Settle VRA, ECG debt – ACEP tells gov’t

Africa Centre for Energy Policy (ACEP) has called on government to settle its indebtedness to the country’s utility companies in order to spare the people any further crisis.

“Major factors have led to the current financial predicament of the country’s utility companies and thus could have serious implications on the current and future power crisis if not addressed,” a statement issued by the centre recently stressed.

It said after an in-depth analysis of the tariff demands by the utilities, its investigations showed that the last tariff adjustments in 2010 included projections of higher crude oil prices at the time VRA was using more natural gas.

“This led to significant savings by VRA which reflected in profits of about $55 million declared by the company in 2011. “The switch to light crude oil from natural gas following the damage to the pipeline of the West Africa Gas Pipeline wiped out the savings and led to about $350 million losses recorded by VRA in 2012.”

It said that as a result of the financial challenges, “VRA has been unable to carry out its investment schedule in 2012, financing only 50 percent of the capital investment requirement. This has been attributed to poor cash flows as a result of financial losses, as well as low and delayed tariff adjustments, notwithstanding the changes in the crude oil prices and the depreciation of the Cedi, two important factors in electricity tariff determination.”

ACEP noted that ECG was facing serious financial problems, adding that “it has been unable to fairly reduce the distribution losses of about 30 percent including technical losses of about 15 percent. Thus, some of the losses are due to inefficiency, poor management capability and power theft.”

Furthermore, it said the regulated asset base of the ECG, estimated for tariff determination, was reportedly undervalued while benchmark transmission and distribution losses in the current tariff structure have not been revised since 2000. Hence, the current tariffs given to the ECG do not reflect the true cost of their operations.

“The rise in transmission and distribution losses has been attributed to inefficiency, historical underinvestment in the distribution network and low tariffs. “The current financial difficulties of the utilities partly result from the huge debts caused by government and private customers for non-payment of bills and subsidies. They are also caused by the utilities themselves for relying on short-term financing of their investments which have proven to be more expensive.”

The on-going debate about the proposal by the country’s utility companies for upward tariff adjustments calls for greater circumspection by Ghanaians to prevent the collapse of national utility companies.