The energy-sector debt ( 2): Breaking down the debt: Four key categories

Ghana’s USD 3 billion energy-sector debt was not a single liability owed to a single creditor. It was a web of overlapping obligations — to power producers, gas suppliers, and international financial institutions — each with its own contractual basis, payment history, and consequences for non-payment.

 By Ernest Ofori Asamoah (Prof) 

As of mid-2025, Ghana’s total energy-sector liabilities were estimated at over USD 3 billion. To understand the scale and nature of the problem, it is important to examine each category in turn.

Independent Power Producers (IPPs)

Independent Power Producers (IPPs) are private power generation companies that produce electricity to the national grid through a contract (Power Purchase Agreement) with the Electricity Company of Ghana (ECG) or the Ghana Grid Company (GRIDCo). Key operators include Karpowership, Cenpower, Sunon Asogli, Early Power, Twin City, AKSA, Centi Energy, BXC and Meinergy, among others.

The bulk of the debt owed to the IPPs did not arise solely from the electricity actually consumed. It also includes capacity charges and take-or-pay clauses embedded in their power purchase agreements. The  Take-or-Pay (ToP) is a contractual arrangement where the electricity off-taker, usually the Electricity Company of Ghana (ECG) or occasionally the Ghana Grid Company (GRIDCo), acting under government arrangements, agrees to pay an Independent Power Producer (IPP) for a fixed amount of electricity capacity, whether or not the electricity is actually used. These contractual provisions obligate the government to pay for generation capacity.

The objective of a take-or-pay contract is to reduce investor risk and make investments in  large energy projects feasible and viable due to the fact that;

• The IPP invests in building and operating a power plant.
• Government/off-taker guarantees payment for agreed capacity.
• Even if ECG does not dispatch or consume the power, payment must still be made to cover the capital invested in the project up

The IPPs were owed capacity payments, energy supplied and contractually guaranteed minimum payments.

In 2025, the government paid  USD 393 million to settle outstanding IPP obligations, covering legacy invoices, unpaid contract entitlements and capacity charges accumulated over several years.

Others include  Centi Energy, BXC and Meinergy

 Fuel Suppliers

Fuel supply liabilities represent another major component of the debt stock. Approximately USD 480 million was paid to gas suppliers associated with Sankofa gas deliveries. “Take-or-pay” and invoicing disputes (unused gas, delays in offtake, and payment shortfalls) produced large invoices. The Partial Risk Guarantee (PRG) repayment ties directly to securing these gas supplies.

Disputes over unused gas volumes, delivery delays and payment shortfalls accumulated over several years. The government settled these obligations in 2025, alongside the replenishment of the World Bank guarantee that had been partially drawn to cover the same supply chain.

Supplier	Project	Nature of Liability	Amount Settled (USD)
ENI / Vitol	Sankofa (OCTP)	Unpaid gas invoices & take-or-pay obligations	480 million
ENI-backed infrastructure	Sankofa OCTP	PRG drawdown (linked to gas supply default)	Included in PRG repayment

The World Bank Partial Risk Guarantee (PRG)

The World Bank Partial Risk Guarantee was established in 2015 as a financial instrument to support Ghana’s energy sector, specifically the Sankofa Gas Project, by providing payment security to private investors. The guarantee helped unlock nearly USD 8 billion in private investment by assuring investors that, should Ghana default on its payment obligations, the World Bank would step in to cover the shortfall.

Over time, persistent payment shortfalls led to a partial drawdown of the PRG, depleting the facility. This created a serious risk: without the guarantee in place, private gas suppliers had less protection against non-payment, potentially deterring future investment and jeopardizing existing supply agreements.

In 2025, the government repaid USD 597.15 million, inclusive of accumulated interest, to fully restore the PRG. This was one of the most consequential actions in the 2025 settlement, as failure to repay could have triggered sovereign default clauses, effectively freezing private gas supplies to Ghana.

The restoration of the World Bank PRG was not merely a debt repayment- it was the reinstatement of a USD 8 billion investment protection framework that underpins Ghana’s access to domestic gas supply.

Other Contributing Liabilities

Beyond the three major categories, Ghana’s energy-sector debt stock has historically included a range of smaller but significant obligations. These include outstanding payments to fuel importers (diesel and crude oil suppliers), arrears under the Cash Waterfall Mechanism (CWM) – the payment distribution system designed to channel ECG collections to sector players and shortfalls tied to energy-sector levies and bond instruments used to finance both renewable and thermal projects.

Smaller service providers and contractors have also accumulated arrears over the years, reflecting a broader pattern in which payment delays at the top of the value chain cascade downward through the sector.

The Landmark Settlement: A Snapshot

The government’s 2025 clearance action consolidated payments across these categories into a landmark settlement. The total outlay of  USD 1.47 billion was structured as follows:

Category	Nature of Obligation	Amount Settled (USD)
Independent Power Producers	Capacity charges, legacy invoices, take-or-pay arrears	393 million
Gas Suppliers (ENI/Vitol – Sankofa)	Unpaid gas invoices and take-or-pay obligations	480 million
World Bank PRG (incl. interest)	Replenishment of the depleted risk guarantee facility	597 million
Total	Consolidated energy-sector arrears clearance	USD 1.47 billion

Beyond the Numbers

The composition of the 2025/early 2026 settlement reveals several structural truths about Ghana’s energy-sector finances.

First, the largest single payment – the PRG replenishment – was not for energy consumed, but for a financial guarantee drawn upon because prior obligations went unmet. This underscores how contingent liabilities in the energy sector can become direct fiscal costs when left unaddressed.

Second, the IPPs and fuel supplier payments reflect years of contractual obligations that outpaced the government’s payment capacity. The gap between what was contracted and what was paid created a compounding debt stock, with interest and penalties adding to the original principal.

Third, the settlement covered only legacy arrears. The sustainability of Ghana’s energy-sector finances will ultimately depend on whether the structural reforms needed to prevent future accumulation are implemented effectively – a question I will address in my concluding remarks.

CONTINUES IN PART 3: The Road to Recovery — Reforms, Results, and the Path Forward

The post  The energy-sector debt ( 2): Breaking down the debt: Four key categories appeared first on The Business & Financial Times.

Read Full Story