Energy Sector Reset Multifaceted; Legacy Debt Remains Key Risk – Dr. Theo Acheampong
Economist and Technical Advisor at the Ministry of Finance, Dr. Theo Acheampong, has described Ghana’s energy sector challenges as “hydra-headed,” warning that while recent reforms have stabilised cash flows, deep-seated structural and legacy issues continue to pose fiscal risks.
Speaking during a NorvanReports and Economic Governance Platform (EGP) X Space discussion on “Energy Sector ‘Reset’: Will It End the Circular Debt or Recreate It?”, Dr. Acheampong said the sector’s problems span tariff under-recovery, governance failures, inefficiencies at the distribution level, and historical misuse of sector revenues.
According to him, weaknesses in the implementation of the cash waterfall mechanism particularly by the Electricity Company of Ghana (ECG), contributed significantly to the accumulation of debt in the sector.
“Payments collected into the cash waterfall were not always used to remunerate players within the sector. ECG was using part of those funds for other purposes, while tariffs themselves were also not covering full sector costs,” he explained.
Dr. Acheampong noted that these challenges were clearly identified in Ghana’s initial International Monetary Fund (IMF) programme launched in May 2023, which flagged the energy and cocoa sectors as the two most critical sources of fiscal risk to the economy.
He disclosed that at the height of the economic crisis, the energy sector shortfall was estimated at about 2.2 per cent of GDP, translating into nearly $2 billion annually spent by the state to cover inefficiencies, tariff shortfalls and unpaid obligations.
“To put this into context, that is money that could have gone into schools, roads, hospitals and productivity-enhancing infrastructure, but instead had to be channelled into plugging gaps in the energy sector,” he said.
Providing historical context, Dr. Acheampong recalled that the Energy Sector Recovery Programme, developed in 2019 with support from the World Bank and IMF, was intended to clear legacy arrears within four to five years through the cash waterfall mechanism. However, implementation weaknesses meant that the intended debt reduction was not fully achieved.
He said the key change under the current “reset” agenda for the energy sector, is a renewed commitment by economic managers to ensure strict enforcement of the cash waterfall system.
“I can state on authority that as we speak, the government remains largely current on bills related to ongoing electricity and gas supply. These are not legacy arrears, but current obligations, and most of them have been cleared,” he noted.
Dr. Acheampong stressed further the need to distinguish between historical arrears and current payments, adding that while progress has been made on the latter, resolving legacy debts remains a major policy task.
He pointed to the renegotiation of several power purchase agreements (PPAs) as a critical step in addressing the debt overhang, noting that some contracts have already been crystallised, with others requiring parliamentary approval.
According to him, the 2026 Budget estimates savings of nearly $250 million from the renegotiation of PPAs, with additional savings expected once outstanding amendments are approved.
On sustainability, Dr. Acheampong echoed concerns that sector stability should not depend on discretionary ministerial intervention, stressing the need for strong institutional systems.
“The processes and systems must work with or without ministerial or IMF oversight,” he said, adding that governance reforms at ECG, including reducing technical and commercial losses estimated at nearly 27 to 30 per cent at their peak, are central to the reset.
He explained that the energy sector reset strategy focuses on three pillars: stopping the immediate cash bleed through strict cash waterfall enforcement; addressing legacy debt through contract renegotiation and savings; and ensuring future tariffs and collections reflect full sector costs, including gas supply.
Dr. Acheampong concluded that while macroeconomic improvements, including exchange rate stability, are helping ease tariff pressures, lasting reform will depend on reducing losses, strengthening governance, and improving revenue collection across the value chain.
