Why ECG Has No Case To Increase Tariffs By Over 100%!

The Electricity Company of Ghana (ECG) has been making a compelling case in recent past weeks to demand over 160 per cent increase in tariffs from Ghp 9.76 kilowatt per hour to Ghp 30.67 kilowatt per houramidst mounting public outcry for better power supply and general service improvements. According to the Company, the increment is necessaryindeed very vitalto improve its efficiency, fix obsolete equipments, serve Ghanaians better and also enable it to meet its mounting losses.

Every customer of the ECG requires a better service so perhaps it is time to begin paying realistic prices to make ECG stay competitive. But do they really have a case to increase tariffs that muchat this time? Until last week, I have been supporting and arguing for why we have to listen to the ECG and pay a little more. But in the light of the recent media reports and revelations contained in the 2011 Auditor-General Report, I will say that ECG has no case to increase tariffs by more than 100%. Why am I saying this?

My first point is that ECG is not investing tariffs paid by customers on maintenance and other costs which directly translate into better quality of service for customers. What then have they been spending our money on? Stay tuned!

According to the media reports, the ECG obtained GH¢923,617,000 as revenue from tariffs. In addition, they obtained other income to the tune of GH¢52,839,000raising the total value to GH¢976,456,000. After paying GRIDCO and Sunon Asogli (Ghana) Ltd an amount of GH¢825,977,000 for the supply of power, they were left with GH¢150,479,000. Out of that income, they spent GH¢81,940,000 on salaries, emoluments, allowances and other creature comforts for management and staff.

In effect, the Electricity Company of Ghana (ECG) spent 64.4% of their available revenue in 2011 on salaries, emoluments and other personal comforts for management and staff. This left them with a paltry 19.9% to spend on maintaining the system and offering services to the consumers. Discussions on whether the expenditure on emoluments is justifiable or otherwise go beyond the scope of this paper.

But why would the ECG spend less than one-fifth of its income on maintenance and direct services which translate into better services for customers? Why should the ECG which is demanding increment in tariffs so as to do better maintenance and replacement of technical equipment commit a paltry 19.9% into this venturewhich is central to their argument. Are they not throwing dust into the eyes of Ghanaians? I am only asking!

My second point is that there is too much inefficiency in the system. According to the recent media reports gleaned from the 2011 Auditor-General Report, maladministration and inefficiencies contribute to 26.6% losses of the total power purchased from GRIDCO and Sunon Asogli (Ghana) Ltd.

These losses are made up of transmission losses arising from combination of factors, including non-maintenance of equipment and illegal connections to ghost premises. In monetary terms, this amounts to more than GH¢240 million. On a discussion on 'Tarzan take' a radio programme held on on Joyfm on 24th June, 2013, officials confirmed that a quarter of electricity is thrown away.

In 2011, the ECG incurred the high transmission losses of 26.6% although the maximum allowable losses stipulated by the Ministry of Energy (and monitored by the Public Services Commission) should be not more than 4%. The ECG must fix these losses before they begin demanding skyrocketing tariffs.

Third, there are too many uncollected tariffs which should engage the attention of the ECG. It is on record that the ECG has failed to collect tariffs amounting to over GH¢640 million owed them by large local and foreign-owned companies such as Newmont, Chiraano Goldmines, etc.

According to the said Auditor-General's report of 2011, some of the arrears of which the ECG has failed to collect have been outstanding since 2008. If the ECG cannot collect tariffs from the 'bad nuts', why should they continue to punish the 'good nuts' by increasing tariffs?

I am almost inclined to join voices such as Tarzan who are insisting that current rate of tariffs are more than adequate and would have to be matched with the quality of service to those who pay the tariffs. It has been reported earlier that ECG and the other top players in the power sector have got SRPs (Strategic Reserve Plants or generators) in their homes and they seem not to suffer what ordinarily Ghanaians do experience, they don't pay for the diesel in the SRPs, and after consumers have struggled to pay, the funds are invested in further personal comfort rather than investment into maintenance and distribution cost. This is simply unfair and a breach of trust!

Consumers cannot take huge proportion of overheads which do not directly contribute to what they pay for! Even if some increment of tariffs is needed, the level being demanded by the ECG does not warrant it in the light of the three reasons highlighted above. What guarantee do customers have that the new tariffs will not be used by the ECG management to further their personal comfort but would rather invest be invested into maintenance and equipment that will provide the power for socio-economic development? The ECG should come again on why they still think over 100%.

Albert A Arhin
Department of Geography
University of Cambridge
E: [email protected]