[Federal Register Volume 79, Number 157 (Thursday, August 14, 2014)]
[Notices]
[Pages 47684-47687]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-19196]
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MILLENNIUM CHALLENGE CORPORATION
[MCC FR 14-04]
Notice of Entering Into a Compact With the Republic of Ghana
AGENCY: Millennium Challenge Corporation.
ACTION: Notice.
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SUMMARY: In accordance with Section 610(b)(2) of the Millennium
Challenge Act of 2003 (22 U.S.C. 7701-7718), the Millennium Challenge
Corporation (MCC) is publishing a summary of the Millennium Challenge
Compact between the United States of America, acting through the
Millennium Challenge Corporation, and the Republic of Ghana.
Representatives of the United States Government and Ghana executed the
Compact documents on August 5, 2014. The complete text of the Compact
has been posted at mcc.gov.
Dated: August 8, 2014.
John C. Mantini,
Assistant General Counsel, Millennium Challenge Corporation.
Summary of Millennium Challenge Compact With the Republic of Ghana
1. Overview
MCC's Board of Directors has approved a five-year, $498.2 million
compact with the Republic of Ghana aimed at reducing poverty and
accelerating economic growth (the ``Compact''). The Compact is intended
to assist the Government of Ghana (``GoG'') to increase economic growth
by addressing problems in the power sector through private sector
investment in power generation and distribution as well as improvements
that will reduce load shedding, power losses, and outages that
currently affect millions of Ghanaians (the ``Program''). The Program
will support the turnaround of Ghana's electricity sector and stimulate
private investment to create a self-sustaining sector meeting the
current and future needs of households and business while ensuring
inclusive access to power by its citizens.
2. Program Overview and Budget
The Compact focuses on turning around the main public electricity
distribution company through the introduction of private sector
participation as well as targeted infrastructure investments and
reforms in power generation. The targeted investments and reforms will
jointly contribute to a more functional, credit worthy, and self-
sustaining power sector.
Due to the desire to create sustainable change and economic growth,
MCC has made the Compact contingent on private sector participation
(``PSP'') as well as reforms intented to improve the financial position
of the distribution utilities, enable gas supply for the energy sector,
and ensure a cost reflective tariff regime. In addition, MCC included a
second tranche of conditional program funding to be made available only
if essential reforms milestones are met, including actual
implementation of the PSP transaction and continued progress toward a
cost reflective tariff.
The Compact includes base funding of $308.2 million and conditional
funding of up to $190 million which would be released only after
significant agreed-upon reforms are adopted by the GoG. The budget is
shown in Figure 1 below.
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Figure 1: Proposed Ghana Compact Budget Overview
[Compact budget overview (millions of US$)]
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MCC Tranche II
MCC Tranche I (conditional Potential
Projects (base funding) incentive total MCC
funding) funding
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ECG Financial & Operational Turnaround Project.................. 149.6 190 ..............
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NEDCo Financial & Operational Turnaround Project................ 54.2 .............. ..............
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Regulatory Strengthening & Capacity Building Project............ 5.0 .............. ..............
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Access Project.................................................. 10.0 .............. ..............
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Power Generation Sector Improvement Project..................... 16.3 .............. 498.2
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Energy Efficiency & Demand Side Mgmt. Project................... 25.4 .............. ..............
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Monitoring & Evaluation......................................... 7.6 .............. ..............
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Program Administration and Oversight............................ 40.2 .............. ..............
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Total Investment............................................ \1\ 308.2 190 ..............
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As the required conditions are met, the Tranche II funding that is
part of the overall Compact will be allocated to the Electric Company
of Ghana Financial and Operational Turnaround Project. If the
conditions to the release of Tranche II funding are not met within two
years of Entry into Force of the Compact, the $190 million will be de-
obligated from the Compact.
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\1\ Numbers do not add due to rounding.
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The Government of Ghana will contribute at least 7.5 percent of the
total amount of MCC funding towards the implementation of the Compact.
The Program can be divided into two general areas: Projects that
focus on the distribution sector, and projects that focus on the
generation sector.
3. Distribution Sector Investments
Utility Reforms: Electricity Company of Ghana (``ECG'') and Northern
Electricity Distribution Company (``NEDCo'') Financial and Operational
Turnaround Project
The ECG Financial and Operational Turnaround Project, totaling
$149.6 million, pursues a two-pronged approach--changing the governance
and management of this Ghanaian electric utility by bringing in a
private sector operator coupled with infrastructure and foundational
investments designed largely to reduce losses and improve service
quality. Specifically, the Project contains the following five
interconnected activities:
Private Sector Participation. Accepting the reform program
as a condition of the Compact will signal Ghana's willingness to take
bold moves to improve an underperforming sector that drags down
economic growth in the country.
Modernizing Utility Operations. Investments to support
integrated loss management, such as technical assistance, to provide
overall project management support.
Reduction in Commercial Losses and Improvement of Revenue
Collection. Reducing distribution system vulnerability to theft and
meter manipulation and improving metering systems, including
installation of pre-paid meters.
Technical Loss Reduction. Interventions focused on
lowering thermal losses in the distribution systems.
Outage Reduction. Reducing both the frequency and duration
of outages by introducing improved system protection and sectionalizing
devices in the distribution system.
The estimated economic rate of return (``ERR'') for the ECG
Financial and Operational Turnaround Project is 19 percent. The initial
estimated beneficiaries of this Project are 4.8 million people in the
short term and 7.8 million people long-term.
The NEDCo Financial and Operational Turnaround Project will
initially provide $5 million in technical assistance to improve
operations of NEDCo. No later than the conclusion of the first year of
Compact implementation, MCC will evaluate ERRs for possible system and
infrastructure investments and if resulting ERRs are acceptable, MCC
will make investments up to $49.2 million.
Regulatory Strengthening and Capacity Building Project
The activities under the Regulatory Strengthening and Capacity
Building Project, which totals $5 million, are two-fold--tariff review,
focused on the process of ratemaking and more specifically on the
structure of tariffs, and capacity building of the sector performance
monitoring capabilities to ensure better reporting:
Sector Performance Monitoring Capacity Building. Improving
the regulatory monitoring and independent verification of sector
performance.
Tariff Review and Regulation. Improving the tariff review
process by supporting studies that will provide critical inputs to the
redesign of the tariff structure prior to implementation of the PSP and
the next round of ratemaking and technical assistance to the
regulators.
The economic and beneficiary analyses combine the Regulatory
Strengthening and Capacity Building Project with the ECG Financial and
Operational Turnaround Project calculations as the results of the two
Projects are closely linked.
Access Project
The Access Project, totaling $10 million, will test the most cost
effective approaches to address the key constraints that micro, small
and medium enterprises (``MSMEs'') face in obtaining safe and legal
access to electricity. This small Project is designed to be innovative
and experimental--it will test several different interventions aimed at
reducing critical barriers to legal
[[Page 47686]]
connections for MSMEs in a small sample of markets and economic
enclaves and provide evidence of effective approaches to increasing
legal access for the distribution utilities. In addition to the direct
benefits the Project would have for the MSMEs, increasing access will
also expand the customer base of the utilities to include these
important stakeholders and ensure that they are beneficiaries of
improvements in the Ghanaian power sector. The Access Project will also
address the problems caused by illegal connections, improve safety and
security in target areas, and strengthen relationships between end
users, local government, and the utility companies. The Project
includes two activities:
Improving Electricity Supply to MSMEs and Social
Institutions. Upgrades will be made to target selected markets and
economic enclaves that are within the intervention sites of the ECG and
NEDCo Financial and Operational Turnaround Projects, and to the extent
possible, nearby social institutions. The activity will also provide
metered public lighting in the targeted areas.
Improving Service Delivery and Strengthening Partnerships.
This activity will seek to alleviate the various barriers (including a
high connection fee, cumbersome connection processes and weak
coordination among key actors including utility companies, local
government and the communities) that prevent MSMEs from having legal
access to electricity.
These activities are expected to contribute to increased incomes
for MSMEs; firm ERRs for this Project, however, are not yet available.
At this time, data needed to undertake an assessment of the proposed
intervention is still being collected. Robust economic evaluations will
identify promising interventions that could be scaled up during or
after the compact and will provide evidence of effective strategies for
increasing access to electricity in markets and enclaves across Ghana.
4. Generation Sector Investments
The generation sector investments adopt two strategies to make more
energy available. The first is to make better use of the electricity
already in the system by reducing waste. The second is to foster an
enabling environment for investments to expand generation capacity.
Power Generation Sector Improvement Project
This $16.3 million Project prioritizes the alleviation of major
constraints to private sector investment in generation through the
following three activities:
Operationalize the ``Gas to Power'' Value Chain. The lack
of reliable fuel supply is a significant barrier to securing affordable
and sustainable generation capacity and has led to unplanned load
shedding and outages in the past few years. The Compact will leverage
ongoing advisory support provided by USAID by providing both the
impetus to act (achievable, action-oriented conditions precedent linked
to first disbursement of project funds) and continued support to the
GoG to ensure that decisions regarding institutionalization,
commercialization, and securitization of the gas sector are informed
and serve Ghana's best interest.
Facilitate Liquefied Natural Gas (LNG) Development.
Studies have shown that even with gas from domestic sources and the
West African Gas Pipeline, Ghana will need additional fuel to support
projected increases in electricity demand. The private sector has
expressed an interest in building the required infrastructure
associated with importing LNG and MCC is funding the technical
feasibility studies required to provide a `shovel-ready' project.
Strengthen Sector Planning and IPP Framework. Ghana does
not have an active and integrated master plan to guide the development
of its growing energy sector, or an established competitive process for
procuring Independent Power Providers (``IPPs''). This has led to
uneven, opaque, and costly additions to capacity that may not be
consistent with a least cost plan. The activity will support the
development of a least cost plan that addresses generation,
transmission, distribution and demand side management in a holistic and
integrated fashion, as well as capacity building within the entities
responsible for sector planning. It will also allow the Government to
conduct more effective strategic planning for the electricity grid and
off grid systems and provide generation capacity from both traditional
and renewable sources.
The estimated ERR for this Project is 24 percent. The initial
beneficiaries of the Project are 19.6 million people and the long-term
beneficiaries are 41.8 million people.\2\
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\2\ This is a 20-year projection based on a population growth
rate of 2.3 percent.
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Energy Efficiency and Demand Side Management Project
Energy efficiency and demand-side management policies and
investments represent some of the most cost-effective means to bridge
the gap between supply and demand, serving as sources of new energy
supply. Reducing energy waste on the consumer side of the electricity
meter decreases the growth of demand and reduces the investment that is
needed in the electricity system to maintain needed capacity and
reliability. This $25.4 million Project includes four activities:
Development and Enforcement of Standards and Labels. Most
energy-using products do not have standards or labelling requirements
and the standards that do exist would benefit greatly from technical
updates and enforcement support.
Improved Energy Auditing. Energy efficiency auditing and
energy services company market support includes technical capacity-
building for energy efficiency and energy management professionals.
Education and Public Information. Awareness, education,
and information activities help assure that both technical workers and
the general public are aware of cost-effective energy saving
opportunities.
Demand Side Management Infrastructure. This activity would
support piloting of distributed applications such as solar photo
voltaic back-up power for lighting and electronics, off-grid solar
systems, and grid-connected solar systems as well as the conversion of
conventional street lights to LED street lighting.
The estimated ERR for this Project is 27 percent. The estimated
beneficiaries for this Project are 19.6 million people in the short
term and 41.8 million people long-term.\3\
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\3\ See footnote 2.
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5. Policy Reform Milestones
The Compact is tied to a number of reforms, specifically: Improving
the creditworthiness of ECG, ensuring reliable gas supply for power
generation, instituting a cost reflective tariff, and commercialization
of the distribution utilities. The GoG has given MCC certain assurances
through the negotiations process of its support for the policy,
regulatory, and institutional reform agenda reflected in the Compact
and associated conditions precedent, and that indeed those reforms in
the Program are in line with actions the GoG is already taking and
believes are necessary to ensuring a well-performing energy sector. The
proposed two tranche approach to Compact funding was also discussed
with the GoG and accepted as an important component of the program
design.
MCC required the GoG to meet a set of five policy reform milestones
prior to presenting the Compact to the Board for approval. In line with
its commitment to
[[Page 47687]]
the Compact, the GoG has met each of these milestones, as described
below.
Approval of the Gas Sector Action Plan. An acceptable
short-term Gas Sector Action Plan was submitted to MCC by the Minister
of Energy and Petroleum. The GoG, with the support of the World Bank,
is currently drafting a comprehensive long-term gas sector master plan,
which will be complete by the end of 2014. Approval of the terms of
that gas sector master plan by MCC and its adoption by the GoG are
conditions to entry into force of the Compact.
Finalize the Jubilee gas supply agreement. The Ghana
National Gas Company (``GNGC'') and Jubilee Partners have signed the
agreement related to infrastructure needed for gas supply from the
Jubilee gas fields. This agreement facilitates the completion of
infrastructure by GNGC that complements private sector infrastructure
and is a necessary predicate to commercial agreements to be signed in
the future.
Agree to PSP option for ECG and NEDCo. The details of the
agreement were discussed during Compact negotiations and are
memorialized in the compact document.
Submit an action plan to substantially reduce GoG arrears
to ECG and implement plan to move Government Ministries, Departments
and Agencies to regular and current payment of utility bills. The
Minister of Finance provided a letter to MCC on June 30, 2014 detailing
the total amount of arrears owed to ECG by the GoG and outlining a
projected path to repayment.
Continue quarterly tariff adjustments. Ghana's utility
regulator, the Public Utilities Regulatory Commission, announced a
quarterly tariff adjustment on June 27, 2014. The new tariff took
effect on July 1, 2014.
These were not easy milestones to meet, and they are instrumental
to achieving the deep and lasting change MCC and the GoG want to
achieve in the energy sector through the Compact. MCC is confident that
the GoG's strong commitment to reform will continue as the Program
moves forward.
[FR Doc. 2014-19196 Filed 8-13-14; 8:45 am]
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