Energy sector SOEs pose fiscal risks—IMF

The International Monetary Fund (IMF) has expressed worry over financial losses made by State Owned Enterprises (SOEs) in the country’s energy sector, saying the situation poses great fiscal risks to government.

The debts accumulated by SOEs in the energy sector are now estimated at GH¢10billion. These SOEs, mainly Ghana Grid Company Limited (GRIDCo), Volta River Authority (VRA), Electricity Company of Ghana Limited (ECG) – whose power distribution role has been taken over by Power Distribution Services (PDS) – have generated a negative return on equity since 2014.

These and other challenges, the IMF said in its 7th and 8th review report of the Extended Credit Facility for Ghana, pose significant risks to fiscal stability and must be addressed by government,

“The energy sector remains a key source of fiscal risks to be addressed decisively. Continued losses stemming from high-cost of fuel and power bought from IPPs, operational inefficiencies, low revenue collections, and non-payment practices among public sector entities have all contributed to a substantial drain on public finances. Efforts to resolve legacy debts, while helpful, cannot replace the need to secure the sector’s financial viability.

“Electricity tariff cuts in March 2018 (of up to 30 percent) have added to these financial problems and, consequently, to fiscal risks. In the gas sector, the off-take agreement for gas supply from the offshore Cape Three Points field, which entered into operation in October 2018, requires Ghana to make monthly payments equivalent to 0.7 percent of GDP annually,” the report said.

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Even though the report acknowledged that efforts are being made to get the sector into shape, especially with the ECG concessionaire which has brought in private investments to manage the company, the Fund still feels a lot more needs to be done to improve efficiency.

“The authorities have taken promising steps to increase monitoring, including via the soon to be established oversight entity SIGA. Much more needs to be done, though, starting with actions under the World Bank’s forthcoming budget support operation. Proper cost recovery for electricity tariffs is also needed,” says the report.

To this effect, an upward adjustment of electricity tariffs is expected in July this year. It is reported that the power distributor – now PDS – wants tariffs to go up by almost 38 percent, a move that industry has vehemently kicked against.

The Association of Ghana Industries (AGI) in February this year, issued a statement cautioning against any purported increase in electricity tariffs; saying the country’s industries are already paying one of the highest tariffs in Africa, so there will be no need for an upward revision.

“The AGI expects that ongoing discussions on review of the electricity tariff should take the competitiveness of Ghana’s industry into account. The Council is of the strongest view that industry should not be made to subside residential consumers of electricity as is currently prevailing,” the President of AGI, Dr. Yaw Adu Gyamfi, said in a statement.

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