Think tank, IMANI Africa, has
said behind-the-scene events in the power sector are pointing to a likely
return of intermittent power cuts or dumsor.
A brief
analysis by IMANI Africa’s energy desk suggests that high energy debts could be
the main cause of possible return to dumsor.
“The
fundamentals of the energy sector looks weak, particularly the power sector is
just a time bomb waiting to explode.
“High energy
sector debt continues to place constraints on the sector’s ability to innovate
and reduce end-user tariffs for consumers,” the think tank said.
It adds that “rising debt levels
can be attributed to the unplanned procurement of emergency power, political
interference in regulatory bodies, high technical and commercial losses,
unaccounted revenues, collection rate, and other administrative challenges.”
The think tank notes in the
analysis that total government debt owed Independent Power Producers (IPPs)
represents approximately 31% of the total energy sector debt and as a result,
the Chamber of Independent Power Producers has notified GRIDCo and other power
utilities of its planned shutdown until government clears 80percent of its
total debt owed.
“In the last four years, the
government’s debt owed the IPP’s have grown by $951 million from $270 million
in 2016 to $1.44 billion in 2020.
IMANI Africa has said to save
the country from another episode of intermittent power cuts, the government
must immediately initiate a close working relationship with the Chamber of
Independent Power Producers to resolve their grievances, ensure broader
stakeholder engagement in the renegotiation process and uphold the principles
of transparency and fairness.
Read the full analysis by IMANI below.
Is a second wave of “dumsor” looming?
Thoughts from the energy desk of IMANI
In the past few weeks, the
airwaves have been flooded with debates between the two main political parties
about who ended dumsor. While they continue to wrestle for this title, new information
reveals the menace is around the corner and may happen very soon.
The fundamentals of the energy
sector looks weak, particularly the power sector is just a time bomb waiting to
explode.
High energy sector debt
continues to place constraints on the sector’s ability to innovate and reduce
end-user tariffs for consumers. The rising debt levels can be attributed to the
unplanned procurement of emergency power, political interference in regulatory
bodies, high technical and commercial losses, unaccounted revenues, collection
rate, and other administrative challenges.
In the last four years, Ghana’s
energy sector debt has increased from US$2.4billion in 2016 to US$4.67billion
in 2020, signifying a growth of 94percent. As a result of unplanned procurement
of emergency power with taking or pay clauses, the country pays GHC 500million
(US$87.5million ) every year for electricity we do not use. This has worsened
the distress of the power sector utility agencies and challenged their
sustainability in the long run.
With all this knowledge,
political pressure continues to compel the government to reduce electricity
tariffs and to some extent provide free electricity. In 2018, the government
reduced electricity tariffs by 11percent and halved residential user tariffs in
2020. While this reduction makes governments popular, they end-up crippling the
utility companies in addition to the 24percent technical and commercial losses.
Independent Power Producers play
a critical role in keeping our homes lighted and industries running.
Nonetheless, the government’s failure to meet its financial obligations to
these private electricity producers threatens their survival. In the last four
years, the government’s debt owed the IPP’s have grown by US$951million from
US$270million in 2016 to US$1.44billion in 2020. Total government debt owed
IPP’s represents approximately 31percent of the total energy sector debt, about
a 20percent increase from the 2016 level of 11percent. As a result, the Chamber
of Independent Power Producers has notified Gridco and other power utilities of
its planned shutdown until government clears 80percent of its total debt owed.
The Energy Sector Financial
Restructuring and Recovery Plan was implemented in 2018 and its Task Force
inaugurated to deal with the legacy challenges in the sector, particularly
renegotiation of Power Purchase Agreements signed by the past governments.
Unfortunately, the political economy has made headway in influencing outcomes
of renegotiation and the implementation of the Cash Waterfall Mechanism to deal
with the debt in the sector. This has led to an opaque process with the outcome
of the work of the task force.
In 2019 the Ministry of Energy
carried out a series of engagements under the Energy Sector Recovery Programme
with IPPS to negotiate tariff reduction to reduce the cost burden on GoG and
bring competitive fairness to the sector via equalizing the tenure and
adjusting tariffs of the IPPs. Some IPPs and MOE signed renegotiated term
sheets that reduced tariffs in exchange for an extension of the tenure of our
country for additional years. The opportunity cost of the forgone reduced
tariffs is millions of dollars that would have relieved the country’s current
energy sector burden.
The Ministry of Finance,
however, rejected the renegotiation process in 2019 by setting up a steering
committee to take over the discussions with IPPs on tariff reduction. However,
after a year of several discussions and millions of dollars being paid to the
UK based agency to oversee the process, no progress has been made. Moreover,
the country lost more than $200M between June 19 and Dec.2020 in addition to
multi-millions of dollars to UK based companies that brought no progress.
Sadly some IPPs are not even
asked for a reduction, some IPPs negotiation process is concluded with the only
conversion to gas. The negotiations between Cenpower and GOG was silent on
tariff reduction, even though the prices of natural gas has dropped to
$6.08/MMBtu. The outcome of the negotiation only converted the Cenpower agreement
from using Light Crude Oil to natural gas.
The steering committee ensured
parties of equity and transparency; however, this has not been the case. The
discussions are not independent of bias or influence as some IPPs are notably
untouchable in terms of the reduction of tariffs.
To save the country of another
episode of “dumsor”, the government must urgently work closely with the Chamber
of Independent Power Producers to resolve their grievances, ensure broader
stakeholder engagement in the renegotiation process and uphold the principles
of transparency and fairness.
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