Energy Sector Debt Synopsis: Are We Leaving Things Exactly As We Found Them? No. Here Is Why

Energy Sector Debt Synopsis: Are We Leaving Things Exactly As We Found Them? No. Here Is Why

1. It’s true that the energy sector’s debt stood at $2.5 billion in 2017. This includes debt from the downstream petroleum sector, TOR’s debt, and the power sector.

2. ESLA was established to address this legacy energy sector debt, with a five-year sunset. This meant the sector’s debt was expected to be amortized by 2020.

3. However, the ESLA plan was derailed with the creation of ESLA PLC, which shifted the negotiated debt from the original owners to the bond market. This made it impossible for ESLA proceeds to cover coupon payments and principal servicing. ESLA PLC also took on payments for recurring debt rather than tackling legacy debt.

4. In 2019, the World Bank and the government projected that energy sector underrecoveries could reach $12.5 billion—up from $2.7 billion—if the sector continued to be managed the same way, particularly due to power sector underrecoveries (the downstream sector had already been deregulated, so no underrecoveries were expected there).

5. The primary objective of the Energy Sector Recovery Programme (ESRP) was to bring the sector into balance by 2023, where revenue would match payment requirements, without accumulating further debt.

6. It’s striking when the President claims his government averted the projected $12.5 billion in underrecoveries by 2023. The reality is that, by 2023, the projection had been revised to $14.5 billion, despite some claims of success by the World Bank to feel good about its failed Programme.

7. The situation could have been worse were it not for the Russia-Ukraine war, which provided a reprieve on LNG supplies that could have added nearly $1 billion annually to the debt burden. So, perhaps we didn’t need to worry so much about wheat prices after all.

8. When the Russia-Ukraine war began, GNPC was scheduled to receive LNG under a take-or-pay contract, which would have exceeded local demand. At the time, the contract price for LNG was around $17 per MMBtu, significantly lower than the price in Europe, which was over $30. Shell PLC, which had a contract with GNPC, deferred delivery to sell at a premium in Europe. GNPC could have taken the LNG at the contracted price and resold it for a profit, but that’s a discussion for another day.

9. The key report expected from the President as his term ends should focus on whether the energy sector has reached a state of balance and whether the legacy debt has been cleared.

10. Unfortunately, the opposite is true. The sector’s underrecoveries have worsened year after year. The underrecoveries for 2024 are higher than those for 2023, and cumulative debt has exceeded the projected $12.5 billion, not including interest on some debts and judgment debts in the sector.

11. ECG can only pay half of its bills but continues to waste funds on sole-sourced procurements, undermining a key component of the ESRP, which advocates for competitive procurement in the sector. Fuel supply contracts were sole-sourced throughout the President’s entire eight-year term, with no option for least-cost procurement as prescribed by the ESRP.

12. The major initiative to bring in the private sector to manage ECG’s operations failed to materialize over the past eight years. PDS is now in court with ECG and the government over wrongful termination.

13. The public has been taxed in various ways to cover the mismanagement of the energy sector, including through the ESLA’s 49 Pesewas Energy Debt Recovery Levy and 20 Pesewas the Energy Sector Recovery Levy; 69 Pesewas per liter of fuel consumed- more than GHS 3 billion a year.

14. Yet, the President talks about $2.5 billion debt. In reality, the debt should be much higher. A consolidation of judgment debts, IPP debt, gas supply debt and interest payments on debt to foreign Banks would reveal a far greater outstanding debt in the sector.

15. The $2 billion Genser pipeline contract has yet to be factored into electricity tariffs, yet GNPC continues to rack up debt for securitizing the project.

16. The public’s expectation was not to inherit a $2.5 billion debt and pass it on unchanged after injecting several billions into the inefficiencies. The failure to resolve the energy sector’s issues was a major contributing factor to the economic collapse, as borrowed funds were squandered on mismanaging the energy sector. Billions of dollars were extracted from the people, both directly and indirectly, to cover the inefficiencies that led to the rise of political millionaires.