Power consumers will bear cost of subsidy

Finance Minister Seth Terkper has hinted that higher consumers of electricity will ultimately bear the cost of recently announced ‘subsidy’ on tariffs which the Electricity Company of Ghana initially said will be taken care of through a government financing arrangement.

The IMF has been demanding answers from government since the ECG announced the so-called subsidy, since as part of the bailout programme, the government of Ghana is supposed to have committed itself “not to provide broad-based subsidies.”

In an interaction with journalists in Accra a day after he requested Parliament to approve an additional GH¢1.8 billion to support the 2016 budget, the Finance Minister said the ECG move was only to correct an anomaly in the previous tariff structure – and not necessarily a reintroduction of subsidy.

“For the high consumers they may be paying high tariffs such that it helps pay for the subsidies of the low consumers. This is progressive – this is a principle that says that if you earn more, you contribute more to society. So the correction was made by ECG,” the minister said.

“…obviously ECG was collecting monies from those who should not be paying after having consumed more than their first 50 units. And that has been corrected. Of course there’s a cost to this but the automatic tariff adjustment could neutralize it,” he said.

The announcement made by the ECG earlier this month meant that consumers of power would now pay 34 pesewas per unit for the first 50 units of power consumed instead of the 67 pesewas per unit previously charged.

Before the ECG’s announcement, the only subsidy in the electricity tariff applied to the lifeline range (0-50 units), and when a consumer breaches that range he/she is charged retrospectively with the subsidy-free tariff for all units consumed. Per the new power tariffs announced, in addition to lifeline consumers (0-50 units), all other consumers will now enjoy a subsidized price on their first 50 units consumed.

Mr. Terkper, who is also acting Power Minister stated the realignment of the tariffs is progressive because high consumers get to pay more for power consumed.

IMF seeks clarity But the International Monetary Fund (IMF) has demanded clarity from government regarding the announced ‘subsidy’ for power consumers which the power company had said was expected to cost about GH¢300 million.

Ghana’s US$918 million programme with the Washington-based lender makes little room for broad based subsidies which usually come in the form of fuel and utilities. But the Electricity Company of Ghana (ECG) in a press briefing announced that its move was to provide some relief to the consumers for the next six months.

Ebenezer Baiden, General Manager, Regulatory and Governmental Affairs of ECG explained that: “We are talking about a relief from government to the people of Ghana and ECG is supposed to implement that. This will be paid for through a sector restructuring arrangement which will come through a refinancing type of infrastructure for the power sector.”

In an emailed response, a spokesperson of the IMF in Washington DC said: “we learned about the measure from the media and we are still in the process of clarifying with the authorities what changes are being implemented to the structure of electricity tariffs and the impact on the financial position of the electricity company. The authorities confirmed their commitment under the IMF-supported program not to provide broad-based subsidies.”