The Ghana National Petroleum Corporation (GNPC) is working on a fall-back financing plan in the event of a default in the payment for gas supplied to the Volta River Authority (VRA) or any of the power producers.

Currently, GNPC is negotiating with some banks to issue pre-arranged letters of credits (LCs) to defray debt arising from the inability of the VRA to pay for gas received.

While declining to name the banks participating in the standby arrangement, the Import and Export Manager of the GNPC, Mr Denis Baidoo, disclosed in an interview that the entire arrangement was mooted by the corporation and the Ghana National Gas Company, which has now been subsumed into the latter in a takeover that is being finalised.

“Between GNPC and Ghana Gas, there is an arrangement in place. We have something we call standby LC, which means in the event of default by Ghana Gas in payment, we will call on the LC to effect the payment,” Mr Baidoo told the GRAPHIC BUSINESS on December 10.

Mr Baidoo said although GNPC did not have a direct dealing with ECG as far as the gas supply was concerned, GNPC was concerned about ECG’s financial challenges and its impact on payment for supplies and had expressedly communicated made itsfrustrations known at various meetings.

“It is a challenge, but we do not want to exaggerate it. Let the process begin and we will see how it goes,” he said.

The standby LC arrangement was to help ensure regular supply of gas to VRA and would also help shield GNPC’s finances from debt, Mr Baidoo said.

The issue of delayed or default in payment for gas supplies is pertinent to GNPC and the country as a whole, given that the Petroleum Revenue Management Act (PRMA), 2011, (Act 815), specifies how revenues from the country’s nascent oil and gas sector should be apportioned and expended.

The law mandates that 70 per cent of annual petroleum revenues is to be used to support the budget (Annual Budget Funding Amount (ABFA) and 30 per cent shared among the twin Ghana Petroleum Funds – the Heritage and Stabilisation funds.

As a result, any delayed payment for the supply of gas, which is the new addition to the stream of petroleum revenues, will affect the amount to be paid into the petroleum funds or the ABFA. It will also contravene Act 815, which took effect in 2011.

ECG’s inefficiencies

Currently, ECG, which distributes power to six regions nationwide, has a load-loss of about 25 per cent compared to the global standard of 17 per cent. Additionally, a bulk of the power it retails is stolen and/or not paid for, with majority of its biggest debtors being metropolitan, municipal, district assemblies (MMDAs) and state institutions.

These add to lack of investment in appropriate infrastructure and have all together made it difficult for the company to operate efficiently.

This has cumulatively affected the finances of the VRA, which generates the power for ECG to distribute.

VRA’s Planning and Business Development Officer, Mr Kofi Ellis, disclosed on December 10 that ECG owed the Authority GH¢1 billion in unpaid bills.

These financial challenges pose a headache to GNPC as far as the supply of gas to VRA is concerned, Mr. Baidoo said.

“We do acknowledge the fact that there is a whole chain and if there is a weak link in the chain, it will affect the entire arrangement. So, if for instance, ECG fails in collecting revenues, they will have issues paying VRA and that will also mean that VRA cannot pay Ghana Gas (now a subsidiary of GNPC),” Mr Baidoo