ECG needs private investment — ACEP

THE African Centre for Energy Policy (ACEP) has called on the government to bring on board a private sector partner in the capital and management of the Electricity Company of Ghana (ECG).

The energy sector think tank is of the view that the recurring challenges in the power sector required the involvement of the private  sector  to  ensure  sustainability in the long run.

In an interview, the Executive Director of ACEP, Benjamin Boakye, however, stressed that the model for private sector participation in the power sector “should not replicate the flawed model of the previous Power Distribution Services (PDS) concession.”

“ACEP strongly recommends that the government divide the financing requirements into manageable portions that Ghanaian businesses and funds can absorb,” Mr Boakye was commenting on the large uncollected debt of the ECG as well as the power distributor’s indebtedness to independent power producers (IPPs).

The recommendations were contained in a study ACEP released on Monday (July 3) dubbed: “Switching Gears: Protecting Ghana’s Economic Sustainability in the Face of Power Sector Risks.”

The centre observed that in the interest of sustainability, the local investors could establish a robust management structure that paved the way for the eventual listing of ECG on the Ghana Stock Exchange (GSE). 

“This approach will encourage domestic investors to pool resources to raise equity and underwrite additional debts for investment in ECG on an appropriate thin capitalisation rule,” he added.

Transparency by ECG

Touching on the immediate steps to ensure that ECG operated optimally, the centre asked the power distributor to account for revenues accrued to the company from September 2022 under the Cash Waterfall Mechanism (CWM).

ACEP noted that before the major adjustment in September 2022, ECG’s collection was about 50 per cent of the revenue requirement under the CWM. 

The Executive Director of ACEP, Benjamin Boakye, said it was unacceptable that payments under the CWM have deteriorated to “a new low of about 11 per cent”, although there had been a 100 per cent increase in tariffs since September 2022. 

“Therefore, ECG needs to account for all its revenues over the period, including the GH₵3.1 billion it has recovered from debts,” he said.

Mr Boakye said accountability would help measure tariff adjustments' effectiveness on the power sector’s financial sustainability. He stressed the need for periodic accountability and performance reporting by ECG.

Mr Boakye said regular and transparent reporting by ECG should encompass comprehensive data on collections and expenditure to address the needs of the entire value chain.  

“This will enable informed decision-making and targeted interventions. This should be done by reforming the CWM, which has remained a black box,” he added. 

ACEP further underscored the need for ECG to take urgent steps to procure meters, as “the prolonged lack of meters is unacceptable.” He noted that an option would be to allow customers to make upfront payments for meters, which the consumer could recover through billing. 

“This creates an option outside the explosion of black marketeering of meters. Again, the procurement system must be transparent, with the involvement of PURC to protect the consumer,” he said.

No IMF magic wand

The power sector is heavy on the agenda of the International Monetary Fund (IMF) to redirect the country to the path of fiscal sustainability. 

In that regard, the IMF is hopeful that the $3 billion Extended Credit Facility (ECF) and the accompanying fiscal consolidation pledges of the government would turn around the fortunes of the power sector. 

However, in its analysis, ACEP was skeptical about the IMF’s ability to deliver a sustainable power sector because of the lack of political will, inefficient decisions, lack of accountability, and deficit of context-appropriate solutions to the problems. 

The think tank observed that while tariffs had increased by about 100 per cent in the past nine months, liquidity had worsened within the same period, raising concerns about revenue accounting by ECG and the impact of the adjustments.  

ACEP indicated that the CWM recorded its poorest performance in March and April, 2023, meeting only 11 per cent of the revenue requirement. The situation has been attributed to ECG’s discretionary spending and poor accounting.  

“At the same time, more poor decisions are being made to further threaten the sustainability of the power sector, requiring a seismic shift in the governance of the sector,” ACEP added. 

More observation

The study observed that efficient and effective policies to address the challenges in the power sector were “significantly delayed”, and the situation was not improving. 

It also noted that the central government's payments to cover under-recoveries had escalated yearly due to inefficiency and disastrous policy decisions throughout the value chain. 

ACEP further said the recent reality of ECG's payment to CWM covering about 11 per cent of the revenue requirement represented a distressing level of under-recoveries, undermining the revenue adjustments made recently, despite a significant increase of about 100 per cent over the past nine months. 

“The urgency to prevent further deterioration in the power sector's condition is now more critical than ever, considering the broader implications for the oil and gas sector,” the centre further noted. 

ACEP also observed that the consequences of mismanaging the power sector impacted the national budget and could not be overstated. 

“A key recommendation stemming from this crisis is the immediate need for enhanced transparency and accountability throughout the power sector value chain.