October 20, 2015 / 5:18 PM / 2 years ago

UPDATE 1-Ghana averts threat to power supply by agreeing to pay Nigeria gas bill

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By Matthew Mpoke Bigg

ACCRA, Oct 20 (Reuters) - Ghana's government said it will pay Nigeria's N-Gaz the $170 million it owes by February, averting the gas consortium's threat to cut off supplies, which would have made Ghana's power crisis worse.

Ghana's state power generating company, the Volta River Authority (VRA), will settle the debt in three tranches starting in November, Kweku Sersah, a spokesman for Ghana's Ministry of Power, said. Power supplies are no longer at risk, he said.

"The high-powered delegation that went ... (to the Nigerian capital Abuja) was able to negotiate for Nigeria Gas (N-Gaz) to continue to supply the country the needed gas," Sersah said in a statement posted on the ministry's Facebook page.

Ghana gets about 25 percent of its power from Nigerian gas, and N-Gaz's threat to cut supply by 70 percent would have made it harder to achieve the government's goal of ending power outages this year and could have raised supply costs.

Ghana will clear a backlog of arrears that stretches back to 2012 and has also committed to pay in full for gas it receives between now and next February, the Nigerian National Petroleum Corporation (NNPC) said.

"The highlight of the agreement is that the total sum of gas supply debt will be cleared by February 2016 at the latest," the NNPC said in a statement.

However, it is unclear how VRA will generate the extra revenue to pay off the debt given the shortfall in payments from the state Electricity Company of Ghana, which does not generate enough revenue to cover the costs of its payments to VRA.

Experts say that is because energy tariffs are too low, residents find ways to skip payments illegally or pay too little and the government itself is behind in its payments to the electricity company.

VRA's payments to N-Gaz dwindled in August 2014, according to the West African Gas Pipeline Company (WAGPCo), and before that it borrowed money from Ghanaian banks to pay for purchases, creating debt it struggles to finance, one energy expert said.

In the long term, Ghana aims to solve the problem by greatly increasing its domestic gas production but for now government finances are under extra scrutiny due to an International Monetary Fund programme to restore fiscal stability.

The issue is sensitive in the run-up to Ghana's election next year that is expected to be closely fought. Power cuts have angered voters and come on top of a sharp slowdown in the economy, which for years was one of Africa's strongest.

N-Gaz is a joint venture company owned by the Nigerian National Petroleum Corporation, Shell and Chevron that delivers gas through WAGPCo to Ghana. (Additional reporting by Ulf Laessing in Lagos; Editing by Louise Ireland)

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