ACCRA, Oct 23 (Reuters) – The United States has cancelled $190 million in grants to Ghana under the “Power Africa” initiative in response to the Ghanaian government’s termination of a contract with a private utility provider, the U.S. embassy said.

The Millennium Challenge Corporation (MCC), a U.S. government foreign assistance agency, agreed in 2014 to provide $498 million in funding to Ghana’s power sector to help stimulate further private investment.

The financing was the largest by the United States under Power Africa, which was launched in 2013 by then president Barack Obama and aims to bring electricity to tens of millions of households in Africa.

One reform under the agreement involved handing over operations at state-run Electricity Company of Ghana (ECG) in March to Ghana Power Distribution Services (PDS), a consortium led by Philippine electricity company Meralco.

But Ghana’s finance minister informed U.S. officials on Saturday that the government was cancelling the 20-year concession it had signed with PDS, saying payment guarantees provided were not satisfactory.

In a statement on Tuesday, the U.S. embassy said the decision to terminate the contract was unjustified and that the MCC was therefore cancelling $190 million in grants.

The remaining $308 million will still be disbursed.

“The United States underscores the importance of contract sanctity as essential to a conducive investment climate and a pre-condition for inclusive economic growth,” it said.

Ghana’s Information Minister Kojo Oppong Nkrumah told reporters on Wednesday that the U.S. announcement did not represent “a crisis of confidence” between the two governments.

“It has been a difference in opinion which we have mutually agreed to respect,” he said.

Meralco did not immediately respond to a request for comment.

(Reporting by Christian Akorlie; Writing by Juliette Jabkhiro; Editing by Aaron Ross and Jan Harvey)