Tell us about the latest developments in the energy sector, especially electricity production. Tell us how severe the power crisis is. We spoke about it two years ago. What have been the changes and the progress on the ground?
As far as the power crisis is concerned, it started in 2012 when we had difficulties with the gas supply from Nigeria. That was the genesis of the power difficulties that we had and it went on for a while until the then government intervened in 2014, 2015, and 2016. They brought in some emergency solutions with what we call emergency power plants. That helped alleviate the power crisis. Today as we speak, we are not in a power crisis mode. Since January we have not had any rotating outages. Any time that you go for a short term solution; it tends to be very expensive. We have had power plants that are so expensive to run but because we need them we continue to operate them. Once the power crisis is over we will focus on the future. We need power plants that produce power competitively and give the chance for our industries to produce competitively and compete with others in the global space or even just in the sub region. We are focusing on long term power plants now, not just short term solutions but the long term power requirements of the country to help with the economic growth.
VRA is the main producer and supplier of electricity in Ghana, what role is VRA playing in developing the sector? What are the major projects?
We have been in this business for more than 52 years and we have been the pioneers in power generation not only in Ghana but in the sub region. We know how to do our business. In the past we were the only player but now we have competitors. There are independent power producers who compete with us. In spite of the government's introduction of private sector participation as a policy in the power generation space, we still produce today between ourselves and our joint venture partners about 70% of the power in Ghana. We have a portfolio of just over 2,000 megawatts split into 50% hydro and 50% thermal. We have captured a lot of market space in the country. We will continue to do that. The next frontier that we are approaching is the renewable sector. We have made a corporate decision to take at least 70% of the renewable space that the government policy looks at and we will continue to develop these renewable projects.
We started off with a small project in a place called Navrongo in the north to give us an idea of how it would be to develop an operating experience for solar power plant operation. We have gone beyond that now and we are going into large scale solar power plant operations. With the help of the German funding agency KFW, we have two projects in the northern parts of the country. One is in a place called Kalu and another in Bongo, both in the north. We are also doing wind power generation. We have two projects which have a total capacity of 150 megawatts in the south east of Ghana. Those projects are in the engineering stage and we will begin to look for financing in the short term.
We recognise that we have been pioneers in the sector. As I always say, we incubated hydro power generation in Ghana, we incubated thermal power generation in Ghana and we also want to incubate the renewable sector in general in this country. We want to continue to play a dominate role in the generation space.
Can you talk about specific projects or initiatives that require international support or partners?
The renewables is a great area for us now and we would really like to do it through a private partnership arrangement. So far, those that we have in the pipeline, we have been lucky enough to have funding for from KFW which is the funding arm of the German government. Moving beyond that, we want to associate with private entities to develop the other renewable projects that we have in our portfolio. The government's policy is to have at least 10% of our power generation sourced from renewables. Today it is only roughly about 1%. So there is some space to move into. That is why I said I want to capture 70% of that space and leave the 30% to the private sector. I want to do it through a business model that does involve the private sector as well. We have a number of solar candidate projects totalling well over 100 megawatts that we can offer to private entities to collaborate on with us to develop. We will agree on the framework for the collaboration and the business model that we will use.
Yes, it is ready to be launched.
What is your medium term strategy? Where would you like VRA to be by the end of 2018?
2018 is just 10 months away and in terms of project development, there is not much you can do except preparatory works. The renewable sector, for example solar, has a very short gestation period, so we do expect to have some solar projects up and running especially those that the KFW is financing for us. We will probably be either getting to the financial close on the wind project or close to that and we will be getting close to selecting the contractor to start the construction of that project. But it is not only in the solar and wind arena that we are operating, of course we have a lot of thermal plants which we call simple cycle plants, and they are not efficient because they cost more to operate, we want to convert them into combined cycle plants because they are one third cheaper to produce, in a simple sense. We have two projects in Tema, one is 220 megawatts and we want to upgrade it to 330 megawatts, and we also want to upgrade the other plant.
If you ask me where we will be in 2018, we have to deal with the immediate challenges first. Our major challenge is financial sustainability, of us as institution and of the sector. The government is addressing the sectors difficulties with financing. I am sure you have heard that they are issuing some energy bonds to deal with the 2.4 billion USD debt that we have in the sector. We will be a major beneficiary of that because we carry the most debt in the sector. That has to be done; the government believes that by the end of the third quarter it will be resolved, and so once we have our balance sheets cleaned, then we can run our business the way we have always been running. We have to take the financial overhang off us first. Once we do that we need to improve how we utilise our assets. We haven't been utilising our assets either for financial reasons or for operational reasons. Those are the things we are working on between now and 2018. But to sum up, if you come back to me in 2018, you will find a VRA that is on the path to financial sustainability, and that has cut down its internal costs so that it can produce power more competitively and efficiently. You will also see us developing new power plants to meet the government's renewable energy policy obligations.