Energy sector requires an urgent tariff review – Economist

Mr. Habibu Adam, a member of the Energy Sector Recovery Programme (ESRP) has stated that the energy sector was in dire need of government support or required urgent tariff review before another 'dumsor' hit as a result of financial challenges.

Mr Adam stressed that since 2019, there has not been a tariff review and the utility companies are suffering.

“As a member of the ESRP, I can tell you that tariff revenue generated against the real cost of the sector including the excess capacity charges does not reach 60 percent of the cost required to make the sector stable,” Mr. Adam who is also a Senior Economist at the Office of Senior Presidential Advisor, Mr. Yaw Osafo-Maafo stated this at the Ghana News Agency Industrial News Hub Boardroom Dialogue Platform.

The GNA Tema Industrial News Hub Boardroom Dialogue is a media think-tank platform for state and non-state and commercial and business operators to communicate to the world on national issues which was monitored by the Communication for Development and Advocacy Consult (CDA Consult) in Tema.

Mr. Adam said before the establishment of the Energy Sector Recovery Programme (ESRP) in 2019, the energy sector was bedeviled with serious challenges key among them being liquidity.

The practice was that all the key players in the sector from fuel suppliers to generation to transmission and distribution had to wait for the Electricity Company of Ghana (ECG) to collect the tariff revenue before deciding on which institutions to pay, he said.

“The problem was that whatever was collected by ECG could not meet the total cost to pay off every entity in the value chain. Hence, the challenge was on how to distribute what was collected.

“As a result, some State-Owned Enterprises (SOEs) had to wait several months before getting payment from ECG. This practice built up serious cross-sector debts among the SOEs. It was also difficult for them to plan because of the unreliability of the cash flows,” Mr. Adam stated.

Mr. Adam noted that the first task of the ESRP was to establish the Cash Waterfall Mechanism (CWM) Committee to supervise the collection and distribution of tariff revenue across the value chain weekly according to a defined formula agreed by all stakeholders.

“This has brought some stability in terms of stable cashflows to the entities. The reason why GRIDCo can now begin serious works on their transmission lines which were neglected for far too long in favour of the Power Plants,” he said.

Mr Adam also revealed that the Government since 2019 has been supporting the energy sector with close to US$1billion annually, this is mainly attributable to the excess capacity charges and another production-related cost, which was due to the contracts signed in the past with the Independent Power Producers (IPPs) in order to ramp up our energy installed capacity to solve ‘Dumsor’s problem.

“Unfortunately, the manner in which the contracts were structured on the ‘Take or Pay’ basis compounded Ghana’s financial demands from the sector,”

He said, at the start of the Dumsor, Ghana’s peak demand for electricity was less than 2500MW of power, however, the managers then went on to sign up contracts in excess of 5000MW.

He said by 2017 going to 2019, installed capacity had reached 5,083MW for which the peak demand was around 2700MW, which means about 2300MW was in excess and had to be paid for whether we used them or not because the contracts were on ‘Take or Pay’ basis.

“So, for close to 4 to 5 years, Ghana will be paying for this excess capacity until 2025/2026 when demand would have reached the installed capacity,” Mr. Adam stated.

The Senior Economist said the Government is currently negotiating with some of the IPPs to either cancel or push back some of the contracts signed.

“This is going to result in some judgment debts as was recently witnessed when Ghana was slapped with USD 170 million for canceling the PPA with Ghana Power Generation Company (GPGC). More judgment debt may likely come up if the current negotiations with some of the IPPs breakdown,” he said.

Mr. Francis Ameyibor, GNA Tema Regional Manager explained that the Industrial News Hub Boardroom Dialogue platform formed part of a broader objective of the Agency towards revamping its operations.

He said GNA was poised to be the source of news on Ghana’s investment and industrialization drive, economic and tourism potential through story exchanges with its international partners, and Tema serving as a major industrial city, “GNA Tema Industrial News Hub Boardroom Dialogue Platform,” was critical.

“As Industrial News Hub, GNA-Tema has created a platform for industrial players to use, for other stakeholders to reach out in a proactive means while serving as grounds to address national issues”.

Mr. Ameyibor said as the fourth estate of the realm, there was the need for GNA to reach out to the government and people in authority with issues while bringing the understanding of the government’s policy to the people.