Ghana's Energy sector in danger - World Bank report
The World Bank has diagnosed Ghana’s energy sector as performing below expectation and called on the government to fix the problems in the sector as a path to ensuring that the country’s economic growth and ambition are not stymied by a lack of electricity.
In its 2013 report entitled: “Energising Economic Growth in Ghana: Making the power and petroleum sectors rise to the challenge”, the bank said “at a time when the Ghanaian economy is achieving sustained growth in excess of six per cent annually, with ambitions to raise this further, there is a risk that misguided and inappropriate policies would lead to the power sector becoming a drag on the economy.”
The bank said the problems and solutions were well known, but what had been lacking was decisive and timely decision making to break the tendency to adopt reactive measures that often came too late when proactive measures would have led to better outcomes.
In its diagnosis of the problems confronting the energy sector, the World Bank was of the view that the energy sector faced two challenges arising from forces external to the sector.
The challenges, the bank said, were lack of adequate and secure quantities of reasonably priced fuel for power generation, and the lack of adequate public funds to finance the sector’s investment requirements.
The challenges, according to the World Bank, were exacerbated by the poor technical and financial performance of the Electricity Company of Ghana (ECG) and the Volta River Authority (VRA), and policies and practices that seriously damaged the financial health of ECG, VRA and the Ghana Grid Company Limited (GRIDCo)
ECG’s commercial performance needs improvement
Focusing on the ECG, the World Bank said the company’s commercial performance required improvement and said that the tariff policies that provided subsidies to consumers had harmed the financial health of the ECG and the Northern Electricity Distribution Company (NEDCo).
“Because of low residential tariffs, the bulk of ECG revenue come from non-residential consumers, who account for 56 per cent of sales revenue, even though they account for only 12 per cent of ECG’s unit sales,” the report said.
In view of the World Bank, the Public Utilities Regulatory Commission (PURC) had failed to increase retail tariffs, a situation which had affected the operations of the ECG.
“ECG is expected to incur losses of US44million in 2012, and US$60 million in 2013.
A way out of the predicament facing the ECG, the bank suggested, was for the PURC to resume implementing the quarterly automatic retail tariff mechanism, and also prepare for the next major tariff revision in mid-2013 to give the ECG the much-needed additional revenue.
VRA faces collapse due in large part to external shocks
On VRA, the bank said, the cut-off of the West Africa Gas Pipeline had compelled the VRA to buy light crude oil to operate its thermal power plants.
Given the prospect of continued negative cash flow in 2013, the bank said, the VRA would find it difficult to service the short-term debt overhang of more than $350 million accumulated in 2012 which continued into 2013.
Furthermore, the bank said the low rate at which VRA sold power to the VALCO was a contributory factory to its financial woes.
PURC performance
The World Bank indicted the PURC and said “though the PURC has been in existence for nearly 15 years and made significant progress on advancing customer rights, its performance is not good enough, as indicated by the PURC’s failure to apply the automatic indexation scheme to tariff setting, except during two very brief periods”.
It indicated that the utility regulator lacked the capacity, as it had been unable to retain its staff, and there was also very little practical experience of the power of utility industry among its staff.
The PURC, however, disagrees with the content of the report and has questioned the bank’s source of information.
“The bank cannot be suggesting to Ghanaians that the utilities should continue to ignore the benchmarks set in Ghana with impunity and without any consequences whatsoever,” it stated.
“The World Bank’s comment may be so dated as to beg relevance. Emphatically, there has been absolutely no haemorrhage of expert staff from the commission due to inability to retain competent staff, as claimed by the World Bank,” the regulator stated.
In a statement issued in Accra yesterday, the PURC said it was not true that it had capacity constraints and was unable to retain staff it had trained at considerable expense.
VALCO should be shut down
The World Bank also recommended to the government to shut down the Volta Aluminium Company Limited (VALCO), as it was no longer viable.
It stated that the government’s annual US$150 million subsidy to the only smelter was hurting the power sector.
The Minister of Energy, Mr Emmanuel Armah-Kofi Buah, however, disagrees, stating that VALCO is a strategic national industrial asset which must be maintained at all cost.
Government disagrees
Reacting to the World Bank’s recommendation in an interview in Accra on Tuesday, Mr Buah explained that the government was working hard to keep the smelter alive, since a shutdown would impact negatively on the economy, the workers and their dependants.
As part of those measures, he stated, the government was working with officials of VALCO to explore a dedicated plant to meet the energy needs of the company.
The report, prepared by the Energy Group, Africa Region of the World Bank, noted further that “in the current context of load shedding, it would be far more economic for the government to shut down Valco and provide the power for other consumer segments that pay tariffs closer to the true cost of supply”.
It also stated that there was no economic justification for the heavy subsidy given VALCO in the past and now.
“For the power sector, what matters most is that this type of hidden subsidy to VALCO harms the viability of power sector utilities. Not only does VALCO pay an extremely low tariff but even so VALCO has failed to pay the VRA and GRIDCo in full and has significant payment arrears with them,” it said.
VALCO is one of the largest smelters in Africa, with a workforce of more than 500. It was established by KAISER Aluminium of the United States and the Ghana government in the 1960s to produce aluminium products for further processing.
By Naa Lamiley Bentil/Daily Graphic/Ghana
Writer’s email: naa.bentil@graphic.com.gh