Transparent private sector participation can bring stability – ACEP

No better time to increase generation capacity than now
3D Electric power lines over sunrise

Power transmission challenges

The current power transmission challenges could be resolved if government allows private sector participation in a more transparent manner, the Africa Centre for Energy Policy (ACEP) has said.

“Government should immediately convert to a transparent process to attract private capital into the distribution sector,” the energy think-tank advocated – warning that if this is not done in the short- to medium-term, the entire power sector will be in serious distress “unless government is willing to sacrifice other socio-economic investments to continue unsustainably propping-up the power distribution sector”.

ACEP said this in an issue paper titled ‘Power Sector Priorities for Government’s Action’, and noted that although the decision to attract private investment into the distribution sector became apparent almost a decade ago, it is yet to be realised largely because of political interference with the process.

It however said it believes that government could, through a glass-like approach, invite the private sector to inject the needed capital to resolve the various challenges; including having to replace obsolete infrastructure and over-aged equipment, as well as curb transmission and revenue losses.

It said this has become even more imperative given the fact sustainability of Ghana Grid Company (GRIDCo) depends on a reformed power sector that pays for the investments in transmission of the power sector; and the fact that government’s fiscal position makes it difficult to continue using the national budget to sustain investments in the transmission system.

Failed PDS agreement

According to ACEP, distribution inefficiencies informed government’s choice to use the second compact of the Millennium Challenge Compact (MCC) funds for transforming the power sector.

The objective of investing the funds from the Power Compact to improve efficiency of the power sector was however not realised, due to transparency issues. Government, while terminating the concession agreement with the Power Distribution Company (PDS) in 2019, indicated its commitment to a concession restoration and restructuring plan.

Notwithstanding government’s position at the time, ACEP says there has been no action to inject the needed investment – which was determined to be a minimum of US$500million in 2014, while the challenges, unplanned and recurring power outages, remain unabated and approaching crisis level.

“The problems with the transmission sub-sector have received less attention in discussions around the power sector challenges faced by the country. It is important to bring these issues into a proper perspective to ensure they are addressed because of the threats they pose to the security of power supply in the country,” it added.

Financial status of power sector

To ACEP, the distribution sector contributes significantly to the power sector’s consistent failure to honour its payments and debt obligations.

Power transmission losses of 4.7 percent of the power generated in 2019, a 19.4 percent increase from 2018 and overall system losses of 5.28 percent of total power generated by the end of the first half of 2020 makes it nearly impossible for the sector to remain financially stable, ACEP said.

Meanwhile, the recently introduced Cash Waterfall Mechanism (CWM), the statement noted, has proven – as predicted by ACEP – to be an ineffective solution to financial challenges in the sector.

The CWM, ACEP explains, only distributes what has been collected by the Electricity Company of Ghana (ECG); and as such has no connection to addressing the germane inefficiency issues in the power value chain. At best, it said the CWM could only honour about US$592million out of the US$1.3billion obligations accrued in 2020.

It therefore said the best way of tackling the current challenges confronting the sector is for government to allow private sector participation – but in a more translucent manner

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