Debt restructuring is a misguided solution to settling arrears of independent power generators

The pride and posture of the finance minister suggesting that debt restructuring is the solution to the financial challenges of Ghana’s power sector is not only laughable but also a fundamental misunderstanding of the systemic issues at play. It is naive to think that merely agreeing to some haircuts from some Independent Power Generators and deferring debt payments will end the cycle of debt accumulation.

Especially NOT when current bills continue to pile up, defaulting on monthly commitments, issues of capacity under utilization, systems power theft, commercial losses and other related matters are not being taken seriously. Without addressing the underlying problems within the electricity supply value chain, debt restructuring is nothing more than a cosmetic fix that offers no guarantee of financial stability and sustainability in the long term.

The Myopic View of Debt Restructuring as a Standalone Solution:

Debt restructuring typically involves renegotiating the terms of existing debt to extend repayment periods, reduce interest rates, cut arrears or defer payments. While this may provide temporary relief, it fails to address the root causes of the financial distress in Ghana’s power sector.

The finance minister's current focus on debt restructuring and other short-term solutions is insufficient to address the deep-seated issues within Ghana’s power sector. A strategic shift towards improving revenue collection by Electricity Company of Ghana (ECG), reducing systemic power theft and commercial losses, eliminating idle capacity payments, allowing IPPs to export unutilized capacities, and optimizing the use of natural gas resources is essential for creating a sustainable and financially stable power sector. The finance minister must recognize the importance of these fundamental reforms and prioritize them in the government's agenda.

The Cosmetic Nature of the Current Arrangement:

The finance minister’s pride and so-called achievement is merely a cosmetic fix that offers no guarantee for financial stability and sustainability. His solution fails to guarantee an assurance, forestalling future debt accumulation. By deferring debt payments, the government is not solving the underlying problems but postponing the inevitable. There are no clear positive impacts of this strategy on the overall liquidity, financial sustainability or predictability of cash flows to the Independent Power Generators. How can one celebrate deferring payment to a future date as an achievement? Shallow and unthoughtful! Instead, it creates a false sense of achievement and stability, while the fundamental issues, the root causes of the financial gap, remain unattended to. In fact, his approach overlooked some critical factors, such as:

Systemic Issues in the Electricity Supply Value Chain:

The inability of the ECGto honor her financial obligations is deeply systemic, which debt restructuring focusing on legacy cannot solve. Dealing with systemic, high-profile power thefts and commercial losses are significant challenges that undermine ECG's financial health. Key among them are Operational Inefficiencies. High-level systems power theft on the supply value chain, technical and commercial losses due to outdated infrastructure, poor maintenance, inability to supply meters to consumers, inability to capture numerous consumers on SHEP meters, and billing inefficiencies further strain the financial health of the Electricity Company of Ghana. Dealing with these inefficiencies through infrastructure modernization and improved billing systems is crucial for enhancing revenue collection and reducing financial losses. Should this not be a priority to the Hon. Finance Minister rather than the needless and bad energy spent on debt restructuring?

Continued Accumulation of Current Bills:

Restructuring debt does not prevent the continuous accumulation of current bills. The Electricity Company of Ghana is accumulating over 30% of the current invoices of the Independent Power Generators, again hindering their ability to meet monthly operating costs and maintenance expenses. Without sufficient predictive revenue or cash flow to cover these very important costs, financial instability and breaks in electricity supply are inevitable. The ongoing issue of defaulting on monthly commitments exacerbates the financial strain on independent power Power Generators. ECG's inability to pay IPPs consistently and timely leads to mounting interest charges, exchange rate lossesand penalties, further deepening the financial crisis. Debt restructuring does not resolve the fundamental problem of inadequate revenue collection and natural gas resource mismanagement.

Governance and Accountability:

Poor governance and lack of accountability contribute to financial mismanagement in ECG. There is no transparency or system of control to monitor how much is collected as revenue and disbursed thereon. Implementing robust governance frameworks, transparent financial management processes, procurement processes, regular system and credible financial audits are necessary to ensure that financial resources are used efficiently and revenue collected is fenced and gated securely. A good governance framework and strong controls will significantly enhance performance. Why is the finance minister not interested in this? Enough of the needless propaganda.

The Need for Deep Thinking and Sustainable Solutions:

To achieve financial stability and sustainability in honoring the obligations to the Independent Power Generators on time, a comprehensive approach is needed. This should include:

Enhancing Operational Efficiency:

Investments in modernizing infrastructure, reducing technical losses, and improving billing systems, and capturing all consumers on the SHEP meters are crucial for enhancing revenue collection and financial stability. Reducing commercial losses through stricter enforcement and consumer education can also contribute to improved financial health. Efficient utilization of natural gas resources is critical for optimizing power production and reducing costs, that leads to revenue maximization, promoting combined cycle power plants, and diversifying supply sources (utility-scale solar plants). Diversifying the energy mix to include more renewable sources can reduce reliance on expensive fuel imports and enhance energy security. This can contribute to stabilizing costs and improving the overall financial health of the power sector.

Eliminating Idle Capacity Payments:

Idle capacity payments occur when power plants are underutilized, leading to financial waste. Flexible Contracting: Renegotiating Power Purchase Agreements (PPAs) to include more flexible terms can help reduce idle capacity payments. Contracts that allow for adjustments based on actual demand can minimize the financial impact of underutilized capacity. Export the unutilized or idle capacities. Allowing and supporting IPPs to export their unutilized capacities can free ECG from the burden of idle capacity payments. By exporting excess power to neighboring countries, IPPs can generate revenue while reducing ECG’s financial obligations with respect to idle capacity payments.

Deploy Geospatial Technology:

Utilizing advanced technology such as geospatial technology, which includes Geographic Information Systems (GIS), remote sensing, and Global Positioning Systems (GPS), has become a critical tool in various sectors globally. In Ghana's electricity transmission and distribution sector, the integration of geospatial technology can revolutionize how power is managed, distributed, and monitored. The adoption of geospatial technology in Ghana's electricity transmission and distribution sector is not just a technological upgrade; it is strategically imperative for building a resilient, efficient, and customer-centric power network. By enhancing network planning, asset management, outage response, grid monitoring, disaster management, and customer service, geospatial technology offers a holistic approach to addressing the challenges faced by the power sector. As Ghana continues to develop and modernize its infrastructure, integrating geospatial technology will be key to achieving a sustainable and reliable electricity supply for all. The debt restructuring concept cannot address these issues.

Strengthening Governance and Accountability:

Implementing robust governance frameworks, transparent revenue collection and management processes, procurement processes, credible systems and financial audits are necessary to ensure that financial resources are used efficiently and revenue collection and disbursement are transparent and protected. This will help build trust in the financial management of ECG and attract investments.

The finance minister’s pride and belief that debt restructuring alone can resolve the financial challenges of ECG are fundamentally flawed. Without addressing systemic issues such as revenue mismanagement, operational inefficiencies, and poor governance, debt restructuring is totally useless and a misguided solution. It is imperative to adopt a comprehensive approach that tackles the root causes of financial distress to ensure a sustainable and resilient ECG. Hon. Amin Adams and his team must realize that deferring debt payments is not an achievement; it is a temporary fix that does not address the underlying problems.