For some period of time now the business relationship between the Government of Sierra Leone and the Turkish business entity that generates and supplies electricity, Karpowership, has been shrouded in some form of secrecy permeated by rumors which sometimes makes it very difficult to know whether it is healthy or not.
However, with the recent launching of the Sierra Leone Economic Update by the World Bank in Freetown on Tuesday 21st June 2022 at the Sierra Palms Hotel it was disclosed that the Government of Sierra Leone owes Karpowership the sum of 36 Million United States Dollars since the end of 2021.
It must be noted that the Sierra Leone Economic Update is an annual publication of the World Bank that reports on and analyzes recent economic developments, reviews regional and global contexts, and analyzes the implications for the country. It also presents the medium-term outlook and prospects for the economy.
The fact is indisputable that most parts of the country have been witnessing and experiencing consistent power outages for a considerable period of time now which has been attributed to delay in paying its biggest supplier of electricity.
As a result of the delay on the part of the Government to honour payment arrears Karpowership (KP), a Turkish subsidiary that accounts for more than half of the electricity supply in Sierra Leone, has been rationing power supply.
Freetown has witnessed the most extensive load shedding as electricity demand peaked at nearly 78MW, while supply from alternate sources (hydro and solar) amounted to 35–40MW.
From what this medium understood, the amount of US$36 million is what Government owes Karpowership in terms of unpaid arrears which forced the company to shut down since there has been a violation of adherence to the agreed payment schedule.
It could be recalled that the current Power Purchase Agreement was signed in 2020 for 5 years, between the Electricity Distribution and Supply Authority (EDSA), on behalf of the Government and Karpowership.
Under the current contract, the agreed price is dependent on the variable global cost of fuel. These power outages reflect three noteworthy facts.
The unreliable power supply is driven in part by a significant capacity gap as energy demand exceeds installed capacity. The gap between projected energy demand and existing supply is expected to rise in the coming years to nearly 50MW by 2025. While this has made room for independent power producers (IPPs) to enter the market, it has also resulted in expensive PPAs due to a lack of competition and the government’s limited negotiating power. Unreliable power supply and frequent outages represent a major constraint to growth and poverty reduction in the country.
Second, weak public finances have contributed to, and been affected by, the troubles of the power sector. Overall, poor cash management has resulted in recurrent accrual of arrears. Since Q4 of 2021, the government has reportedly accrued new arrears, including those to the power sector. Further, high technical and commercial losses at EDSA have resulted in a low recovery of revenues. All EDSA obligations are guaranteed by the government of Sierra Leone (GoSL), including the arrears owed to KP, and will most likely have a direct impact on the federal budget.
Third, the indexation of fuel prices, embedded in the PPA, results in an increase in overall costs when global crude oil prices increase. In 2021, as crude oil prices have risen to above US$70 per barrel (compared to US$50 per barrel predicted under the contract) the average cost has increased from 14 USC/kWh to about 18 USC/kWh.
