Recent tariff increases not influenced by IMF deal – PURC

The Public Utilities Regulatory Commission (PURC) has responded to public claims suggesting that the recent upward adjustment in utility tariffs was influenced by International Monetary Fund (IMF) conditionalities.

Ghana recently secured a US$ 3 Billion Extended Credit Facility from the IMF to restore macroeconomic stability and make the nation’s Debt Sustainable.

As part of moves to reduce fiscal costs, government is designing and implementing comprehensive energy sector reforms which include tariff adjustments under the 3-year IMF Program.

But during a media engagement, the Executive Secretary of the Public Utilities Regulatory Commission, Dr. Ishmael Ackah emphasized that the decision was based on the Commission’s lawful mandate of customer protection and ensuring adequate support for utility providers.

He clarified that tariff adjustments are determined by several factors, including the price of natural gas, exchange rate, hydro-thermal mix, and inflation.

“PURC per our guidelines and regulations, we are to do two adjustments – the major tariff adjustments and quarterly adjustments. Quarterly adjustment is looking at mainly the exchange rate, inflation rate and energy mix. Whether the IMF was in town or not, per our guidelines we were to do this”, he explained.

Dr Ackah further added that economic factors including cost of production have gone up, requiring upward adjustment to ensure consumers have uninterrupted service from utility companies.

“ECG, NEDCo and others have their Power Purchase Agreements(PPAs) in dollars and sell them in Cedis. So we have to do some of these adjustments in order to keep them stable to buy power for the Ghana Water Company to produce to serve us. We are on them to be efficient so that we don’t also pass on their inefficiencies to the consumer.”

However “if the exchange rate drops drastically to about GH¢8 to the US Dollar and inflation moves below 40%, the tariffs can actually come down,” he said.

The recent second quarter tariff adjustment by the Public Utilities Regulatory Commission (PURC) effective from 1st June 2023, aims to recoup GH¢ 1.31 Billion for electricity and GH¢ 650.2 million for water.

Driven by various variables, the Commission explains that:

1. The contribution of gas from the Jubilee Oil Field decreased slightly to 32.2%, while Sankofa’s contribution increased to 53.9% for the second quarter. The price of N-Gas rose from USD 8.1510 to USD 8.6641, resulting in an overall increase in the weighted average cost of gas by 6.9%.

2. An under-recovery in the exchange rate occurred due to the actual exchange rate (GHS 10.9507/USD) differing from the projected rate (GHS 8.6816/USD) for the first quarter. This under-recovery affects the ability to procure power, as purchases are made in US dollars but sold in cedis to consumers. The Commission decided to recover a portion of the under-recovery, considering the economic circumstances. The projected exchange rate for the next quarter is GHS 10.9571/USD.

3. The second quarter saw an increased hydro allocation of 29.01% compared to 26.11% in the first quarter, resulting in a reduction of the potential tariff by 2.5%. Without this increased hydro allocation, the tariff would have increased by an additional 2.5%.

4. The projected inflation figure for the year was 42.63%, which was divided by four to obtain an inflation figure of 12.62% for the second quarter. This inflation effect was taken into account in the tariff decision.

5. The PURC maintains its commitment to customer protection and supporting utility providers to ensure the delivery of quality services. It is urging consumers to promptly pay for the services they have enjoyed and to report any instances of poor quality service that may lead to damages.