By Williams BOYE
The power distribution sector in Ghana is at a crossroads, as the Electricity Company of Ghana (ECG) and the Northern Electricity Distribution Company (NEDCo) are beset by increasing problems.
They are both principal suppliers of power to industries, businesses, and residences but are hampered by operational inefficiencies, financial shortages, and infrastructural inadequacies, which jeopardise their sustainability.
The argument in favour of or against the privatisation of these state-owned institutions has been gaining traction, with some calling for private sector involvement to ensure they become more efficient.
Privatisation poses real risks, such as increased tariffs, retrenchment, and the cession of government ownership of a strategic national asset. Short of selling off these essential utilities, Ghana can implement strategic reforms that foster efficiency without privatising ECG and NEDCo.
ECG and NEDCo serve different but equally significant sectors of the country. ECG, which was created in 1967, operates mainly in the middle and southern parts of the country, supplying power to key urban areas like Accra, Tema, Kumasi, and Takoradi.
It has become the nation’s biggest power distributor, with responsibilities ranging from infrastructure maintenance to ensuring revenue collection and enhancing service delivery. Yet, despite its pivotal role, ECG is beset by old equipment, an unpredictable power supply, and financial losses caused by inefficiency and unpaid bills.
Conversely, NEDCo, which is a subsidiary of the Volta River Authority (VRA), deals with the northern regions of Ghana, spanning more than 64% of Ghana’s geographical terrain. In contrast to ECG, NEDCo works in largely rural and low-density areas with increasing electricity demand but underdeveloped infrastructure.
Though NEDCo is key in increasing coverage of electricity in rural communities, its profitability is undermined by low customer density and high costs of expanding grid infrastructure.
Whereas Ghana’s overall national electricity access rate stood at about 88.85% as of June 2023, NEDCo’s areas of operation are behind, with an access rate of about 68%. Bridging this gap is critical to national development since electricity continues to be a prime driver of economic activity, healthcare, education, and industrialisation, among others.
Despite their importance, both ECG and NEDCo are struggling to cope with increasing electricity demand due to several challenges. One of their greatest concerns is ageing infrastructure. Parts of their transformers, power lines, and substations were installed decades ago and never properly maintained, resulting in frequent power outages.
In the NEDCo areas, the situation is deplorable, with unstable grids rendering access to power irregular. In addition, both utilities experience excessive technical losses in transmission and distribution, largely because of low-quality lines, broken metres, and overall inefficiencies within the system. These losses also sap revenue and render operations unsustainable.
Both ECG and NEDCo are financially strained. Tariffs frequently fail to cover the actual cost of generation, transmission, and distribution of power, resulting in revenue deficits.
Hand in hand with this is the fact that these companies also have legacy debts owed to power generators and the Ghana Grid Company (GRIDCo), which makes it hard for them to raise extra funding for needed infrastructure investment.
Another major challenge is government agencies’ inability to pay their electricity bills, which imposes further financial pressure on ECG and NEDCo.
If such debts are not recovered, these two companies will continue to operate under financial pressure, and service improvement will be nearly impossible.
Issues with customer service also account for public discontent with ECG and NEDCo. Billing errors, overbilling, and delayed repairs are consistently reported by consumers and impact customer satisfaction and revenue collection. The ageing metering system also worsens the issue, resulting in disputes over electricity consumption.
The utilities’ failure to communicate with consumers has also contributed to public disillusionment, as outages and service interruptions are not responded to when consumers report them. Resolving such customer service challenges requires a paradigm shift in operational efficiency, infrastructure creation, and technological integration.
Due to these issues, some have suggested privatisation as a way of enhancing efficiency, effectiveness, and profitability. However, this comes with risks that could be detrimental to Ghanaians. One of the greatest risks of privatisation is that profit may override public interest.
Private entities would likely raise tariffs to optimise profit, rendering electricity too expensive for poor households and small businesses. Additionally, privatisation can result in job losses, as private companies would reduce operations to save costs.
There is also the matter of national security. Ceding the electricity sector to private or foreign operators may expose Ghana to vulnerability, especially during periods of economic or political crises.
Private companies may also target urban and commercially viable regions and neglect rural citizens, exacerbating regional inequalities in access to electricity.
Instead of privatisation, other measures can be adopted to assist ECG and NEDCo. A suitable measure is public-private partnerships (PPPs), where private investors provide capital and technical skills without government ceding ownership of the utilities.
This has been achieved in Kenya and the Philippines, where private entry encouraged infrastructure and service provision without exposing the entities to the risks of complete privatisation.
Another effective alternative is the institution of performance-based contracting. In this case, the government maintains ownership of ECG and NEDCo but opens up certain parts of their operations to private sector management under strict efficiency objectives.
Uganda utilised this to improve its electricity distribution sector without sacrificing public ownership. Reforms in leadership and governance are also needed to enhance the efficiency of ECG and NEDCo.
The government should ensure that political considerations do not influence appointments to the management and boards of the two companies but are based on merit.
Establishing key performance indicators (KPIs) and making leadership accountable for outcomes is key to ensuring these companies become more transparent and performance-oriented.
Decentralisation and local ownership could also be options. In some countries, cooperatives and local authorities have been given increased management of electricity distribution, promoting responsiveness and accountability of the service.
This model, which has been successful in the United States and some regions of Bangladesh, can be adapted to the Ghanaian context to give rural communities the much-needed focus.
To promote financial sustainability, ECG and NEDCo can also be listed on the Ghana Stock Exchange (GSE). Private investment could be mobilised through the flotation of shares without reducing majority public ownership.
The move would deepen financial transparency, in addition to raising much-needed capital for developing infrastructure. Foreign exchange risks in the power sector must also be addressed by the government.
This can be done by requiring that purchases of power from the VRA and IPPs be made in Ghana cedis rather than in U.S. dollars. This would insulate ECG and NEDCo from exchange rate volatility and make financial planning more certain.
Finally, another crucial step towards financial stability is ensuring all government institutions settle their electricity bills.
The persistent failure of Ministries, Departments, and Agencies (MDAs) and Metropolitan, Municipal and District Assemblies (MMDAs) to settle their debts weakens ECG and NEDCo, making them incapable of functioning effectively and efficiently.
The government needs to implement stringent payment policies to prevent further financial losses.
Williams is an Energy Economist/Accountant
Email: [email protected]
