Government’s decision to extend the electricity subsidy programme, which will cost at least GH¢2billion in total, has been hailed as a move to boost consumers’ disposable income as it will reduce the burden of having to pay for power during the Coronavirus-induced economic crisis.
Captured under government’s Coronavirus Alleviation and Revitalisation of Enterprises Support (CARES) Obaatanpa Programme, Finance Minister Ken Ofori-Atta announced during the mid-year budget presentation that government was extending the free electricity programme for lifeline consumers – those who consume less than 50KWH per month – for the rest of the year, and will provide a 50 percent subsidy for all other consumers, beginning August.
This, along with free water and reduction in Communication Service Tax from nine to five percent the Minister stated, is to bring financial and social comfort to businesses and the citizenry as well as stimulate the economy.
Speaking to the B&FT on what impact the electricity subsidy will have on Ghanaians and the energy sector, Paa Kwasi Anamua Sakyi – Executive Director of energy think-tank, the Institute of Energy Security (IES) – described the move as one that will cushion consumers against hardships caused by the virus. “What it seeks to do is to increase their disposable income because of the 50 percent absorption by government. So, it is good news for consumers,” he said.
He added that what government has done is not different from what others around the world are doing: “Governments all over the world, in such a trying time, are seeking to put forward interventions for their citizens to ease the pain and all that they are going through because of COVID which came with the restrictions and slowdown in economic activity”.
He however warned that failure on government’s part to pay the three power distributors – Electricity Company of Ghana (ECG), Northern Electricity Distribution Company (NEDCo) and Volta River Authority (VRA) – for the subsidy programme could cripple the sector, which is already debt-ridden.
“Government must understand that the intervention is going to create a gap – a revenue gap; and so they must be mindful to fill that gap by paying for the power. If that gap is not filled, the consequences could be very dire,” he cautioned.
Cost
It cost government about GH¢1billion for the first subsidy programme that expired at the end of June, and Mr. Anamua Sakyi expects the cost of an additional three months not to be any different. “What government is giving for the next three months will basically not be different from the amount that it incurred for the last three months, since tariffs have not changed substantially.”
In all, this means government could be spending around GH¢2billion to provide an electricity subsidy for six months as part of interventions to lessen the devastating impact of the pandemic on Ghanaians.
Per ECG’s customer population of one million, calculated in terms of metres, government absorbed almost an amount of GH¢8.5million per month during the last three months. For non-lifeline customers – of which 2,780,886 are residential and 1,608 are special low-tariff customers – a 50 percent discount on their electricity bill translates into GH¢235.4million per month.
“The total relief for ECG customers per month based on the estimated revenue is therefore GH¢244million, translating into GH¢732million for the three months,” Energy Minister Peter Amewu said last April. Meanwhile, the relief for all NEDCo customers was about GH¢47million per month, translating into a total of GH¢141million during the last three-month period.
Apart from ECG and NEDCo, direct private consumers of the Volta River Authority (VRA) – comprising 12 mining firms and the Volta Aluminium Company (VALCO) – are also benefitting from the subsidy programme, according to the Energy Ministry. The ministry pegged cost of the subsidy to VRA customers for the last three months at GH¢141.6million.
