable counter parties by IPPs

ECG is fa

ECG is facing major challenges , eg cing major challenges , eg losses, revenue collection etc losses, revenue collection etc

management strength is key factor

Strong requirement for regulation of

Strong requirement for regulation of power procurement at least cost power procurement at least cost

Horizonta

Horizontal unbundling into several unbundling into several companies is more likely companies is more likely to weaken the to weaken the distri distributi bution companies as buyers

n companies as buyers

Market model

Market model: ‘multiple’ single ‘multiple’ single buyers buyers

SLIDE 19

Way Way Forward Forward

Create opportunity for large

Create opportunity for large consumers to contract with IPPs consumers to contract with IPPs

This would require

non-discriminatory transmission prices

non-discriminatory transmission prices and fair access and fair access

provision of b

provision of balancing market lancing market

must be able to compete against VRA

n fair basis
n fair basis

Stre

Strengthen DistCos so the ngthen DistCos so they become credible counter-parties in become credible counter-parties in future future

Longer term there are

pportunities in the regional
pportunities in the regional

market (WAPP) market (WAPP)

SLIDE 20

Generation Generation Issues Issues

SLIDE 21

Introduction Introduction Who will Who will build the build the next next thermal thermal plant? plant?

VR

VRA is facing almost no reserves A is facing almost no reserves

In 2000, system has 1250 MW of

In 2000, system has 1250 MW of capacity with generating capability capacity with generating capability

f 7960 GWh compared to a
f 7960 GWh compared to a

requirement of 1380 MW and requirement of 1380 MW and 8340 GWh of energy 8340 GWh of energy

Even after building of T2 energy

Even after building of T2 energy will still be constrained by water will still be constrained by water

GoG wants private sector

GoG wants private sector participation, however problems participation, however problems have occurred with CMS project have occurred with CMS project

The AES project has not

The AES project has not progressed progressed

SLIDE 22

Competition Competition in Electricity in Electricity Markets Markets

3 arenas:

between existing generators for

between existing generators for dispatch in the short term (‘pool’) dispatch in the short term (‘pool’)

for long term contracts between

for long term contracts between generators and large customers generators and large customers

for new entry between investors

Short term - difficult due to small

Short term - difficult due to small number of plants and highly number of plants and highly predictable merit order predictable merit order

Long term bilateral market

Long term bilateral market requires competing wholesale requires competing wholesale suppliers and eligible customers suppliers and eligible customers

SLIDE 23

Competition Competition in a ‘pool’ in a ‘pool’ Now: Now: not possible not possible in 10 years: in 10 years: maybe maybe possible possible

Average cost c/kWh

2 1 1 2 3 4 5 6 7 8 9 200 400 600 800 1000 1200 1400 1600

Akosombo Kpong Nangbeto Tako Tico Load

Average cost c/kWh

2 1 1 2 3 4 5 6 7 8 9 500 1000 1500 2000 2500 3000

Akosombo Kpong Nangbeto New 1 New 2 New 3 New 4 Tako New 5 New 6 New 7 Tico New 8 Load

SLIDE 24

Options for Options for Creating Creating Competition Competition for Bilateral for Bilateral Contracts Contracts

Privatisation of Takodari 1

New Imports

New thermal power plants

New thermal power plants contracted to parties other than contracted to parties other than VR VRA

VR

VRA require A required to contract some of to contract some of their capacity to independent their capacity to independent wholesale suppliers (VIPPs) wholesale suppliers (VIPPs)

SLIDE 25

New New Generation Generation

Preferred option is new

Preferred option is new IPPs/eligible customers IPPs/eligible customers

Requires effective TPA (access)

Single buyer model has failed in

Single buyer model has failed in several countries several countries

If VRA procures an IPP, should

If VRA procures an IPP, should pursue an open competitive pursue an open competitive tender approach tender approach

Why should VRA be the ‘producer

f last resort’?
f last resort’?

… because it is dominant

… because it is dominant generator generator

SLIDE 26

Transmission Transmission Issues Issues

SLIDE 27

Transmission Transmission

Open Access is critical

Bilateral contract market is the

Bilateral contract market is the preferred option, therefore TPA is preferred option, therefore TPA is essential essential

Must establish an independent

Must establish an independent System Operator (functional System Operator (functional unbundling) unbundling)

Transmission (wires busine

Transmission (wires business) can ss) can stay with generation stay with generation

Accounting separation is difficult

Accounting separation is difficult to achieve, therefore tough to achieve, therefore tough regulation is essential regulation is essential

SLIDE 28

Transmission Transmission Prices Prices

High transmission charges would

High transmission charges would discourage new IPPs discourage new IPPs

In other countries, integrated

In other countries, integrated utilities try to load their costs onto utilities try to load their costs onto transmission charges transmission charges

VRA benchmark of 0.9c/kWh is

VRA benchmark of 0.9c/kWh is high (but not highest) compared to high (but not highest) compared to

ther countries
ther countries

PURC should approve major

PURC should approve major investments in advance investments in advance

Wheeling charge is only half but

Wheeling charge is only half but customer pays total 0.9 customer pays total 0.9

Calculation must be transparent

SLIDE 29

Transmission Transmission Access Access

Conditions for fair open access:

Legal access right

Planning (intentions of third

Planning (intentions of third parties to be considered) parties to be considered)

Congestion management rules

System operation and ancillary

System operation and ancillary services services

Public announcement of network

Public announcement of network capacities and availability capacities and availability

Independent governance of rules

Independent governance of rules (technical and market rules) (technical and market rules)

SLIDE 30

Responsibility Responsibility for planning for planning

VR

VRA curre A currently has responsibility ntly has responsibility

Indicative planning must be done

Indicative planning must be done centrally even in a market centrally even in a market

The SO should assume

The SO should assume responsibility responsibility

security of supply

regular and transparent planning

transmission investments subject to

transmission investments subject to approval approval

Regulator/GoG to instruct VRA to carry

ut investment if there is a shorta
ut investment if there is a shortage of

ge of IPP capacity IPP capacity

SLIDE 31

VRA’s Role in VRA’s Role in the New the New Market Market Arrangements Arrangements

SLIDE 32

Current Current Situation Situation

VRA is the main producer and

VRA is the main producer and single buyer of electricity single buyer of electricity

VRA owns the hydro capacity and

VRA owns the hydro capacity and Takoradi 1 thermal power plant Takoradi 1 thermal power plant

VRA buys power from Takoradi 2 under

VRA buys power from Takoradi 2 under a PPA with CMS Energy a PPA with CMS Energy

VRA buys imports from CIE

VRA owns the transmission system and

ffers bulk electricity for sale at bundled
ffers bulk electricity for sale at bundled

prices prices

VRA has a small distribution activity

VRA has non-core activities

VRA is the dominant player

In the medium term, VRA will be

In the medium term, VRA will be fully unbundled fully unbundled

SLIDE 33

Generation Generation Short term:

Short term:

Focus on hydro investments

Role in thermal generation should

Role in thermal generation should be restricted: be restricted:

support devel

support development of markets by pment of markets by providing balancing services providing balancing services

prevented from under-pricing hydro

Principal buyer for competitively

Principal buyer for competitively tendered thermal power projects tendered thermal power projects (only if instructed by government) (only if instructed by government)

Act as supplier of last resort

Longer term: divest thermal plant

SLIDE 34

Transmission Transmission and System and System Operation Operation

Implement accounting separation

Functional separation of SO

Transmission assets continue to be

wned by VRA
wned by VRA

VRA’s transmission function should

VRA’s transmission function should then be strongly regulated then be strongly regulated

prices

access

SO should operate system

SO should operate system according to technical and market according to technical and market rule rules

Long term: could divest

Long term: could divest transmission transmission

SLIDE 35

Distribution Distribution There is no strong reason for VRA

There is no strong reason for VRA to retain a role in distribution to retain a role in distribution (through NED) (through NED)

The future of NED should be

The future of NED should be considered along with the considered along with the re restructuring of ECG structuring of ECG

SLIDE 36

Gas Gas

VRA has taken a role in

VRA has taken a role in development of WAGP development of WAGP

As a principal buyer of gas it is

As a principal buyer of gas it is likely to be involved in the likely to be involved in the guaranteeing of the gas purchase guaranteeing of the gas purchase

No strong justification for VRA to

No strong justification for VRA to be involved in gas supply be involved in gas supply

Must fully separate gas activities

Must fully separate gas activities from power generation from power generation

PURC to ensure IPPs are offered

PURC to ensure IPPs are offered gas on non-discriminatory terms gas on non-discriminatory terms

SLIDE 37

Distribution Distribution Issues: Issues: Distribution Distribution Restructuring, Restructuring, Tariffs and Tariffs and Electrification Electrification

SLIDE 38

Current Current Situation Situation

Two entities, ECG and NED

Large customers can, in theory,

Large customers can, in theory, choose supplier choose supplier

Some management areas to

Some management areas to improve: losses, collections etc improve: losses, collections etc

Shortage of investment

What is agreed?

PSP can help improve:

management performance

capital for network expansion

establish distcos as creditworthy buyers

Some re-organisation of ECG

Some re-organisation of ECG needed needed

SLIDE 39

How Many How Many Companies? Companies?

Advantage of 1 Distco is:

the avoidance of major restructuring

financial strength a

financial strength and a d ability ility to cross- to cross- subsidise subsidise

Advantages of more than 1 Distco:

presence of more than 1 investor

differentiation between urban and rural

differentiation between urban and rural areas (create focused RE entity) areas (create focused RE entity)

management closer to ‘problem’

ECG proposes several business

ECG proposes several business units with management autonomy units with management autonomy

Issue

Issue: : Restructure first? = delay Restructure first? = delay

Opportunity

Opportunity: Attract private : Attract private partner to assist with restructuring partner to assist with restructuring

SLIDE 40

Attracting Attracting Private Private Operators Operators

To attract strong private sector

To attract strong private sector participant should be 1 or 2 participant should be 1 or 2 separate companies, ie larger separate companies, ie larger companies companies

Private sector can help, but

Private sector can help, but which way? which way?

What form of private sector

What form of private sector participation (PSP)? participation (PSP)?

Management contract

Strategic investor (eg 25% of shares)

Concession

Full privatisa

Full privatisation ion

SLIDE 41

Management Management Contracts Contracts and and Strategic Strategic Investors Investors

Opportunities for management

Opportunities for management strengthening - bring in private strengthening - bring in private

perator (utility, not consultant)
perator (utility, not consultant)

But many well-known problems

But many well-known problems with some management contracts with some management contracts

Design contract very carefully -

Design contract very carefully - good incentives good incentives

Many options:

Performance based incentive contract

Management

Management contract contractor

r not allowed

not allowed to to be investor be investor

First select

First select Strategic Investor (SI), then Strategic Investor (SI), then require them to do management require them to do management contract for 3 years contract for 3 years

SLIDE 42

One One Possible Possible Approach Approach

Select SI, grant option to buy 25%

Select SI, grant option to buy 25% in 3 years in 3 years

Immediately must undertake

Immediately must undertake management contract, steps: management contract, steps:

year 1, service contract to reorganise

year 2, performance based contract

year 3, allowed to buy shares at option

year 3, allowed to buy shares at option price subject to satisfactory performance price subject to satisfactory performance

f management contract
f management contract

How many DistCos? 2 DistCos:

1 focused on existing urban and

1 focused on existing urban and industrial customers, commercial industrial customers, commercial

p
peration, no sub

eration, no subsidies idies

1 on RE, focused output-based subsidies

1 on RE, focused output-based subsidies for investment and to cover lifeline tariff for investment and to cover lifeline tariff

SLIDE 43

Tariffs Tariffs

Major constraint of low tariffs has

Major constraint of low tariffs has been substantially removed: been substantially removed:

PURC has a transitional plan for tariff

PURC has a transitional plan for tariff increases increases

In 2003 ta

In 2003 tariff levels will be raised riff levels will be raised b by approximately 11% and reviewed approximately 11% and reviewed adjustment mechanism to take account adjustment mechanism to take account

f fuel prices and inflation, but needs
f fuel prices and inflation, but needs

improving improving

Tariffs do not cover electrification

Tariffs do not cover electrification investment requirement investment requirement

Lifeline block is too low to cover

perating costs in some areas
perating costs in some areas

Need targeted subsidy to

Need targeted subsidy to compensate utility for lifeline tariff compensate utility for lifeline tariff

SLIDE 44

Rural Rural Electrification Electrification

RE s

RE should be a key part of reform hould be a key part of reform process process

RE has generally been implemented by

RE has generally been implemented by external funds external funds

RE has not been strongly s

RE has not been strongly supported pported

A benefit of stronger RE would be to

A benefit of stronger RE would be to make reform more acceptable make reform more acceptable

Need focused RE entity

Targeted subsidies for capital

subsidies should be transparent

if necessary, also for lifeline tariff bloc

if necessary, also for lifeline tariff block

Iss

Issue: What form should RE entity be: e: What form should RE entity be:

an independent fund

a utility with RE foc

a utility with RE focus

SLIDE 45

Regulation and Sector Regulation and Sector Management Management

Licensing

Board Management Committee

Issuing licenses Amending licences Legal services

Tariffs

Tariff rules Price approvals Economic analysis Financial analysis

Regulation

Monitoring Enforcement Disputes Industry codes

Admin

Finance Public Relations IT, computers Human Relations Market supervision

SLIDE 46

Regulatory Regulatory Risk Risk

Strong regulatory framework

Strong regulatory framework required to implement a market required to implement a market

Why 2 regulatory bodies? Is 2

Why 2 regulatory bodies? Is 2 better than 1? better than 1?

Split of regulation between two

Split of regulation between two bodies weakens rather than bodies weakens rather than strengthens regulation strengthens regulation

Main concerns for private

Main concerns for private investors: investors:

Split of regulatory function increa

Split of regulatory function increases ses regulatory risk regulatory risk

la

lack of independence ck of independence

inadequate dispute resolution

inadequate dispute resolution procedures procedures

SLIDE 47

Roles of Roles of Regulators Regulators

The differences:

Ene

Energy Commission (EC) not gy Commission (EC) not independent, arm of government independent, arm of government

PURC independent

EC focuses on advice to Minister,

EC focuses on advice to Minister, plans, resource utilisation, plans, resource utilisation, technical issues technical issues

PURC focuses on fair play between

PURC focuses on fair play between utilities and consumers, prices and utilities and consumers, prices and competition = the market competition = the market

Therefore functions requiring

Therefore functions requiring independent regulation and independent regulation and balance between participants balance between participants should be done by PURC should be done by PURC

SLIDE 48

Regulatory Regulatory Functions Functions

Roles of the MOE, PURC and EC

Roles of the MOE, PURC and EC need to be clarified and need to be clarified and rationalised rationalised

Policy making and advice,

Policy making and advice, responsibility of the MOE responsibility of the MOE

Licensing, continue to be carried

ut by the Commission for now,
ut by the Commission for now,

although PURC could assume this although PURC could assume this role in future role in future

PURC may need to use licensing to

PURC may need to use licensing to enforce competition in the market enforce competition in the market

SLIDE 49

Functions Functions

f
f

Regulation Regulation

Technical standards - EC

Customer service quality standards

PURC
PURC

Technical standards of

Technical standards of performance - EC performance - EC

Tariffs - PURC

Promotion of indigenous resources

Promotion of indigenous resources and network development - EC and network development - EC

Oversight of the development of

Oversight of the development of the market and competition -PURC the market and competition -PURC

Technical rules (‘grid code’) - EC

Market rules - PURC

SLIDE 50

Independence Independence Independence is necessary to

Independence is necessary to protect interest of consumers and protect interest of consumers and producers producers

Private investors want to see

Private investors want to see re regulators make independe gulators make independent decisions decisions

Key conditions for sufficient

Key conditions for sufficient measure of regulatory measure of regulatory independence: independence:

terms for appointment and dismissal

terms for funding of the organisation

PURC needs a source of independent

PURC needs a source of independent funding funding

SLIDE 51

Weakening Weakening

f
f

Regulatory Regulatory Framework Framework

PURC’

PURC’s functi functions incl

ns include

ude the setting of tariffs, the setting of tariffs, the promotion of co the promotion of competition and the mpetition and the monit monitori ring of st ng of standa andards of performance. rds of performance. Limitations include: Limitations include:

standards of performance overlap

standards of performance overlap between PURC and EC between PURC and EC

PURC does not have power to set

PURC does not have power to set standards standards

removal or susp

removal or suspension of licence can ension of licence can

nly be recommended to EC
nly be recommended to EC

PURC must set uniform tariff but does

PURC must set uniform tariff but does not have the power to create financial not have the power to create financial mechanism to compensate loss of mechanism to compensate loss of revenues to distribution areas revenues to distribution areas (subsidies) (subsidies)

SLIDE 52

Dispute Dispute Resolution Resolution

Ene

Energy Commission Act: gy Commission Act:

disp

disputes in relation to licensing utes in relation to licensing referred referred as a complaint to the Minister as a complaint to the Minister

Minister’s decision may be challenged

Minister’s decision may be challenged in court in court

Public Utilities Regulatory

Public Utilities Regulatory Commission Act Commission Act

Compla

Complaints initially ints initially submitted to PURC submitted to PURC

PURC determines own procedures for

PURC determines own procedures for investiga investigating compla ing complaints ints

No provision for appeal or dispute

No provision for appeal or dispute against the decisions of PURC against the decisions of PURC

Need mediation and arbitration

Need mediation and arbitration steps steps

SLIDE 53

Key Key Issues for Issues for Discussion Discussion

Restructuring of VRA

What criteria to apply for success (of

What criteria to apply for success (of gradualist approach) or failure (hence gradualist approach) or failure (hence need to fully unbundle) need to fully unbundle)

Restructuring of distribution

transitional management contract, then

transitional management contract, then Strategic Invest Strategic Investor, or

r, or

direct to Strategic Investor

If more than one DistCo, how to define

If more than one DistCo, how to define their territory, size and role their territory, size and role

Regulation

which steps to strengthen the regulatory

which steps to strengthen the regulatory framework? framework?

SLIDE 54

ECONOMIC C ECONOMIC CONSULTING NSULTING ASSOC SSOCIATES LIMI ES LIMITED TED 41 Lonsdale Road London NW6 6RA UK tel +44 (0)20 7604 4545 / fax +44 (0)20 7604 4547 www.eca-uk.com

Ghana Power Sector Ghana Power Sector

Review of Refor Review of Reform Programme Programme Ray Tomkins (ECA)

Workshop on 7 February 2003, Acc Workshop on 7 February 2003, Accra

SLIDE 55

Privatisation Privatisation Sale of all or some of the equity to a

Sale of all or some of the equity to a priva private investor e investor

Advantage

Advantages

kick start the reform process

improve creditworthiness of distribution

clear governance situation

creates strongest incentives for

creates strongest incentives for efficiency improvements efficiency improvements

Di

Disadvantage sadvantages

little experience of privatisation in Africa

current climate among international

current climate among international investors is weak investors is weak

no certainty that a privatisation

no certainty that a privatisation transaction would succeed today transaction would succeed today

price for assets would be lower than if

price for assets would be lower than if distcos were in a stronger shape distcos were in a stronger shape

SLIDE 56

Concessions Concessions

Concession can be viewed as

Concession can be viewed as being positioned between a being positioned between a management contract and management contract and privatisation privatisation

Advantages

some investment risk immediately

some investment risk immediately transferred transferred

imp

improve cred

ve credit-worthiness of

it-worthiness of distribution distribution

innovative benefit sharing formulations

Disadvantages

simila

similar uncerta r uncertainties to those with nties to those with privatisation privatisation

hard to adjust the concession contract

hard to adjust the concession contract la later ter

dispute risk

insufficient interest