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Power sector faces challenges as IMF conditionalities fail to boost liquidity

2 years ago
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Power sector faces challenges as IMF conditionalities fail to boost liquidity

In a recent report by the Africa Centre for Energy Policy (ACEP), it has been revealed that the International Monetary Fund (IMF) conditionalities implemented in Ghana’s power sector have not yielded the expected results of improving liquidity. The theoretical assumption that raising tariffs would enhance the sector’s financial stability has proven ineffective, despite a significant increase in tariffs of approximately 100% between September 2022 and June 2023, made possible only through the IMF program.

One of the mechanisms introduced to address liquidity issues, the Cash Waterfall Mechanism (CWM), has failed to achieve its objectives, particularly in ensuring proportional distribution of revenues and enhancing revenue collection. The Electricity Company of Ghana (ECG), which has been at the center of the sector’s financial struggles, recently embarked on a debt recovery campaign to collect around GHS 5.7 billion (approximately $475 million) owed by power consumers. ECG claims to have successfully recovered about GHS 3.1 billion (around $258 million). However, these purported recoveries have not translated into improved liquidity within the sector.

Various stakeholders, including Independent Power Producers (IPPs), Volta River Authority (VRA), Ghana Grid Company Limited (Gridco), Ghana National Gas Company (GNGC), Ghana National Petroleum Company (GNPC), and the Public Utilities Regulatory Commission (PURC), are raising concerns about the whereabouts of the collected funds. Despite the reported recoveries, there has been no discernible improvement in liquidity, raising questions about the effectiveness of the CWM in tracking collections and payments along the power sector value chain.

Further scrutiny into ECG’s revenue collection and accounting practices reveals alarming discrepancies. According to CWM data, ECG reported total revenue of GHS 1.1 billion between March and April, averaging GHS 550 million per month. This amount represents only about 35% of the GHS 3.1 billion claimed by ECG. Even more concerning is that over 50% (approximately GHS 540 million) of the reported revenue was allocated for discretionary spending by ECG, rather than being directed towards paying off the debt owed to the stakeholders in the value chain.

The non-payment of gas suppliers through Ghana National Petroleum Company (GNPC) has led to consequences for the gas sector, with the West Africa Pipeline Company Limited (WAPCO) reducing reverse flow gas volumes due to outstanding payments. The government’s prompt payment of outstanding balances becomes crucial to ensure uninterrupted gas supply.

As the discrepancies unfold, it becomes evident that ECG has allocated a disproportionate amount of its revenue to itself, deviating significantly from the prescribed allocation formula under the CWM. Instead of disbursing around GHS 113.5 million, which corresponds to its entitled share of 26.37% of the revenue, ECG allocated approximately GHS 256 million (about 59% of the CWM revenue) to itself. This glaring discrepancy raises concerns about fair revenue distribution within the value chain.

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ECG’s practices of underpaying other entities within the value chain and diverting a significant portion of its revenue for discretionary spending cast doubts on its claims of improved revenue collection. It suggests that a considerable amount of revenues collected by ECG are not being properly reported under the CWM.

The challenges faced by Ghana’s power sector, despite the implementation of IMF conditionalities, highlight the complexities of addressing liquidity issues and ensuring effective revenue management. The need for transparent accounting practices, proportional revenue distribution, and adherence to approved mechanisms becomes crucial to restore financial stability and strengthen the sector’s sustainability.

Tags: Cash Waterfall Mechanism (CWM)ECGGNPCIMFliquidityPower sectorPower sector faces challenges as IMF conditionalities fail to boost liquidity
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