Energy levies are “a bitter pill” - Haruna Iddrisu tells employers

The Energy Sector Levies are “a bitter pill” the country has to swallow to heel ailing utilities, and not because government takes delight in overloading consumers with taxes, Employment and Labour Relations Minister, Haruna Iddrisu, has said.

Addressing a large gathering of employers at the 56th annual general meeting of the Ghana Employers Association (GEA) in Accra, the minister said: “The Volta River Authority (VRA), the Electricity Company of Ghana (ECG) and the Tema Oil Refinery (TOR) are in distress due to accumulated debt,” and need to be rescued.

“The Energy Sector Levies were therefore introduced to save the collapse of a sector that is very critical to the sustenance and productivity of industry; obviously, it was a bitter pill that we had to swallow.”

To buttress his point, Haruna Iddrisu indicated that most of the taxes have sunset clauses which allow for review or cessation when they serve their purpose.

In public policy, a sunset provision or clause is a measure within a statute, regulation or other law that provides that the law shall cease to have effect after a specific date, unless further legislative action is taken to extend the law.

“Government has a target to push the current installed power capacity from 2,800 megawatts to 5,000 megawatts. The only challenge to this dream has been the issue with the supply of gas and crude,” Haruna Iddrisu said.

Access to reliable and consistent power supply was a key challenge to businesses last year due to an erratic power situation but the situation okayed a bit as at the first quarter of this year.

After the levies were introduced, and when consumers begun to wail over rising cost of power, the Association of Ghana Industries (AGI) fingered the levies for the tariff hikes, calling on government to reconsider them.

Chief Executive Officer of the association, Seth Twum-Akwaboah, told the B&FT in May that: “It is becoming obvious that electricity today is expensive; and the key components contributing to that are the levies which have been imposed.

The cost of supply has to be intact, but the levies on them are additional costs which can be looked at. We are therefore asking for a review of electricity tariffs based on the levies that have been imposed so businesses can cut down on cost.”

In December last year, the Public Utilities and Regulatory Commission approved a 59.2 percent increase in electricity tariffs for the fourth quarter of the year alone which was met with huge public outcry.

Then again, government, at the beginning of January this year introduced the Energy Sector Levies, bringing the cumulative increase in electricity tariffs since December last year to about 73 percent.

Under the new regime, the TOR Debt Recovery Levy has been subsumed under a broader Energy Debt Recovery Levy, part of which will go into settling debts owed to Bulk Oil Distributors.

Other levies include Price Stabilisation and Recovery Margin, the Public Lighting and National Electrification Scheme Levy, and an increase to the existing Road Fund from GHp7.3 to GHp40 per litre.

The Energy Commission, which advises government on energy issues, indicates that the current cost of buying power has made businesses uncompetitive whiles many others will struggle to survive since most industries now have to pay about three times what they are required to stay in business.

According to the Commission, heavy industries like mines would require on the average tariffs less than 6 US cents per kWh to stay competitive with similar products imported while light industries could go as high as 10 US cents per kWh to survive.

Businesses, it said, will be better off running own diesel powered generator sets since the current electricity tariff is largely anti-competitive.

“Thus for current energy tariffs for industries ranging from 18 – 26 US cents per kWh, excluding service charges means they are on the very high-side.

For non-residential or Commerce/service customers, for a tariff range of 26-43 US cents per kWh for initial consumption of 300 kWh in a month, it would be cheaper running own diesel alternative if available, except for convenience.”