Selling Ghana's pride?
As one of the major investors in the country, VALCO employed close to 2,000 people in the good times; 99.3 per cent of them were Ghanaians.Stressing the advantages that the country was likely to derive as a result of the offer, President Kufuor said that Kaiser's offer would give Ghana the opportunity to exploit her bauxite deposits at Kyebi and Nyinahin, as well as step up production at Awaso. In addition, he said that the offer by Kaiser would mark Ghana's industrial birth. Several experts, however, maintained that VALCO was pulling out because changed economic conditions had made the plant unattractive. Indeed from all indications, VALCO was making losses. A former manager of VALCO, an engineer and a past president of the Ghana Institute of Engineers, described the offer as "a difficult situation".
The cost of raw materials and power for the operation of VALCO had become prohibitive. Experts maintain that raw materials for the production of aluminium ingots are expensive to import, making the company expensive to run. For example, to keep VALCO running, Ghana must import 400,000 metric tonnes of alumina in a year. "If VALCO's offer is accepted by the gvernment, will the cost of power be increased from the three cents per unit that it is now forcing on the company?" was the retort of Francis Tuyee, a chemical engineer, in an interview with the Ghana News Agency. "If not, we must allow VALCO to stay as it is," he added.
Industrial experts were skeptical about Kaiser's intentions to offer VALCO for sale. There were signs that the relationship between the government of Ghana and VALCO had lost a great deal of the romance. To some, Kaiser was leaving because it could not afford to pay the increased tariffs that the Ghana government was asking for.
In January 2003, the Government of Ghana and the Volta River Authority (VRA) on one hand, and representatives of Kaiser Aluminium & Chemical Corporation (Kaiser) and the Volta Aluminium Company (VALCO) on the other hand, once again failed to resolve a contractual dispute through the process of mediation. The dispute related to the expiration of the Power Contract in April 1997, which entailed the provision of electric power from the Volta River Authority to VALCO. However, the mediation broke down at the instance of the Kaiser/VALCO team.
This was not the first time that the two parties had attempted to evolve a new power contract. Attempts had failed on many other occasions. Nonetheless, the Volta River Authority had gone out of its way to assure and provide VALCO with energy. Ghana therefore sought a commonsense revision of the original terms of the VALCO contract agreement. The country's negotiating team forcefully argued that conditions had changed since the original contract agreement was signed. Ghana proposed 3.0 US cents/kWh. Even this price would not remove the requirement for the government to subsidise VRA's operations to meet the shortfall in tariff revenue from VALCO so that the commercial viability of VRA was not threatened.
Today Ghana's power needs are met from a generation mix of 35 per cent cheaper hydro energy and 65 pe r cent thermal. Indeed the government argued that with the thermal power sources that had been developed to complement the Ghana energy system, Ghana was capable of supplying its customers, including VALCO, with electricity reliably, but this had to be paid for.
The government could not accept Kaiser's position that VALCO should be put in a unique category and be allowed to pay rates for power that are far below the cost of providing that power in Ghana. It costs the Volta River Authority 6.5 US cents/kWh to actually produce electricity from its mixed hydro/thermal system. To date VALCO owes significant arrears in payments from its utilisation of power from 1999 to 2002. The bankruptcy proceedings of Kaiser was also a matter of critical concern for the government. From information available, VALCO is owed an unsecured sum of nearly US$146 million by Kaiser.
The government believed that the recalcitrance of Kaiser should not be the reason to let VALCO go to waste. In fact, Ghanaians have a certain attachment to VALCO. At the dawn of independence, Ghana's first president Osagyefo Dr. Kwame Nkrumah recognised the need for an energy infrastructure for development that could propel the vision of an industrial and commercially sound economy. The Volta Aluminum Company (VALCO) was a result of a bold decision to build such an infrastructure.
Ghana contributed 50 per cent of the funds for the project and sought loan financing from the World Bank, the United States Agency for International Development and the US EXIM Bank, among others. After thorough and elaborate negotiations, Kaiser Aluminium Company agreed to build an aluminium smelter in Tema to off-take power from the new hydroelectric power station. Out of the negotiations emerged a complex set of agreements - referred to as the VALCO Agreements - which have made it difficult for government to seek a revision of the contract agreement.
In addition, VALCO has been experiencing difficulties lately. Since 2002, the company has laid off 181 of 1,225 workers, resulting in a production reduction of 25 per cent. This followed the reduction of power by Volta River Authority (VRA). In January 2003, VALCO, which was operating on two pot lines with 950 employees, initiated a process to reduce manpower requirements, and again in May that year took a decision to curtail the last pot line to provide VRA with additional flexibility in meeting the needs of other power users in the country following the low level of the Akosombo Dam. VALCO after its closure has only 310 workers, who have been retained to help in the maintenance of the plant.
For this reason, some leading opposition political figures have cautioned government about their intentions to acquire VALCO. The Business & Financial Times, a privately owned Ghanaian newspaper, reported early this year that Dr. Cintim Tobiga, a member of the People's National Congress (PNC) said that buying VALCO would amount to causing financial loss to the state.
Yet there were some indications that government had no interest in running VALCO. As indicated by no less a person than VALCO's Ghanaian resident director in an interview on Joy Fm, a private radio station, the government of Ghana would not buy VALCO. Instead, the company would be put up for sale.
"I know several major players who've shown interest in VALCO," said Charles Mensah, VALCO's Ghanaian resident director.
"We're highly interested in being involved in the company preferably as a shareholder, but we don't want to run it," Dr. Paa Kwesi Nduom, Ghana's energy minister also told Joy Fm. "Our preference would be a sort of partnership."
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