Debt Restructuring: Gov’t takes steps to address energy sector arrears
Government has pledged to address energy sector arrears and improve efficiency within the sector, according to a letter signed by the Finance Minister, Ken Ofori-Atta. The letter, addressed to Independent Power Producers (IPPs), outlined a series of measures aimed at generating sufficient cash to ensure payments in line with Power Purchase Agreements (PPAs).
These measures include a tariff increase of 27% in September 2022 and a further increase of 29.96% in the last quarter of 2022 to address forex losses and inflation.
The move comes as part of the government’s commitment to restore the financial sustainability of the power sector value chain. The government has rolled out a raft of structural reforms aimed at improving efficiency within the sector and forestalling the build-up of future arrears.
These reforms include a review of the Cash Waterfall Mechanism and Power Purchase Agreement renegotiations with IPPs, with a view to restructuring PPAs and reducing power generation costs.
The government’s stock of arrears and outstanding debt obligations are part of the conditionalities for an International Monetary Fund programme. The government remains committed to achieving a moderate risk of debt distress under the IMF-WB Low Income Countries (LIC) – Debt Sustainability Analysis (DSA) framework.
As such, the government plans to engage with IPPs under the ongoing debt restructuring exercise to restructure the arrears in a manner consistent with government debt targets of 55% NPV of debt-to-GDP and external debt service ratio of 18% to revenue by 2028, amongst others.
Despite the government’s efforts to address energy sector arrears, the sector remains vulnerable to a range of challenges, including unpredictable fuel costs, ageing infrastructure, and weak financial viability of utilities. Furthermore, the sector has been hit hard by the COVID-19 pandemic, which has disrupted supply chains and reduced demand for electricity.
The government’s commitment to address energy sector arrears and improve efficiency within the sector is a positive step towards restoring the financial sustainability of the power sector value chain.
However, sustained efforts are required to ensure the long-term viability of the sector. This will require continued investments in infrastructure, as well as efforts to reduce costs and increase efficiency.
