12 June 2018

Sierra Leone: BIO's New Direction Saves U.S.$18Million Energy, Finance Ministers Sign Karpower Ship Agreement

Monday, 11th June marked another mile stone in the energy sector as the Ministers of Energy (Alhaji Kanja Sesay) and Minister of Finance (Mr. Jacob Jusu Saffa) signed a two year utility grid infrastructure of electricity supply of the long-awaited Karpower Ship agreement at the Ministry of Energy conference hall in Freetown.

According to Minister of Energy, Alhaji Kanja Sesay, 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. He continued that in excess of average tariff paid by customers at 18.76 USc/KWh would have resulted in high deficit for the Electricity Dostribution and Supply Authority (EDSA), a situation that had made EDSA heavily reliant on Government's subsidies for the cost of daily operations. The Energy Minister further stated that subsidies negatively affect government's spending on required social sector services, particularly in education and health.

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

On 25th May, the World Bank issued a 'No Objection to Government' to conclude the Power Purchase Agreement with Karpower International. The Bank also recognised and commended the efforts of government in reducing tariff and making significant savings, estimated at US$18 million over the contract period of two 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.

The gains include - reduced 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.

Reduction of the contracted available capacity for which EDSA is obligated to pay whether or not the power is distributed, particularly for the rainy season when the Bumbuna Hydro, the least cost option, is at full capacity of 50MW. This has the effect of reducing the cash flow burden on EDSA.

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