IMF says Ghana’s energy sector debt to remain above $1 billion till 2024
The country’s energy sector debt is expected to remain above the $1 billion mark if the government fails to step up its game in implementing the Energy Sector Recovery Plan, the International Monetary Fund (IMF) has said.
According to the IMF, as at the end of 2018, the sector’s losses had translated into cumulative arrears of $2.75 billion of which $851million is owed the private sector.
The Fund notes that the country in last year alone, spent approximately 2 percent of GDP to support the energy sector which is beset with challenges such as excess power generation capacity and gas supply, limited transmission capacity, large distribution losses, and low and subsidised electricity tariffs.
According to the Fund, government in recent years has signed Power Purchase Agreements (PPAs) with 32 Independent Power Producers (IPPs) – resulting in excessive supply over demand and high fixed cost. Even though government is renegotiating some of these contracts, a move that can reduce cost by 30 percent (saving US$220million in 2022), the IMF says it will involve refinancing IPP debt worth $900 million.
Additionally, the challenge of power sector shortfalls keeps choking the energy sector; as electricity tariffs only cover 73 percent of cost. Thus, the IMF says adjusting electricity tariffs to inflation will be needed to bring the annual financial shortfall from electricity generation under $500 million by 2024.
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Closely related to this is technical losses of the Electricity Company of Ghana (ECG), which had reached GH¢3billion in 2018 – with no clear plan from the distribution company to address it.
The report however acknowledged that the pandemic has contributed to the slow pace of implementing the Energy Sector Recovery Programme (ESRP) to address the challenges.
But it further advised that government become more current and transparent with data on the sector, so that the real situation can be fairly assessed.
“Information on the performance of the sector remains patchy and outdated. The latest publicly available debt data is from 2018. The ESRP itself calls for transparency, yet there has been limited public reporting on progress. There appears to have been limited stakeholder consultation on the IPP renegotiation or procurement of new contracts in the sector,” the report stated.
Government, in the 2021 budget introduced an Energy Sector Recovery Levy of 20 pesewas per litre on petrol/diesel under the ESLA, as a means of finding additional resources to cover the excess capacity charges which have resulted from the Power Purchase Agreements (PPAs).
