Government uses cash waterfall mechanism to pay power supply companies – Economist

Economy & Investments Government uses cash waterfall mechanism to pay power supply companies – Economist
NOV 28, 2021 LISTEN

The government is using the Cash Waterfall Mechanism under the Energy Sector Recovery Programme to share the revenue from power distribution to companies in the power supply chain.

The cash waterfall refers to the recipient's mechanism for distributing the revenues from the sale of electricity proportionately among the relevant energy sector market players involved in the electricity supply value chain.

Mr Habibu Adam, a Senior Economist at the Office of the Senior Presidential Advisor, Mr Yaw Osafo-Maafo, said this at a seminar organized by the Ghana News Agency for state and non-state actors to address national issues.

Mr Adam explained that under the power supply chain there were the Independent Power Producers (IPPs) that generated electricity through thermal.

He said these IPPs, therefore, relied on the private sector for the supply of fuel to be used to generate power in addition to what the Volta River Authority was also generating.

The power generated, he added, would be carried by the Ghana Grid Company (GRIDCo) to the power distributor Electricity Company of Ghana (ECG) to distribute to customers, which comprised of bulk users and individual households.

The Senior Economist, who is also the Secretary to the Energy Sector Recovery Committee, added that “but in all these, nobody gets any monies paid to them until ECG collects the money.

“So what happens is that whatever ECG collects, that monies are not even enough to take care of their own needs but they also have to pay GRIDCO for bringing the power as well as the IPPS and fuel suppliers, by the end of the day, it is only when we pay the money to ECG that all of them can get paid.”

The Senior Economist said the irony was that the money was not enough to take care of ECG's own cost, making it difficult for them to pay the IPPs, “and so in the past what happens is that ECG will then decide that now this is what I have received, so for this month I will pay these IPPs while the rest wait for months to get paid”.

Mr Adam stated that the Energy Sector Recovery Programme came up with the cash waterfall mechanism, which drew a formula that put together all the costs incurred by the various units on the power generation and supply chain against the monies collected by ECG.

It then shares the monies on percentages to all the companies involved to ensure all IPPs get something.

Mr Adam said even with this formula it was still not enough, so the government had to come in to pay, adding that currently, the government paid not less than four billion dollars to subsidize the sector this he said was more than what was spent on the free Senior High School (SHS) policy implementation.

He, therefore, said to get enough money to pay the companies, the government could not continue to pay and hence the need for power users to pay a realistic tariff.


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