Nana Addo’s performance in energy sector, so far so good!

An elated President of Ghana, Nana Addo Dankwa Akufo-Addo, speaking at the Financial Times Africa Summit in London earlier this month touted the sterling performance of his 21months old government in solving the erratic electricity crisis it inherited from the past administration.

His administration’s turnaround of the energy sector which was started by Boakye Agyarko has paid off with Ghana, now a net exporter of electricity within West Africa. The development is particularly pleasing since Ghana’s energy sector strategy (2012-2015) envisioned Ghana to develop an energy economy that was to ensure and secure a reliable supply of high-quality energy services for the Ghanaian economy and to become an exporter of power as far back as 2015. For electricity customers- residential and commercial users- who endured the over 4years of dumsor, it’s a big relief that Ghana now has available electricity capacity enough for the domestic market and export the remainder to the other countries within the West Africa Power Pool (WAPP).

The President also talked about other achievements such as the 17.5% reduction of electricity price paid by domestic consumers and the 30% reduction for industries. He further spoke about how his government’s review of some 24 power purchase agreements has resulted in a savings of a whopping $7.0 billion to the taxpayers. Under the said review, 11 contracts were cancelled and eight rescheduled. The President also touched on the innovative arrangements the Finance Ministry has embarked upon which has resulted in the halving of the energy sector legacy debt from GHC4.7billion to GHC2.4billion by end 2017. It is without a doubt that for this specialised intervention of the Finance Ministry, the Financial Sector crisis which has plagued the country would have been much severe because of the over-exposure of banks to the energy sector.

The government’s achievements in the energy sector are commendable especially that many of humanity’s major problems- poverty, inequality, warming climate, food insecurity, education and health– are inherently and inextricably linked to inaccessibility of sustainable, reliable and modern forms of energy. Access to reliable, modern and high-quality power is cardinal to sustainable economic growth and development. Energy access also supports the provision of services such as lighting, transportation, heating, mechanical, and communication which subsequently, impacts the quality of education, healthcare, and quality of life. It is, therefore, incontrovertible that contemporary energy remains a solid foundation for a new paradigm of development.

Let me now provide further evidence to buttress and corroborate the fantastic work the President and his term has done in the energy sector this far. Ghana as of end 2017 had 84% of her population connected to the national electricity grid. This accessibility rate is second only to South Africa in Sub-Sahara Africa. Also, the average duration of electricity interruption per person per year has reduced significantly since this President took over the reins of power. In the Ghana National Energy Statistics, 2018 report produced by the Energy Commission, the cumulative average interruption duration index (CAIDI) which the ratio of number of times a customer is interrupted during operational year over an average duration of interruption recorded for the distribution system during an operational year, has been on downward spiral for both ECG and NEDCO customers.

In 2015, a person living in the metro area of Ghana suffered an average of 8.9 hours of power interruption. In urban areas, the number was 7.2 hour, and in rural areas, it was 7.5 hours. In 2016, the number dropped to 4.8 hours of interruption for metro areas, 3.7 hours for urban areas and 3.4 hours for rural areas. In 2017, and under the leadership of Nana Addo, the average interruptions further declined to minimal levels for all segment of electricity users. In metro areas, the rate is now 1.6 hours, 1.3 hours for urban areas and 2.4 hours for rural areas. This is a significant success attained under this administration, and it’s commendable.

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Figure 1: Cumulative Average Interruption Duration Index (in hours)

Source: Author with information from National Energy Statistics, 2018 report

The other positive development in the energy sector relates the significant savings the economy has made since the dumsor was brought under control. Apart from the personal discomfort Ghanaians suffered between the peak of dumsor from 2012 to 2015, the economy also lost on an annual basis, about $622.0million for the four years. This according to the Institute of Statistical, Social and Economic Research (ISSER) had a debilitating impact on the Ghanaian economy. For instance, on small and medium enterprises (SMEs) in the manufacturing sector, the power crisis resulted in significant labour and productivity losses, according to ISSER. A total of 885 SMEs lost about GHC250.0million, and 55 of them folded up. It is undoubtedly good news that the crisis has eased, and has provided a big reprieve for business and individuals who spent large sums of money on providing alternative power sources for businesses and homes.

That said, it will be outright gullibility on anyone to assume that the energy sector difficulties are entirely over. The sector is still grappling with high debt and management inefficiencies. Management capacity of the energy sector State Own Enterprises (SoEs) are relatively weak, and still suffers political interference in the discharge of their professional duties. The toxic mix of inadequate management capacity and political interference have exacerbated the inefficiencies and also compromised their financial viability beyond comprehension.  The financial difficulties of the sector which according to the World Bank, stems from; a) high fuel cost of thermal plants, b) gas supply disruptions, c) high payments for installed capacity to EPPs and IPPs d) non-payment of utilities by government and e) low recovery of payment by ECG, sends spasm to stakeholders of the sector. The sector is unable to cover the full cost of operations due in part to these factors.

The 2017 State Ownership Report which digests the health of SoEs of Ghana also reiterates the distressful situation of the energy sector SoEs. The report which is prepared by the Ministry of Finance and the State Enterprises Commission (SEC) indicates that in 2017, Volta River Authority (VRA) and Electricity Company of Ghana (ECG) recorded the highest financial loss among the over 86 entities covered in the report. VRA’s net loss position end 2017 was GHC806.0million, and that of ECG was GHC785.0 million. The report further lamented about the soaring operating cost of energy Sector SoEs. Though the sector saw a reduction in operating cost from GHC12,706 million in 2016 to GHC11,925 million in 2017, it was still the biggest spenders among the other SoEs. GRIDCo saw her net profit drop from GHC44.80million in 2015 to a net loss of GHC31.38million in 2017.

The other concern relates to the absence of an updated National Energy Policy. The last energy sector strategy policy which was approved by Cabinet 2010 has not seen any review since despite the significant changes that have occurred in the energy sector. The Ministry’s failure to evolve the process to produce a new and improved policy is unacceptable given the fluid nature of energy matters. The absence of such a plan is having a severe impact on the various policies and programmes of the sector. The vacuum creates fragmentation and weakens coordination among the various SoEs. The updated policy will allow for strategic planning within the sector, increases the chances that the most important issues get done, brings orderliness to the conduct of energy business and allow new stakeholders to have a well-defined role in the decision making regarding the sector.

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The shift in electricity generation from cheap hydro to thermal sources is a worrying development. As of 2017, about 65% of Ghana’s dependable grid electricity generation capacity came from thermal sources which are fired by expensive fuels. Before 2014, hydro sources constituted a more substantial portion of electricity generation as seen in figure 2 below. The challenge with thermal surpassing hydro is the high fuel cost which translates into higher electricity price. At the same time, the colossal transmission and distribution losses which negatively impact the final price users pay have not seen an end in sight even with thermal at the forefront. As Prof. Robert Darko Osei, a fellow of ISSER once said, “to grow the economy, look at power in terms of pricing”. Prof Darko’s remarks are very relevant as there is still significant inefficiencies which impact the final price consumers pay for power.

Another issue relates to the quality and quantity of electricity consumption. Electricity per capita consumption is very low for many developing countries including Ghana. On average, sub-Sahara Africa electricity consumers consumes 200 kWh of electricity and constitutes about 12.5% of the average European Union figure of 1,600kwh. At this rate, it is clear that the available electricity will not be able to meet demand as more people become wealthy. In rural communities, the situation is much direr as only 71% of rural population of Ghana is connected to the national grid leaving many communities, educational centres, polyclinics, and many social amenities without access. The rate of access for urban areas is about 95%. There is an urgent need to address the disparity between rural and urban population as well as the quality and quantity matters.

The final concern is about the relative uneven distribution of energy resources in the sub-region. The energy resource potential of West Africa is in three primary areas of; oil and gas, hydropower and solar irradiation. Oil and Gas are heavily skewed in favour of Nigeria. Circa 2,956.66 million tonnes of crude oil reserves and 3,509.38 billion m3 of natural gas representing 98% of proven crude oil and Natural gas reserves of West Africa is in the Nigerian territory. Hydropower potential is estimated at 23.9 GW. Of this potential, about 91% is found in five countries of Nigeria (37.6%), Guinea (25.8%), Ghana (11.4%) and Cote d’Ivoire and Sierra Leone have 10.9% and 5.2%, respectively. In the case of solar irradiation, the estimated potential is about 5kW.h/m2/day and can be found in the whole of West Africa. As Ghana’s electricity consumption continues to increase, there is the likelihood that at some point, the energy resources of Ghana alone will not be enough to support the demand. This means that regional energy sector cooperation remains critical for Ghana if she is to meet the future electricity demand at a relatively cheap cost.

In concluding, it is important I mention that the chief reforms embarked on by government are sustained especially those aimed to improve the finances of the energy sector SoEs. The turnaround programme of the government which is anchored on; a) restoring financial viability to the SoEs, b) improving the power sector’s planning and investment decisions, c) improving the regulatory framework, and d) expanding electricity access to rural communities, remains critical to ensure that Ghana does not return to dumsor in the near future. Sustained political commitment is also required to keep these initiatives active and implemented to the latter.

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