Utility Prince Hikes and My take

The Public Utilities Regulatory Commission (PURC) after several months of public consultations with various stakeholders in the country including technical experts and government increased utility prices (electricity & water) to a colossal percentage of 135.

Organized labour led by TUC rejected the increases citing current economic hardships and the fact that government in consultation with labour only increased salaries of Ghanaian workers by paltry 10%. Amidst petroleum product and transport fare increases. They decried the inability of the Ghanaian worker to absorb the shock.

Government through its spokespersons defended the action of PURC as an independent entity and therefore little could be done in the circumstances less we usurp the authority of the state body. The government has however beaten a retreat by slashing the electricity prices by 25% through a subsidy scheme in order to avert an 18th November, 2013 nationwide strike amidst planned demonstrations by organized labour. We are now told our government requires an additional Four hundred million Ghana cedis (Ghc 400m) to offset the subsidy deficit.

The question to ask are (1) is it really necessary for government to intervene with this subsidy? (2) How has our government (present & past) handled such subsidy interventions (3) where is our government getting the Ghc 400m to offset the subsidy deficit? (4) Moving forward, what should our government do to curtail such hullaballoo that greeted the utility price hikes?

My personal view on the subject of the subsidy is that, it’s absolutely unnecessary. In the short term, it makes political sense to reduce electricity prices albeit a subsidy. This will quell the labour agitations and reduces the potential of the likely effects of a possible strike on the national productivity and the economy in general. It is an undeniable fact that the economy is currently bedeviled with cash flow and liquidity challenges. Any government will therefore require industrial harmony to fix the nemesis of such a cast striped economy.

But in the long run, it is completely bad to the economic progress of the country. The rate of growth of any economy is directly related to the efficiency of energy supply. There is no question to the fact that Ghana today has an energy deficit. Our total energy generation capacity is around 2600 megawatts of power with a medium to long term goal of generating 5000 megawatts of power. The least talk about the water sector the better. Right from the days of the kufour gallon till date. The least the utility service providers require is realistic tariffs to generate enough revenue to invest in generation capacity since its capital intensive and requires long term investment to mature.

It’s plain truth that our government’s since the return of democratic governance have not redeemed such subsidy interventions to the appropriate utility service providers, even if they do, it’s often too late to serve any purpose and I am not about to contemplate the feasibility of government making its promise to remit a colossal Ghc 400m to offset the 25% subsidy. We are all pretty aware the major defaulter in the payment of utility bills in this country is government and its sub vented agencies. If our government could redeem its indebtedness to the power companies which is in the region of 500m Ghana cedis, the energy sub-sector could improve tremendously.

How therefore is government going to fund this subsidy intervention? I have heard social commentators indicate that, the upward review of the VAT threshold from 12.5% to 15% is akin to robbing Peter to pay Paul. But where did we anticipate our government was going to get the funds to address the subsidy deficit? It’s about time we tighten our belts and face squarely the issue of realistic payment of utility prices less we continue to play to the gallery.

Let me take a bite on value for money considerations as always opined by the consuming public. Justifiably so, consumers ask for quality service delivery is apt. However, giving the capital intensive nature of the utility sub-sector especially energy. Investment projects needs medium to long term to mature at least 3 years. The T3 thermal project at Aboadze is an example which was completed in 3 years. Clearly, value for money cannot be achieved without the requisite investments in the medium term to generate the needed power pool for quality service delivery.

Moving forward, recommended measures to deal with this problem in my view include but not limited to the following;

1. The automatic adjustment pricing formula must be made to work at all times. Never again must we allow socio-political considerations to truncate the implementation of this progressive pricing formula irrespective of which political administration is in power. The long term repercussions of unwarranted intrusion with the work of this price calculating mechanism is far more injuries to this country than the short term electoral gain.

2. The presidential directive for all government offices and bungalows to be replaced with pre-paid meters is a commendable move and must not be a night day wonder. I therefore submit that this directive must be applied to private buildings and homes. This I believe will greatly reduce the current poor attitude of both government and the general public to service their utility bills. The utility service providers will intend be able to generate far more revenue to expand facilities and give consumers better service.

3. The utility service providers must also apt their game to restore their sinking public image by cutting down on losses and being much more efficient in the delivery of service to the consuming public. They have no excuse what so ever.

In conclusion, as a nation we must be prepared to bite the bullets now and take the necessary steps to invest in the utility services. Let our government show example and lead the way. Then will the rest of us follow.

written by Nashiru Kanton Luriwie— An Elementary Economics Student