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The controversial Energy Sector Levies may not be scrapped, as Finance Minister, Ken Ofori-Atta, has given indication they are needed to “extinguish” the web of debt in the sector, which also threatens the survival of the banking sector.
Former Deputy Energy Minister, John Jinapor, has been on the new government’s case, asking it to immediately make good its promise to scrap the levies, which it criticised heavily in the run up to the December polls.
Addressing the press late Sunday evening, the Finance Minister spoke of avenues through which the new government will be dealing with the mountains of debt in the energy sector, mentioning the levies as one of the measures.
The energy sector levies were introduced in 2015 as part of measures to raise funds to settle the indebtedness of Volta River Authority (VRA) and Electricity Company of Ghana (ECG) to some commercial banks in the country.
The New Patriotic Party (NPP), while in opposition, decried the levies which saw fuel prices jump by at least 27 percent, a little over a year ago. Following public outcry, the opposition party promised it would scrap the levies if it won the elections, in a bid to provide relief to consumers.
The Finance Minister explained, however, that his ministry is aware of the attendant challenges the SOEs indebtedness have on the balance sheets of the banks and the rising non-performing loans ratio.
“On the banking industry, we have just gone through a period in which the Ministry did not have a clear bird’s eye view of what the SOEs were doing…We need to be engaged in any of these commitments that these SOEs have or sign…So, the banking industry we have ESLA [Energy Sector Levies Act] etc. I think those will gradually move to extinguish those debts,” the Minister said.
The Energy Sector Levies Act (Act 899) passed by the erstwhile government, seeks to harmonise energy sector levies and taxes on petroleum products, with proceeds from the levies used to ringfence the various energy sector legacy debts.
The NPP government had campaign on the back of extensive cuts to what it termed “nuisance taxes,” to “recover the momentum of our economy.”
Notwithstanding the fact that the previous government had used the proceeds from the energy sector levies to secure a deal with creditors of the SOEs, the opposition party maintained its stance on the biting effects the levies would on businesses and consumers.
The VRA is indebted to about 11 commercial banks to the tune of more than GH¢4 billion. The current debt agreement reached with the banks, with the backing of government, is aimed at retiring GH¢2.2 billion of the total amount.
A key feature of the deal agreed with the banks saw the reduction of the interest rate on the cedi component of the VRA debt from 30 percent to 22 percent, whereas interest on the foreign debt component was successfully negotiated from 11 percent to 8.5 percent.
The then Finance Minister, Seth Terkper explained that: “Repayments will be funded from a debt service account which will receive cashflows from the energy debt recovery levy and a debt service reserve and a proportion of VRA's receivables. Also, proceeds of the energy debt recovery levy which are applied to VRA debts will be converted into equity on VRA's balance sheet or could be subject to an on-lending arrangement with the government.”
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