The New Energy Sector Levy

Ghana’s energy sector is drowning in debt.

As far back as 2015, when government passed the Energy Sector Levy Act (ESLA), one of the key policy rationales was addressing the debt burden facing the sector.

The implementation of ESLA, subsequent changes because of the 2016 turnover election, and the utilisation of the fund are matters a single op-ed piece cannot fully address. 

Nonetheless, a decade after ESLA, policy makers returned to the drawing table faced with the same question – how should government deal with the energy sector debt?  

In response, the policy choice was to amend the ESLA Act and impose a “GH¢1 per every litre of fuel purchased.”

The speed of the imposition, an amendment bill introduced under a certificate of urgency and quickly moved through the legislative process, is all one needs to appreciate the situation this government finds itself in.

The policy choice has been made. What the government faces now is this – reconciling the economic and fiscal realities of the energy sector with the politics of taxation in a way that gets the public to lend political support to this new levy. 

Policy rationale & fiscal reality

The fiscal reality is dire. According to the finance minister, “the energy sector’s total indebtedness stands at US$3.1 billion as of March 2025.”

This includes debts owed to independent power producers and suppliers as well as debts accrued by Electricity Company of Ghana (ECG). 

Recently, the Minister for Energy and Green Transition, John Jinapor, stated the following: "We require about $1.1 billion to procure liquid fuel alone.

Unfortunately, the liquid fuel is not part of the tariff structure and that has to be paid by the central government."
This fiscal reality must be dealt with.

No one needs to be reminded of the economically crippling nature of the “dumsor” crisis between 2014 and 2016.

The International Monetary Fund (IMF) Staff report (July 2021) published as part of the bailout programme did not mince words when it pointed out challenges in the sector and how its debts pose financial risks to government.  

So, in principle, I agree with the finance minister and the rationale provided in the accompanying memorandum when the amendment bill was laid in parliament. Something must be done to save a sector inextricably linked to the Ghanaian economy.

However, this appears to be an immediate, short-term measure designed to avert a crisis.

Fair enough.

But beyond the levy, what else and what next?

What other policy tool is the government considering given that it appears there are structural issues driving this cycle of energy sector debt accumulation?

Managing the politics

The government cannot escape two political realities – a) dealing with how the main opposition political party responds to this policy choice, and b) managing potential backlash from citizens.

The response from the main opposition political party is what one would expect in a duopoly where partisanship shapes policy discourse. Their response so far also reflects the politics of fiscal policy and the regular use of the term “nuisance tax” by both sides of the political aisle to describe any government’s attempt to use taxation or levies to generate revenue.

Sure, the government may have a point in responding to the main opposition party by referencing the management of ELSA (2015) after the 2016 turnover election, and how it has, in some ways, contributed to the current crisis.

Ultimately, how the government chooses to keep responding must bear this in mind – it cannot afford the luxury of getting politically distracted because this crisis needs a permanent solution.

Most important of all is how the government manages any potential backlash from citizens, especially when they are being called upon yet again to make sacrifices.

The Ghanaian citizen has shouldered various levies over the course of the Fourth Republic designed to address fiscal challenges.

Yet, some of these fiscal challenges persist. In such a situation, one cannot fault citizens who respond to the call to sacrifice with frustration.

This is where the language deployed to appeal to the public for its support and sacrifice is critical. 

The levy

I have listened to those knowledgeable about the energy sector for years now. The truth of the matter is this - difficult but necessary policy choices must be made across the entire energy sector’s value chain. It can no longer be deferred.  

It is the reason why imposing this levy cannot be the only solution presented to the public, especially because there is nothing new about this approach.

There must be a comprehensive solution to show citizens that in a decade from today, a future government would not be calling upon them to make another sacrifice in the form of a levy to help alleviate a fiscal challenge in the energy or any other sector. 

The writer is the Project Director, Democracy Project.