The continuous rise of Ghana’s energy sector debt and its implications

Benjamin Boakye, Executive Director of African Centre for Energy Policy (ACEP) has assigned reasons for the mounting debt stock in the energy sector despite the institutionalisation of several taxes and levies to address the issue.

Ghana’s energy sector has a debt of $2.2 billion accumulated over a period of more than two decades. This is generally referred to as the legacy debt.

This has resulted in government’s inability to occasionally purchase fuel for the production of power and pay independent power producers leading to intermittent power outages.

The operations of State Owned Enterprises within the energy sector like ECG, VRA, GRIDCo have been constraint largely due to the massive debt overhang.

In 2015, Government of Ghana, during the administration of John Mahama passed the Energy Sector Levy Act (ACT 899) to bring under one umbrella, taxes and levies collected for the settlement of Ghana’s energy sector debt.

The ESLA was introduced to among others bring together energy sector levies for their efficient utilisation; defray the country’s energy sector legacy debts and other liabilities within the energy sector; serve as source of funds to facilitate sustainable long term investments in the energy sector.

Continuous debt accumulation

Speaking on PM Express Thursday, Ben Boakye noted that despite efforts at addressing the problem, the energy sector seems to be piling up more debt in recent times at a faster rate largely due to power agreements signed in the last 5 years.

This, in his opinion, has rendered the levies gathered under the ESLA inadequate to deal with the debt menace that has adversely affected the institutions for years.

“The money doesn’t appear to be adequate. You have an ESLA that is supposed to clear outstanding debt and we have not been able to stop accumulating debt. So whiles you want to address an existing debt portfolio, you are still accumulating debt” ACEP’s Executive Director disclosed.

Excess power

Currently, Ghana has an available installed electricity generation capacity of 4,399 MW – Hydroelectric: 1,580 MW, Thermal: 2,796 MW and Renewable: 22.5 MW.

The country’s peak demand in 2018, according to the Energy Commission, is 2,523.49 MW meaning Ghana has a little below 1000 MW in excess which is produced but not consumed.

The ACEP Executive Director points to this phenomenon as a significant contributing factor to Ghana’s inability to settle the legacy debts as it initially planned.

He disclosed that Ghana is compelled to pay millions of dollars monthly for power generated despite the fact that it is not being used. The situation, he adds, will compound should more of the IPPs with whom agreements have been signed come on stream.

Benjamin Boakye asserted “currently the excess capacity that we have to pay for is about $25 million every month. So by the end of the year when you have Amandi coming on, you have Cenpower coming full stream, that shoots us to about $42 million a month for excess capacity. The debt accumulation is not stopping, you always have to get extra money to address some of these challenges. We need to have a real look at these situation and say how do we deal with it? How do we stop the debt accumulation so that we can the opportunity to address the existing debt? Else, the ESLA alone will not be enough”

According to the “Annual Report on the Management of the Energy Sector Levies and Accounts For The Year 2018” submitted to Parliament by Ken Ofori-Atta, Finance Minister, GHC2.5 million out of the GHC3.1 million gathered from the ESLA was utilised by Government.

Misuse of funds

Contributing to the discussion of Ghana’s energy sector debt, the Damongo MP and Ranking Member on Mines and Energy Committee of Parliament, Adams Mutawakilu, accused the Akufo-Addo government of misappropriating funds accrued by the ESLA.

This, he insists, has affected the performance of institutions who would have had some fiscal room to manage their operations and go for facilities on their own balance sheet.

“If a government in 2017 ESLA could tell us that they use GHC600 million to pay for pension arrears, What is more of misuse than that? That ESLA is purposely for energy sector and therefore you can’t just say you have liability and then you dip your hand (into it). It is captured in the report.”

“ECG in 2016 made a profit of GHC725 miilion under President Mahama, GRIDCo GHC69. So the ESLA if utilised in the manner it is expected, we expect these agencies to perform better. The more they are able to perform the more they are able to shoulder any facility they go in for. As at 2017, we got worst performance. ECG recorded a loss of GHC2 billion because it is not performing; GRIDCO, GHC118 million loss. So you realise that even with the ESLA the performance has gone down terribly” the lawmaker stressed.

In the view of the Ranking Member on the Mines and Energy Committee of Parliament, Mutawakilu Adam, the energy sector debt will linger on for long time to come because of the government’s approach to dealing with it.

“This energy sector debt will hang on us for a very long time.”

“The rate of accumulation of debt is astronomical. If we can take from 1992 to 2015 to accumulate $2.4 billion debt and from January 2017 to today the energy debt accumulated is about GHC2 billion then there is cause for worry.”

“There was the need to put an end to it and that is why ESLA came in, bringing all the taxes under one envelop. And as at the end of 2015 we had $2.4 billion but by the end of 2016 it had reduced to $2.2 billion because $250 million of the $2.2 billion had been paid.”

Solution

To resolve the issue, however, Executive Director of ACEP, Benjamin Boakye has advocated strongly for the cancellation of some agreements signed between the government and power producing companies for the generation of power.

He emphasised that government must confront the issue of the energy sector debt head-on to reduce the risk of intermittent power outages.

“We have to sit down and address this energy issue because its going to be recurrent. We will be talking about it, blaming others but the situation needs solutions now. I think we have to bit the bullet, some of the contractors have to go. Who can go? Bear the consequences because if you are going to pay $200 million today it is better than waiting to pay GHC 500, GHC1bn in 2-3 years” he cautioned.