By Appiah Kusi Adomako (Esq)
Following the mounting system and commercial losses that have become like a tidal wave of adversity on the books of the Electricity Company of Ghana (ECG), the government is considering privatizing the ECG as a solution.
The total energy sector debt exceeds the US$ 3 billion amount Ghana received from the International Monetary Fund (IMF) as a bailout. For example, the company in 2023 reported technical losses of GH¢1,279,369,021.42 and commercial loss of GH¢2,758,872,791.21. These figures are undeniably unacceptable.
While privatization appears as an attractive remedy to the misfortunes of the company, global experiences from Asia and Latin America suggest that it is not the only path. A nuanced approach, informed by lessons from other regions, could also be considered as they can yield better outcomes for economic viability, profitability, operational efficiency, and consumer satisfaction.
Privatization may not necessarily solve the underlying issues of inefficiency and technical losses. A mere transfer of ownership, without structural and regulatory reforms and accountability mechanisms, could perpetuate existing challenges under a different guise. The monopoly nature of ECG means that even under private ownership, competition in the electricity distribution sector would remain limited, potentially leading to monopolistic pricing.
The past two decades have seen some structural reforms in the electricity sector in the country where the country adopted a hybrid model involving public-private partnerships (PPPs). In 2019, there was a botched attempt to introduce private participation in the distribution side of the chain through the involvement of Power Distribution Services (PDS Ghana).
Ghana is not only a developing country that has been saddled with challenges in its energy sector. In Latin America, the experiences of Chile and Brazil highlight contrasting outcomes of privatization. Chile privatized its power sector in the 1980s, leading to significant investments and improved efficiency. However, it also resulted in tariff hikes, disproportionately affecting the poor.
To address this, the Chilean government introduced targeted subsidies for low-income households, ensuring equitable access to electricity. In Ghana, to what extent can the government continue to subsidize vulnerable households that spend more money on data and telephone calls than on electricity? Already the government is struggling to pay for the cost of consumption of its own institutions and agencies.
Alternative Approaches for ECG
Instead of full-scale privatization perhaps, the Mr. Jabesh Amissah-Arthur-led committee inaugurated by the Honourable Minister for Energy and Green Transition could explore other options which include:
Public-Private Partnerships (PPPs):
PPPs allow the government to leverage private sector expertise and capital while retaining some control over operations. ECG could enter into concession agreements, where private companies manage operations and improve efficiency for a specified period.
This model has been effective in Senegal, where the private sector improved billing systems and reduced losses without transferring full ownership. Concession contracts are agreements between governments and the private sector used in some public-private partnerships, under which the private sector partner finances and develops which it then manages for an agreed period known as the concession period.
Performance-based contracts
The government can retain ownership of ECG while contracting private firms to manage specific aspects of its operations, such as billing, maintenance, or loss reduction. These contracts can include performance incentives, ensuring that private partners are motivated to deliver measurable results.
Certainly, ECG needs to be decoupled to allow for separate entities involved in engineering, distribution, billing, collection, and monitoring. The Public Utilities Regulatory Commission (PURC) can be tasked to ensure this happens.
Provide an incentive for renewable energy adoption
The Ministry of Energy and Green Transition can encourage net metering by implementing supportive policies and incentives that make it financially attractive for individuals and businesses to adopt renewable energy systems like solar panels.
This includes setting up clear and fair guidelines for feeding surplus electricity back into the grid, offering incentives or rebates for installing renewable energy systems, and ensuring a streamlined process for obtaining permits and interconnection agreements.
By enabling more consumers and businesses to generate their own electricity and contribute to the grid, net metering reduces overall demand on traditional power sources, stabilizes energy costs, and enhances the resilience of the power grid
Infusing competition in the distribution sector
To address inefficiency and improve consumer satisfaction, it is crucial to infuse competition into the electricity distribution sector where ECG operates. One approach is to introduce multiple service providers within a competitive framework.
By licensing multiple distributors to operate in overlapping regions, consumers could choose their electricity provider based on cost, reliability, and service quality. This model has been implemented in some advanced markets, fostering competition and incentivizing innovation.
Safeguarding vulnerable populations and industries
Regardless of the chosen approach, it is essential to protect low-income households from potential tariff increases. The high cost of power has driven some industries away from Ghana to our western neigbhour, Cote d’Ivoire.
The government can introduce targeted subsidies or lifeline tariffs, ensuring that basic electricity needs remain affordable for vulnerable groups. Additionally, energy efficiency programs and renewable energy initiatives can help reduce overall costs and improve the sustainability of industries operating in Ghana.
Conclusion
I still believe that electricity should be priced in a way that it makes profitable for firms that have invested in the sector especially the independent power producers (IPPs). At the same time, we must be careful of actions and inactions that can cause the cost of power to surge beyond the pocket and the budget of residential and industrial users.
We cannot fix the problem in the power sector by decimating the competitiveness of the Ghanaian private sector. One way to attract investors into the country and create jobs is through a competitive power tariff. Anything short of this would make the country a “nation of consumers” instead of a “nation of producers.” Indeed, the 24-hour economy should be anchored on a reliable and affordable power sector.
The writer is an economist, lawyer and consumer protection advocate. He is the West Africa Regional Director of CUTS International. He can be contacted via email: [email protected] or www.cuts-accra.org
