The lack of bold initiatives to arrest challenges in the power sector is hurting government finances, the Africa Centre for Energy Policy (ACEP) has warned.
It also says the lack commitment by government to cut down losses is creating an uncertain situation in the power market, which could further damage any hopes of a vibrant and competitive power sector.
The country is reportedly paying about US$25million every month for excess capacity alone, which could rise to about US$40million by the end of 2019 when other generation systems are expected to mature.
The current predicament, the think-tank explains, is as a result of government being slow and lacking the courage to cancel some of the emergency power plant contracts which currently serve no purpose.
Cancellation of such contracts, it argues, will help cut down unwarranted losses to the state.
According to ACEP, such actions have become very necessary because the present situation not only punches deep holes in public finances, but also creates uncertainty in the power market and worsens the power sector value chain’s plight.
“ACEP believes that it is better to cancel and pay than to renegotiate the continuous existence of some of the power contracts,” it says in its analysis of the 2020 Budget Statement.
“Given the critical nature of power sector challenges, ACEP recognises that bold decisions are required to salvage the power sector, and by extension the country’s finances,” it added in a statement to the B&FT.
Government in the 2020 budget emphasised the unsustainable nature of the current power sector and set up a committee to oversee negotiations with Independent Power Producers (IPPs).
The negotiation process with the IPPs, an action ACEP says is long overdue, is expected to lead to a reduction in the fiscal impacts of take-or-pay power purchase agreements.
ACEP has been critical of such agreements signed during the peak of the country’s power crisis, and said although government has always been aware of the risks, it has now been seized with the reality that the power sector is in crisis.
In proffering solutions, it said government should purchase some of the maturing power plants to save payment on recurrent capacity charges.
“This should be guided by a framework that prioritises efficiency of the plant and the associated tariff.
“Ensure that there is transparency and fairness in the bilateral consultation process between government and each IPP,” ACEP further admonished.