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Energy Minister Signs 30MW Agreement With Karpower

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Energy Minister Signs 30MW Agreement With Karpower

By Lansana Fofanah.

The Government of the Republic of Sierra Leone through the Ministry of Energy yesterday signed a two-year Utility Grid Infrastructure and Electricity Supply Agreement with the Turkish Karadeniz Powership Kaya Bey Company Limited for the generation of electricity from its Maritime vessel already docked in Freetown.

The agreement was supposed to have been signed by the Government on the 4th of this month but the astute Minister of Energy Alhaji Kanja Sesay had to defer the signing ceremony to yesterday’s date until he was fully convinced that all terms and conditions of the agreement were met.

Giving his keynote address during the signing ceremony at the Headquarters of the Energy Ministry on Pademba Road in Freetown yesterday, Alhaji Kanja Sesay said that the outcome of yesterday’s signing ceremony was as a result of collaborative efforts of every stakeholder in the energy sector which he referred to as a strong pillar of success as testimonies on the streets of Freetown are enough to convince him to sign the contract.

“The presence of the Finance Minister to witness this ceremony is a manifestation of the commitment of this government in the energy sector. We have been collectively working together to design energy strategies and policies under the New Direction in order to increase the supply of electricity in the country. This Powership was the only available solution we have when we took over in the midst of high demand for electricity. With all that, we had to review the previous agreement made by the APC in a bid to represent the interest of every Sierra Leonean. My earlier refusal to sign the agreement, put more pressure on the Karpowership Management to address issues that were raised, and now based on the advice from the Electricity Distribution and Supply Authority (EDSA) and the Electricity Generation and Transmission Company (EGTC) I am confident to sign this agreement with the full hope that it is in the best interest of the country”, the Minister said.

Alhaji Kanja Sesay commended the Turkish Ambassador to Sierra Leone, Deha Erpek for his presence in the ceremony even though the agreement is between a private entity and the Government of Sierra Leone.

In response, the Turkish Ambassador, Deha Erpek said that this is a manifestation of the bilateral relationship between the Government of Sierra Leone and Turkey. Ambassador Erpek said that Turkish nationals are willing to tap on the business potentials of Sierra Leone as more are willing to jet in for investment.

The Regional Coordinator of Karadeniz Company, Emre Durmusoglu said that the Karpowership team together with EDSA and EGTC made significant improvement during the testing period and the vessel is now ready to operate fully.

The Finance Minister Jacob Jusu Saffa said that, the aim of the government is to cut expenses on government expenditure as the efficient and effective management of state resources are the priorities of President Julius Maada Bio.

Minister Saffa said that as a mandate, for every contract that has to be signed by any Ministry, Department and Agency, that agreement is subject to the Ministry of Finance’s approval and based on his technical adviser’s recommendation, the agreement is a gain one for the government.

He said that this Powership Agreement is in line with World Bank policies as it saves cost thereby allowing the Government to focus on other priority areas.

He expressed his desire to look into every proposal that will be sent to his Ministry in connection with energy as the aim of this government is to electrify the least town or village in the country.

Minister Saffa however cautioned every party to the agreement to be prepared to detect any early signs of problem so that there would be no break in the supply of electricity.

The Acting Chairman of EDSA Board, Eng. Sidi Bakar said that during the one week testing, three criteria were laid; to test the satisfactory operation of the Karpowership, to determine the stabilization of the power and for the Karpowership to be able to synchronize with Bumbuna and other suppliers.

He said that they were satisfied that, the Karpowership fulfilled all protocols and they are in no hesitation to sign the agreement.

Government of Sierra Leone

PRESS RELEASE

SIGNING OF THE UTILITY GRID INFRASTRUCTURE AND ELECTRICITY SUPPLY AGREEMENT BETWEEN GOVERNMENT OF SIERRA LEONE AND KARPOWER INTERNATIONAL DMCC

(Monday, 11 June 2018- Freetown Sierra Leone)

The Government of Sierra Leone represented by The Ministry of Energy, the Ministry of Finance and the Electricity Distribution and Supply Authority EDSA, have today conducted and signed a two-year Utility Grid Infrastructure & Electricity Supply Agreement with the Karadeniz Powership Kaya Bey Company Limited, (Karpowership), for the generation of electricity from its Maritime vessel docked in Freetown.

  1. Background

In a bid to alleviate the immediate power challenges and to ensure a more sustainable and affordable power supply for the next twenty four months, the Ministry of Finance, the Ministry of Energy in collaboration with the Electricity Distribution and Supply Authority, (EDSA) and the Electricity Generation and Transmission Company, (EGTC), constituted a committee to renegotiate the terms of the contract with Karpowership.

Late last year, the previous Government entered into an arrangement with Karpower International to supply 30MW for a period of 5 years at 19.596 USc/KWh. This, in excess of the average tariff paid by EDSA’s customers of 18.76 USc/KWh, would have resulted in high deficits for the Authority, a situation that has made EDSA heavily reliant on Government’s subsidies for the cost of daily operations. In general, subsidies negatively affect Government’s spending on required social sector services, particularly in education and health.

  1. Gains from Renegotiations

We are pleased to inform the general public that the Committee has successfully renegotiated the Agreement and made the following substantial gains:

  1. Reduced the tariff to 16.4 USc/KWh from the original tariff of US$19.596 USc/KWh negotiated by the former Government. This represents an annual savings of approximately US$9 million and is competitive in comparison to similar Karpower projects in Ghana and The Gambia, which have either longer durations and/or larger contracted capacity.
  1. Reduced the contracted available capacity for which EDSA is obligated to pay whether or not the power is distributed, particularly for the rainy season when Bumbuna Hydro, the least cost option, is at full capacity of 50MW. This has the effect of reducing the cash flow burden of EDSA.
  • Reduced the duration of the contract from 5 to 2 years in line with the medium term strategy of the energy sector and to minimize Government’s exposure in the event of early termination of the contract.
  1. Limited tax duty exemptions to Heavy Fuel Oil (HFO), equipment and withholding tax. Unlike the original contract negotiated by the former Government, which granted Karpower International and its affiliates blanket exemptions on all taxes and duties, under the renegotiated contract, Karpower will pay duties and taxes on most of its activities, including PAYE and GST.
  1. Reduced the foreign currency (US dollar) requirements from 100% for fuel and all other payments to 100% for fuel only and a ratio of 70% to 30 for USD to SLL for the other payments.
  • Consultation with Development Partners

In adherence to the Energy Sector Policy between Government and the Development Partners, (2016), Government consulted the World Bank Group on the renegotiated terms and conditions of the contract.

On 25th May 2018 the World Bank issued its No Objection to Government to conclude the Power Purchase Agreement with Karpower International. The Bank also recognized and commended the efforts of Government in reducing tariff and making significant savings estimated at US$ 18.0 million over the contract period of 2 years. For the purpose of transparency in handling public resources, the Term Sheet below provides a comparison between the original contract negotiated by the previous Government and the renegotiated terms of the current Government.

Summary Table of Comparison  of Terms between the new and old Agreement
Item Original Contract Terms Renegotiated Contract Terms
Capacity Payment 6.9 USc/KWh 6.4 USc/KWh
Fuel Premium 4.27 USc/KWh 2.00 USc/KWh
Fuel cost 8.426 USc/KWh 7.997 USc/KWh
Contracted Capacity

· Dry Season (7Months)

· Wet Season (5Months)

 

30MW

20MW

 

30MW

15MW

Tariff 19.596 USc/KWh 16.4 USc/KWh
Savings in Tariff 3,196 USc/KWh
Annual Payment by EDSA US$39.745mn US$30.547mn
Annual Savings by EDSA US$9.1mn
  1. Medium and Long-term Intervention

While Government is remedying the immediate power supply crisis, it is also pursuing medium and long-term arrangements, including the Cote D’Ivoire-Liberia-Sierra Leone and Guinea, (CLSG/WAPP) Transmission Line Project, the Western Area Power Generation Project (the CEC project), the Bumbuna II Hydro Project and the 60MW Solar Project, which is supported by the World Bank.

  1. Alignment with the Strategic Vision of the new Direction.

With thorough planning, coordinated investment and commitment by all sector agencies, the Ministry of Energy will continue to enhance access to electricity and other energy related activities throughout the country in alignment with the aims of the Strategic Vision:

  • Technical Audit of the Sector-for efficient and sustainable operations
  • Robust Reform-In the Generation, Transmission and distribution of power,
  • District Capital Electrification-for the decentralization of power.

Investment in low-cost renewable projects: Solar, Hydro, Wind and Biomass: For affordable and sustainable growth.

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