A United Kingdom Court says it is too late for Ghana to appeal against a US $164 million judgment debt awarded against it for wrongfully terminating the contract of an independent power producer, Ghana Power Generation Company (GPGC) Limited.
The contract was initially worth US$ 24.9 million per annum over the contract period of four years, making US$99.6 million.
The government failed to apply and set aside the January 26, 2021 decision of the London-based United Nations Commission on International Trade Law (UNCITRAL) Tribunal.
Rather, it turned up at a London Commercial Court with two excuses as impediments–the country’s 2020 presidential and parliamentary elections and that some key officials in the Attorney General’s Office contracted COVID-19.
The three-member arbitration tribunal chaired by John Beechey, a former President of the International Criminal Court’s Court of Arbitration, and co-chaired by Prof Albert Fiadjoe, a Ghanaian academic, sided with the power producer and awarded almost US$170 million, including interest.
Out of the total, U$134.35 million represents the early termination payment claim, which itself is made up of US $69.36 million as early termination fee, US$58.49 million for mobilisation costs, US$6.46 million as demobilisation cost and US$32,448 as preservation and maintenance cost.
The tribunal also awarded US$614,353.86 against the country as the cost of the tribunal, and costs of US$3 million against Ghana, being the legal fees expended by the GPGC during the arbitration.
Major highlights of the tribunal’s decision included the fact that the Ahenkora Committee which recommended the termination of the contract did not have sufficient ground in coming to the conclusion that the GPGC was entitled to only $US18 million in early termination fees.
The tribunal, in dismissing Ghana’s case, delved into the basis for terminating the contract, stating that the evidence before it indicated that “GPGC did have a building permit for the Blue Ocean Site issued by the Kpone-Katamanso District Assembly on August 15, 2017.”
“GoG [The government] has not been able to adduce any statute or regulation, including the Energy Commission Act, which addresses the requirement for any such additional construction permit,” the Tribunal ruled.
“On the basis of the record as it now stands, it is apparent that even as Dr. Ahenkorah [Energy Commission Executive Secretary at the time] was putting up further hurdles over which he required GPGC to jump in pursuit of its provisional generation license in November 2017, the Minister of Energy was about to seek the approval of the Ghanaian Parliament of a decision to terminate the EPA along with a number of other PPAs, based upon the Report of the PPA Committee chaired by Dr. Ahenkorah,” it said.
The Delay in Challenging the Verdict
Under British law, the government had 28 days to challenge the tribunal’s decision. However, it went to sleep only to appear in court three days to the expiry of the deadline to ask for an extension.
Omnia Strategy, a British law firm, made the case for extension and asked for 56 days—twice the allowed grace period.
However, the court set March 8, 2021, for the Government to file the processes to challenge the Tribunal’s decision in January. But again, the government took a long nap until April 1, 2021, before filing. This time, another British law firm, Volterra Fietta, had instructions from the government to begin the process.
The law firm, which tagged itself as the only dedicated public international law firm in the world, explained that the new Attorney General, Godfred Yeboah Dame, had only been sworn in on March 5, and the firm received the directive to represent Ghana 10 days later.
But ruling on the matter on June 8, 2021, the court had no sympathies. It said the excuses were unreasonable and “intrinsically weak.”
The presiding judge, Justice Butcher did not hold back.
The judge said the government’s delay was “significant and substantial” as its request for a second extension had come 38 days after the statutory deadline and 27 days after the first extension expired, the Global Arbitration Review (GAR) reported.
That is not all.
He noted that the large sum of money involved in the arbitration was not enough grounds for the appeal to take as long as it did.
“The fact that the Attorney General had not been sworn until March 5 did not mean the government was unable to act in the meantime, the judge said.
While the government clothed its excuses in COVID-19 and the elections, interestingly, during the UNCITRAL arbitration process, which started on August 20, 2018, and ended on January 26, 2021, all correspondents were via email and letters.
In fact, the hearing was done virtually via zoom in October 2020 because of the COVID-19 scourge, which had forced countries into isolation.
The new A-G, Godfred Yeboah Dame, who was previously the Deputy Attorney-General, was also part of Ghana’s 22-man arbitration team led by former Attorney General, Gloria Akuffo.
On January 11, 2021, even before the tribunal gave its judgment, President Nana Akufo-Addo had appointed caretaker ministers. As of early March, although the Minister of Justice Attorney-General was not on the list of caretaker ministers, the British law firm, Omni Strategy made an appearance on behalf of the government.
While the British Commercial Court waited for the Ghanaian government, it appeared the Akufo-Addo administration’s focus was on the 2020 election petition in which the flagbearer of the National Democratic Congress (NDC), John Mahama, went to court to challenge the results of the polls, which he described as “fraudulent.”
Why the arbitration
In 2018, the GPGC opted for international arbitration as it sought compensation of more than US$134 million for what it said was the unlawful cancellation of its contract to produce electricity for Ghana.
In its counterclaim, the Government of Ghana contended that it was owed an early termination payment and sought additional damages because the company had failed to execute its part of the bargain.
The agreement between the Government of Ghana and GPGC predates the Akufo-Addo administration.
Between 2013 and 2016, Ghana struggled with an epileptic power supply. Desperate to find a solution as citizens’ anger boiled and elections loomed, the Mahama administration signed a raft of power purchasing agreements.
In February 2015, the government entered into negotiations with GPGC to provide a fast-track power-generation solution involving the relocation of two existing gas turbine combined-cycle power plants from Italy to Ghana. The power plants were to provide the country with an emergency power supply of up to 107 megawatts (“MW”) for four years
The contract was signed June 3, 2015, and endorsed by Parliament on July 23, 2015. By November 2016, the plants were shipped to Ghana after an inspection by Francis Dzata, the then technical advisor to the Minister of Power, Dr Kwabena Donkor.
However, a year after the signatures, the government set up a committee to review its power purchase agreements including that of the GPGC.
Although there was a change in government in 2017, the committee, chaired by the then Executive Secretary of the Energy Commission, Dr. Alfred Kwabena Ofosu-Ahenkora, continued its work and submitted its report in April 2017.
“In November 2017, the Minister of Energy reported to Parliament that the PPA Committee Report had recommended that four PPAs with a combined capacity of 1,810MW be deferred until 2018-2025, three PPAs with a combined capacity of 1,150MW be deferred beyond 2025 and 11 PPAs with a combined capacity of 2,808MW, among them the GPGC EPA[energy purchase agreement], be terminated,” the tribunal documents said.
The Energy Minister, Boakye Agyarko, told Parliament that: “… the Government stands to make significant savings from the deferment and/or termination of the reviewed PPAs. The estimated cost for the terminations is USD 402.39 million, compared to an average annual capacity cost of USD 586 million each year or a cumulative cost of USD 7.619 billion from 2018 to 2030.”
According to the tribunal’s documents, in an analysis of the GPGC contract, the Ahenkora Committee concluded that “ … the Committee set forth for consideration the option of termination of the EPA [GPGC ]at an estimated cost of US$ 18 million rather than the payment of an excess capacity charge of US$ 24.9 million per annum over the contract period of 4 years.”
It further reasoned that despite the high cost of its operation, the plant was likely to be idle.
“The likelihood of the plant being idle is further heightened by the fact that it is a pure natural gas-fired turbine to be located in Tema where there is inadequate gas to feed it.
“There is, therefore, a high probability of the plant remaining idle even if allowed to proceed. The actual development cost of the project to date should be verified and used as a guide in negotiations for termination,” the Ahenkorah Committee said.
The Akufo-Addo administration said it was concerned about the “substantial excess” capacity and its effect on the public purse.
However, it did not immediately terminate the contract. There were several engagements with the GPGC, including siting of the power plant, which was moved from Aboadze in the Western Region to Kpone in the Greater Accra Region.
It was on February 18, 2018, that the Ministry of Energy axed the GPGC deal, alleging that the company failed to fulfil its obligations.
The decision was based on the Attorney-General’s recommendation in a letter dated August 28, 2017. The A-G also had instructions from a Cabinet memo dated June 20, 2017, the tribunal’s documents revealed.
In its letter to the power producer, the ministry said “….[EPA] was executed during the power crises as an emergency power project. The term of the agreement commences from the signature date until forty-eight (48) days after the full commercial operation date.
It continued, “In accordance with the terms and conditions of the agreement, the agreement should have become effective on 3rd August 2015 except the parties mutually extend the period for the fulfilment of the conditions precedent to the effectiveness of the agreement.
“Following a review of the agreement and of the project, we note that the parties have not mutually extended the period for the fulfilment of the conditions precedent,” the ministry’s termination letter to the company said in full.
Offering further clarifications for tossing out the agreement, the Energy Ministry, then led by Boakye Agyarko, said:
- GPGC had neither reached financial close, nor achieved full commercial operation date, largely because some of the conditions subsequent upon which the latter commitments were dependent had not been fulfilled 30 days after the effective date.
- Contrary to the requirements of Section 11 of the Energy Commission Act, GPGC had not obtained a license to engage in the business or commercial activity for the sale of electricity from the Energy Commission. GPGC, therefore, had no capacity to execute the EPA and “(a)accordingly, the EPA is null and void for want of capacity.
- GPGC had started construction activities on site without siting and construction permits and those activities were illegal.
- The non-fulfilment of the Conditions Subsequent was: “… wholly attributable to the action or inaction of GPGC and, if, on the date of termination, any Condition Subsequent has not been satisfied by GPGC as a result for reasons attributable to GPGC, GPGC shall pay GoG the Early Termination Payment and other reasonable costs incurred by GoG within … 90 days of the issue, by GOG, of a termination notice.”
Subsequently, the Energy Commission on February 20, 2018, issued a directive signed by its Executive Secretary, Dr. Alfred Kwabena Ofosu-Ahenkorah, ordering the GPGC to stop work.
However, the company fought back, accusing the government of acting in bad faith. It said the government’s reason for terminating the contract was more financial than technical.
In its statement of claim to the tribunal, the GPGC insisted that the government delayed a number of its obligations that would have made it easy for the company to execute the contract.
These include the failure of the Mahama administration to provide a site for the plants 10-months after the contract was signed because of “unexpected reasons.”
Under the agreement, the Mahama administration was required to obtain parliamentary approval for tax exemptions for the GPGC during the operation of the plant. However, the company said in spite of repeated requests, the government failed to obtain the parliamentary approval, thereby forcing GPGC to pay certain taxes that necessarily had a negative impact on its cash flows.
Again, the company claimed that the Energy Commission unreasonably delayed and withheld the issuance of its energy generation license, while the government failed to take any steps to facilitate or expedite the approval process.
It claimed before the termination, the Ministry of Energy gave its word that the contract would not be cancelled.
From the tribunal’s document, on October 10, 2017, “at a meeting at the Ministry of Energy, GPGC was assured by Mr. Michael Opam (the Ministry of Energy’s Technical Advisor) that the GPGC project had the support of the Minister and that although other projects were to be cancelled or delayed, the GPGC project was to go ahead.
“Mr Opam told GPGC that he himself would be its point of contact for the Project. He instructed GPGC to proceed with the construction of the gas pipeline between the Blue Ocean Site [Kpone] and the nearest VRA metering station,” the court documents revealed.
After the contract was annulled, the company in a protest letter to the minister said it was surprised by the government’s action despite a number of assurances between April and July 2018 that the contract would be reinstated.
With its fate sealed, the GPGC accepted the government’s rejection and terminated the deal on August 13, 2018. According to the company, the government had concluded that it “was cheaper to terminate the EPA rather than to allow” it to continue.
It was the case of the company that, having cancelled the contract, the Akufo-Addo administration failed to honour its financial obligations–the “Early Termination Payment—under the agreement.
It, therefore, went to the tribunal to demand that the government compensate it for breaching the contract.
Judgment debt is a politically charged terminology in Ghana.
It became a by-word for corruption and weak governance in Ghana after a businessman Alfred Agbesi Woyome was paid more than 51 million cedis over what he claimed was a wrongful termination of his contract with the government in 2006.
The payment was in respect of the abrogation of a contract for the construction of stadiums for the African Cup of Nations in 2008.The Supreme Court reversed the judgment after the court found it was an avenue to “create, loot and share.”
President John Mahama set up the Judgment Debt Commission to review judgment debts that had been paid, but the comprehensive report of the Commission and its recommendations did not appear to have any effect on the menace of judgment debts that plagued the country.
The ritualistic payment of huge sums of money for abrogated contracts does not appear to be going anywhere soon.
You can reach the writer of this story, Seth Bokpe, via email at [email protected] You can follow him on Twitter @thekekeli