World Bank pushes VALCO shutdown

The World Bank has said that in the current context of load-shedding, it would be far more economic for Government to shut down the Volta Aluminum Company (VALCO), the state-owned aluminum smelter, and provide the power to other consumer segments that pay tariffs closer to the true cost of supply.

In the bank’s estimation, VALCO’s continued operation has a “high economic cost” for the country and Government should stop the “hidden” power subsidy it gives VALCO, which harms the viability of power sector utilities.

If, on the other hand, Government decides to keep VALCO, electricity consumers should not be expected to bear the additional cost-burden of the VALCO subsidy, the bank said in a new energy sector report.

Dr. Kwabena Donkor, Chairman of the Parliamentary Select Committee on Mines and Energy, has however kicked against the proposal, telling journalists at the launch of the report that some 600 people risk losing their jobs if VALCO is shut down.

VALCO, he said, provides raw materials for Aluworks and other industries, and closing down the company will affect those other businesses.

“If we close VALCO down, we will be decreasing our manufacturing base - which is already very low. If anything at all, we should be looking at increasing our manufacturing base. Without VALCO, there would have been no Akosombo to start with. VALCO was the off-taker that secured funding for the Akosombo Dam.”

The World Bank report argues, however, that “not only does VALCO pay an extremely low tariff, but even so VALCO has failed to pay VRA and GRIDCo in full, and has significant payment arrears with them.” VALCO, according to the report, cannot be viable if it pays the full cost of electricity supply.

“At present, Government has chosen to prop-up VALCO by providing it electricity at a subsidised rate -- at a time the country is undergoing power cuts. The total subsidy from the low power tariff is estimated to be around US$150million per year,” the World Bank stated.

“Government has also not honoured its commitment to VRA to make up for the revenue shortfall between the Bulk Supply Tariff and the VALCO tariff, with the result that the onerous burden of the VALCO subsidy has to be borne by VRA, and thereafter the other power consumers in Ghana.”

The establishment of VALCO was as a result of the vision of Ghana’s first President, Dr. Kwame Nkrumah, to establish an integrated aluminum industry in the country. Erratic power supply in the country has however bogged down the company, making it produce way below capacity and at some points being shut down.

To bring the company about, the Nkrumah Government partnered the late Edgar Kaiser, Chairman and Founder of Kaiser Aluminum & Chemical Corporation (KACC), who was the majority shareholder of VALCO.

The company, which began in 1964, is currently owned 100 percent by the state; and although it is said be operating only one out of its five pot-lines currently, the erratic supply of power across the country has hit the heavily power-dependent company hard.