Despite CWM, ECG is only able to pay 60% for VRA’s power

Despite CWM, ECG is only able to pay 60% for VRA's power

Despite the Cash Waterfall Mechanism (CWM), which seeks to clear power sector-related debt by distributing the revenues from the sale of electricity proportionately among the relevant energy sector players involved in the electricity supply value chain, the Electricity Company of Ghana (ECG) is only able to pay for about 50 to 60 percent of the power it buys from Volta River Authority (VRA) every month.

The remaining 40 percent keeps building up every month, and VRA’s Chief Executive Officer, Emmanuel Antwi-Dankwa, warns of the debt escalating to unsustainable levels if not addressed.

“The Cash Waterfall Mechanism is a good initiative – in the sense that instead of leaving the discretion to a utility to decide who to pay and who not to, it has a transparent mechanism whereby all the revenues from those who have actually generated power is sent to a central pool; and depending on how much power you generated, you get a fraction of the money that comes in,” he said in Accra.

He however noted that the CWM can only work if there is 100 percent revenue collection. But ECG, he said, is unable to collect 100 percent of expected revenue.

“So, what happens is that at end of every month – even though the money comes in and is distributed in the formula that we have all agreed – because is not a 100% collection, debts are still building.

“So, ECG’s debt to us will build up, and the gas suppliers will also have their debt building up because we generate power and supply to ECG – but we buy gas from gas suppliers. That’s the inadequacy of the CWM, but it’s a good start. What we need is to build more efficiency into how it operates,” he said during a visit paid by the Minister of Public Enterprises, Joseph Cudjoe, to the VRA head office in Accra.

Mr. Antwi-Dankwa’s concerns add to those of Energy Minister Dr. Matthew Opoku Prempeh. The minister, earlier this year, warned that energy-sector debt could rise more than fourfold to US$12.5billion by 2023 unless strategic steps are taken to curb it.

Dr. Opoku Prempeh said ECG’s inability to collect all the revenue for the power it sells to consumers is the reason for the sector’s financial woes, and hence needs to be tackled head-on.

“We don’t collect enough revenue to meet our requirements. We’re going to sit down with all the players and let them understand that if we don’t change and agree on some parameters, we’ll all collapse,” he said during his vetting by lawmakers in February.

Eight months on, the fears expressed by the sector minister still remain.

Impact on operations

Although the VRA CEO neither provided details of how much ECG owes the Authority nor the amount it owes gas suppliers, he said the situation is negatively affecting his outfit’s ability to borrow.

“If ECG owes us and they don’t pay, it means we don’t have sufficient funds to go and borrow. So, we need that fiscal space. As it is now, until it is done it is on our books; so we can’t borrow with a huge debt on our books. That’s where the real challenge with the inter-utility debt is,” he said.

Minister’s visit

The visit by Minister of Public Enterprises, Joseph Cudjoe, was to afford him an opportunity to learn at first-hand the challenges facing the VRA – a fully state-owned power entity.

He applauded its management for transforming the power generation company from loss-making to profit within four years.

He also pledged to work with other relevant ministries, including finance and energy, to resolve some of the challenges confronting the Authority.

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