On 27th July 2022, the newswires flashed an announcement by Genser Energy Holdings, a Ghanaian-founded energy company headquartered in the United States (Washington DC) and backed by the powerful Oppenheimer family of South Africa and several other funds and banks.

The announcement concerned the successful closing of two loan facilities totaling $425 million to support Genser’s refinancing of its 2019 and other debts; expansion of its petroleum pipelines (the only privately owned facilities of their kind in Ghana) and port facilities (for its propane and other natural gas liquids – NGLs – trade); and the funding of a greenfield gas processing facility to compete with the current state-owned monopoly at Atuabo.

From its origins in 2007 as a small off-grid energy supplier, Genser is now set for the big leagues. Its first deal in 2007 with Golden Star Resources to supply a 36MW power plant for the miner’s Bogoso site could hardly have predicted the emergence of a sophisticated diversified energy holdings conglomerate as Genser seems now determined to become.

Until “dumsor” struck, and at the height of that excruciating power crisis, Genser found its mojo. It entered into a 5-year power plant leasing and maintenance deal with Unilever to power the latter’s Tema factory. Paving the way for even bigger prospects: three significant deals with major gold producers, Kinross and Goldfields.

It is Genser’s powerplants serving Goldfields in Tarkwa and Damang that, however, have fuelled the massive infrastructure financing deals announced with such flourish in 2019 and July of this year. The country’s gold mines consume more power than the whole of Ghana’s northern sector (equivalent to ~15% of the power distributed by ECG). By positioning itself as the offgrid power supplier of choice to the big gold mines, Genser is paving the path to industry dominance.

Even juicier opportunities lie ahead: the Ghanaian government seems likely to outsource gas transportation for the new power enclave in the Kumasi area it intends to develop around the Ameri plant to Genser. In the course of researching this post, we saw how instrumental letters or support issued by the government attesting to these future deals were in helping the company close its latest funding round.

Whilst there is no denying the growth in Genser’s operations in its 15 years of existence, it is starting to look under further scrutiny that its expansive ambitions of the last few years have sadly been bankrolled at Ghana’s expense.

Careful work by analysts at the Africa Center for Energy Policy (ACEP) and IMANI has revealed that Genser’s operating profits may be heavily dependent on a sweetheart, unpublicised, deal it has signed with the Ghana National Petroleum Corporation (GNPC) whereby it pays a fixed rate of just $2.79 per mmBTU (a unit of energy measurement) for the natural gas it receives from the National Oil Company. There is some evidence to suggest that the GNPC sweetheart deal came after attempts to woo Ghana Gas, the national gas company, by Genser had been less than successful.

Genser’s negotiated gas rate with GNPC is completely mindboggling in a country where the energy regulators assume an average cost of gas of $6.08 per mmBTU when setting tariffs for electricity pricing. In fact, actual gas pricing on the market for various power plant operators (or the government, depending on circumstances) is often higher than this. In 2019, for instance, it averaged $6.91 per mmBTU, and total costs of gas to the industry as a whole amounted to more than $455 million.

In 2020 and 2021, Ghana bought gas at $6.14 per mmBTU and $7.24 mmBTU on average from private producers in its offshore basin and from Nigeria, respectively, to fuel thermal plants. In fact, from the agreement between GNPC and Genser, it is clear that GNPC gets the gas from the J.A. Kufuor Floating, Production, Storage & Offloading (FPSO) facility in the Sankofa Hub, beaches the gas at the Sanzule facility and then handover at a designated delivery point for Genser to transmit through its own pipelines to Damang and Tarkwa to fuel power plants for the gold mines in that enclave.

From the chart below, it can be inferred that this is gas sold to Ghana at $6.14 per mmBTU (down from an earlier rate of $9.59 per mmBTU) and then on-sold to Genser at $2.79 per mmBTU. What is worse, tariff analysis data has suggests an optimal gas selling price of $9.42 per mmBTU if GNPC’s gas trading operation is to be sustainable. A prospect further threatened by the national oil company’s professed strategy of importing liquefied natural gas (LNG) into Ghana from overseas at a cost some analysts contend will hit $11+ per mmBTU at delivery point.

In simple terms, for every unit of gas sold to Genser, a potential loss of $3.35 per mmBTU is recordable. For 2022, the potential loss to Ghana and inferred windfall for Genser is more than $52 million (assuming fully delivered volumes). By 2025, going by natural gas pricing forecasts, the total loss could easily hit $100 million a year.

Genser’s recent good fortune is even starker when viewed in light of its challenging operational history.

From early 2018 to mid 2019, Genser and commodities trader Vitol had an arrangement in which the former was to supply the latter with between 4.7 million and 6.25 million gallons of propane (one of the two main gases found in liquefied petroleum gas – LPG) delivered to a floating facility docked at Takoradi (or roundtripped in a ship-to-ship transfer maneuvre between Lome, Togo, and Takoradi). The price of the propane in 2018 was roughly $0.9 per gallon on average after accounting for the premium charged on OPIS Mont Belvieu pricing (so, for example, Genser owed Vitol $4.24 million for a delivery of ~4.7 million gallons of propane made in February 2019).

Using standard heat conversion factors, one can benchmark this propane pricing to the pricing of the natural gas being sold by GNPC to Genser (natural gas, by the way, is composed mainly of the lighter methane with a bit of ethane). That conversion yields $10.26 per mmBTU. One may, arguably, choose to account for higher propane combustion efficiency so as to reduce the amount to roughly $4.5. The other costs of handling and transportation (including the trucking, floating storage and bunkering costs) have not been fully captured. It is safe to say that just before Genser signed the groundbreaking, never publicised, deal with GNPC, allowing it to switch from LPG to LNG/natural gas, it was paying the likes of Vitol significantly more than $5 per mmBTU equivalent for the feedstock gas it needed to power its plants.

Had it continued to rely on these contracts, then at today’s propane and butane prices, premiums and handling inclusive, its fuel costs from imports would exceed $7 per mmBTU equivalent (applying the same conversion factors). Its serious cashflow problems would have continued to precipitate repeated payment delays, liquidation damages from customers like Goldfields, and eventually the same type of defaults that had to be remedied in an English court of law in July of this year with settlements and costs exceeding $20 million for breach of supply contracts.

But, as we have seen above, Genser managed to convince GNPC to enter a sweetheart deal of ~$2.79 per MMBTU, thereby completely transforming its fortunes. By virtue of its sweetheart agreement with GNPC, it is poised to consume more of Ghana’s precious gas than 9 of the 13 main thermal power plants operating in the country, only slightly behind TICO in 2022, and set to overtake TAPCO in mid-2023. The volume of gas supply committed by GNPC to Genser in the mindboggling contract for the 2025 timeframe will be nearly half the total consumption of VRA powerplants in 2020.

Whilst entrepreneurship of the calibre of Genser is always to be celebrated, the success of private business cannot be at the expense of public good. Every company that pays $2.79 for a critical input that its competitors get for $6.08 will do wonders in the market. More to the point, fiduciaries of public interest like GNPC cannot throw out every hint of commercial prudence to advance the private wellbeing of their corporate favourites.

Purely from a public policy point of view, GNPC ought to have looked carefully at the export price parity numbers to determine a starting point for its deal with Genser. It was amply clear at the time of sealing the deal that natural gas prices were going through a cyclical downturn and that historical trends called for the use of Henry Hub spot benchmarks (applying discounts and premiums as appropriate).

A flexible and market-sensitive pricing regime with appropriate caps, floors, discounts and premiums would have ensured that now that natural gas pricing on the international markets is inching towards $9 per mmBTU, a Ghanaian state-owned company wouldn’t be selling the commodity at $2.79. That spot gas prices were low at the time of concluding the deal is absolutely no basis for not having introduced some kind of market-aligning mechanism into the pricing formula.

No doubt, GNPC will counter with the argument that amendment to the pricing annexure is within their purview and may even have been considered. But the evidence is glaring that Genser’s obscene margins on these trades started to emerge just a few months after the contract was signed and that it has made a total bonanza on the gig. Because of the ridiculous pricing concessions, it can afford to undercut any competitor in its segment of the market, show fantastic future earning potential, and thus attract large investments to further seal its dominance in the private pipeline, gas port logistics, and modular off-grid market niches.

Whilst Genser has a few cement companies in its customer list, it is overwhelmingly a power producer for the primary extractive sector, which many economists argue strenuously undercontributes to government revenues in Ghana. It seems thus very unlikely that even a formal government policy to use highly subsidised gas for strategic purposes would have countenanced the $2.79 per mmBTU sweetheart deal.

The good fortune of the shrewd operators at Genser, interpreted in the light of that unconscionable contract, seems less the outcome of entrepreneurial brilliance and more the byproduct of exceptional incompetence and serious national betrayal on the part of the ever bumbling GNPC.

ACEP and IMANI have only just commenced their investigation into this seeming debacle. Stay tuned.