2018 Budget Watch: Keeping the lights on with 13% cut in Electricity tariffs

The Akufo-Addo-led government has fulfilled its promise of reducing the cost of electricity in the country for both residential and industry users.

Presenting the 2018 Budget statement and Economic Policy to the legislature, the Minister of Finance Ken Ofori-Atta said the government in 2018 will work towards keeping the lights on at affordable rates to consumers, particularly industries and small businesses through reform and policy interventions over a two-year period.

“To give relief to the poor whose individual consumption falls in the subsidised life-line category but who live in a compound house, the existing 4-tier tariff classification of residential consumers will be collapsed into Lifeline and Non-Lifeline consumers in phases.”

He further stated that, “on the basis of these interventions, if government recommendations to PURC are accepted, consumers will be expected to benefit from reductions in electricity tariffs. The expected average tariff reductions across various customer categories will be as follows: Residential has been reduced by 13 %, Non-Residential 13%, Special Load Tariff- Low Voltage 13%, Special Load Tariff -Medium Voltage 11%, Special Load Tariff -High Voltage 14% and High Voltage Mines 21%.”

The announcement of the reduction in the 2018 Budget comes after the Vice President Mahamudu Bawumia hinted that power tariffs could be reduced by as much as 25 percent.

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“We will actually be seeing some significant reduction in the cost of electricity for industrial production next year in Ghana, and that can be as much as 25%…And that should be a major catalyst for industrial production,” the Vice President said at the Global Business Forum on Africa in Dubai.

The announcement again confirms an earlier statement by the Energy Minister, Boakye Agyarko, that “our next mandate after stabilising power supply is to begin the reduction of prices”.

The Vice President told the investor community in Dubai that the government of Ghana had shifted its focus from taxation – as in many other countries in Africa – to production, and is working hard to formalise the economy using technology as one of the pivotal points.

The reduction of the cost of power, he said, had become necessary in order to accelerate industrialisation of the Ghanaian economy.

“What we are doing is to basically understand what the linkages are among the various sectors in the macroeconomy. It is very important to set the macroeconomy right, so that there is stability that will drive industrialisation,” he said.

Following complaints by the Association of Ghana Industries that it was wrong for industry to subsidise domestic consumers of power, government has also said a new tariff policy is in the works “to reclassify consumer categories in order to protect lifeline and strategic industrial consumers”.

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For the domestic consumer, the tariff in Ghana is between 19 and 28 cents, while it is 9 cents in La Cote d’Ivoire, 17 cents in Benin, 16 cents in Togo and 17 cents in Nigeria.

The gap is even wider on the commercial and industrial fronts, where Ghana’s businesses – which are already reeling under the weight of high interest rates – pay 32.6 cents per kWh as compared to 13 cents in La Cote d’Ivoire, 19 cents in Benin, 18 cents in Togo and 17 cents in Nigeria.

The price disparity, some have said, is due to the fact that Cote d’Ivoire, for example, produces cheaper power than Ghana. That country, on average, produces at 9 cents per kilowatt-hour, while Ghana produces at 14 cents per kilowatt-hour on average.

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