Mahama not reducing tariffs to secure $300m MCC cash

Documentary evidence available to the New Statesman indicates that the reluctance of President John Dramani Mahama and his National Democratic Congress government to reduce electricity tariffs as demanded by organised labour and Ghanaians is due to the fact government fears it could lose a sum of $300 million expected from the 2nd Millennium Challenge Compact.

The New Statesman can confirm that the MCC has budgeted a total of $300 million for power projects in Ghana, with conditionalities attached to the disbursement of the amount, the major among them being electricity tariffs.

As a result of this, the hands of President Mahama and his government are tied because if government wants the money, then it must do what the MCC says and adhere to its conditionalities.

The Ghana II Compact Budget will provide $82 million for increasing private sector investment in generation; $165 million in Strengthening the Distribution Sector; $8 million for Increasing Access to Electricity; and $45 million for operational expenses, SGA and M&E (15%).

However, before the disbursement of the $300 million, the MCC is demanding the enactment of “Cost reflective tariffs.”

Under the cost reflective tariffs, the MCC explains that there must be a “reflective tariff that provides for a reasonable, regulated return on investment; Tariff model should be more transparent and allow for an appeals mechanism; and Requires appropriate indexation and review of lifeline tariff.”

Indeed, the Government of Ghana in late 2012 had given a clear indication to the MCC that it was going to undertake reforms of the tariff regime in Ghana.

The Mahama government through MCC concept papers in late 2012 (the “Concept Papers”) proposed “a program to address the constraints Ghana’s power sector causes to economic growth by improving the financial and operational viability of the distribution sector, enabling private sector investment in additional generation capacity, and increasing equitable access to electricity, with cross-cutting emphasis on sector governance and reform.”

The “program to address the constraints Ghana’s power sector causes to economic growth by improving the financial and operational viability of the distribution sector” statement by the John Mahama government has been explained to imply that government was ready, via the removal of subsidies, and the upward adjustment in tariffs to do everything in its power to agree to the conditionalities imposed by the MCC.

The Managing Director of the Electricity Company of Ghana, William Hutton-Mensah, in justifying the increase in the tariffs stated that the ECG, despite the many challenges, would efficiently utilize the monies that would be collected from customers to improve infrastructure and ensure constant power supply to its cherished customers in an uncompromising manner.

This admission by the ECG boss about the use of the tariff increments to “ensure constant power supply to its cherished customers in an uncompromising manner” corroborates the agreement made by the John Mahama government and the MCC to improve “the financial and operational viability of the distribution sector.”

MCC is working with the Government of Ghana to define potential projects for the second compact, which will seek to address Ghana’s inadequate and unreliable power supply.