Energy Sector to undergo reforms as Gov’t targets $2.9bn reduction in sector debts
Finance Minister Ken Ofori Atta has announced that the energy sector in Ghana is set to undergo significant reforms in order to prevent its collapse. The sector currently faces a legacy debt of approximately $2 billion, as of May 2023. Finance Minister Ofori Atta has stated that these reforms aim to sustainably reduce losses within the energy sector.
In addition, the Finance Minister has outlined that the anticipated structural reforms in the sector are expected to reduce the debt by at least $2.95 billion over the specified period. This debt includes outstanding payments for power produced by Independent Power Producers (IPPs) on a take-or-pay basis, power produced by the Volta River Authority, and the supply of lean gas by the Ghana National Gas Company, among others.
The Finance Minister emphasized the urgency of comprehensive reforms in the energy sector, given the current conditions of State Owned Enterprises (SOEs) and IPPs. The sector has been prioritized for these reforms in order to address the significant shortfall of $5.9 billion between 2023 and 2025. The detailed plan for these reforms will be included in the updated Energy Sector Recovery Plan (ESRP), which is expected to be approved by Cabinet by the end of June 2023.
Minister Ofori Atta also highlighted that a framework to guide the granting of energy sector subsidies will be operationalized by the end of June 2023. This framework will provide clear guidelines and criteria for the allocation of subsidies in the energy sector. Additionally, an inter-utility debt settlement framework will be implemented on a quarterly basis starting in June 2023. This mechanism aims to address outstanding debts among utilities operating in the sector.
Furthermore, the Finance Minister emphasized the importance of enforcing the guidelines of the Cash Waterfall Mechanism (CWM) and Natural Gas Clearinghouse (NGC). The implementation of a mechanism to enforce these guidelines will also commence by the end of June 2023. These measures will help streamline the financial operations within the energy sector and ensure more efficient management of cash flows.
The proposed reforms in the energy sector reflect the government’s commitment to addressing the challenges and debt burdens that have plagued the sector. By implementing comprehensive reforms and adopting sustainable strategies, the government aims to stabilize the sector and pave the way for its long-term growth and development.
