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Harsh realities hit power sector as players demand significant tariff hikes

Dr. Matthew Opoku Prempeh1212 Energy Minister, Dr. Matthew Opoku Prempeh

Thu, 12 May 2022 Source: thebftonline.com

Electricity consumers could soon pay more to keep their lights on, as players in the sector demand significant tariff hikes.

Players including the Electricity Company of Ghana (ECG), Ghana Gas Company and Ghana Grid Company Limited (GRIDCo) are all demanding tariff increases of 148 percent, 72 percent and 48 percent respectively, as prevailing harsh economic realities begin to bite hard.

The three, along with Northern Electricity Company – which is proposing a new tariff of 113 percent, said the proposed increments are reflective of prevailing economic conditions and that the old tariffs had been eroded and diminished by rising inflation, falling value of the weak cedi and disruption in the global supply value chain.

At a stakeholder briefing on the proposed increments organised by the Public Utilities Regulatory Commission (PURC) in Accra, they argued that the suggested tariffs will also enable them to become more efficient, profitable and be able to complete ongoing and planned projects across the country.

The proposals, which must be approved by PURC, have however been met with resistance from consumers and industry experts.

Many hold the view that, if approved, the increments will represent patronage of inefficiencies in the sector – given that the ECG, a state-owned utility, continues to record losses of at least GH¢3.2billion yearly.

PURC’s allowable losses ratio is 23 percent, but ECG losses are about 29 percent yearly.

For instance, its technical and commercial losses stood at GH¢1.8billion and GH¢1.5billion respectively in 2021, from GH¢1.4billion and GH¢1.5billion respectively in 2020. Together, both accounted for GH¢8.9billion losses in the last five years.

ECG’s inability to effectively collect revenues from electricity sales means that it is unable to pay for the power it buys from producers like Volta River Authority and Independent Power Producers.

It also means that gas suppliers like Ghana Gas and power distribution company GRIDCo are denied their due revenues.

This led to Minister of Energy Dr. Matthew Opoku Prempeh warning at the start of 2021 that the sector’s debt, largely caused by weak revenue collection, could reach over US$12billion by 2023 if not addressed.

A year down the line, those fears appear to be manifesting.

“We are saying that ECG is in the red; we are struggling to maintain our operations,” says Sylvia Noshie, General Manager Regulatory Management-ECG.

“The processing and transportation services that Ghana Gas provides have to be reflected in the cost that we incur, and that is exactly what we are asking for,” said Dr. Ben Asante, Chief Executive Officer of Ghana Gas.

By simply increasing tariffs without addressing ECG’s huge losses, money could easily be thrown down the drain, according to Kofi Kapito of the Consumer Protection Agency.

Executive Director of Institute of Energy Policy (IES), Nana Amoasi II, said that it is not out of place to ask for a tariff increase – knowing that economic indicators have changed over the last few years.

But added that from the point of IES: “We would ask for a cost-reflective tariff, one that takes into consideration inefficiencies in the system; because you cannot fail to collect 19 to 20 percent of your bills and then want the consumer to bear that cost”.

He added: “So, while we call on Ghanaians to support ECG, NEDCo and GRIDCo, it is equally important to add that they need to do their things right.

“If you give them any additional increase without asking them deduct their own inefficiencies from this, then the PURC may be promoting inefficiency,” he said.

Source: thebftonline.com