On March 2, 2018, I read a piece of news item with the caption: ELECTRICITY TARIFFS TO DROP BELOW GOVT’S PROPOSED 14%. As a Ghanaian I should be excited by this piece of news.
But as an individual, who was at the centre of things through the excruciating experience of Load Management from 2013 to 2015, it is only natural to share a few concerns with this story and draw the attention of the government and in particular the PURC to some questions that need answers.
The Public Utility Regulatory Commission (PURC), in pursuance of section 3a and 16 of the PURC Act 1997 (Act 538) and in line with its electricity rates setting guidelines, I am reliably informed, received tariff proposals from the Volta River Authority (VRA), the Ghana Grid Company Limited (GRIDCo), Electricity Company of Ghana (ECG), Northern Electricity Distribution Company Limited ((NEDCo), and Enclave Power Company Limited. My understanding is that VRA request was in respect of 128.4% upward adjustment in the Bulk Generation Tariff (BGT). On the other hand, GRIDCo suggested a 62.9% increase in the Transmission Service Charge (TSC). ECG and NEDCo proposed a 64.9% and 204% increase in the Distribution Service Charge (DSC) respectively.
My information is that PURC’s review and analysis of the tariff proposal submitted by the Utility Service Providers (USP) indicate a total revenue requirement of GHc 58.138 billion to be recovered from the regulated electricity market.
The overall effect of the BGT, TSC and DSC is that there is a 27.4% increase in Average End User Tariff – from GHp63.7694/kWh to GHp81.2309/kWh.
Notwithstanding the proposals by the Utility Service Providers, PURC indicates that based on the results of their own analysis and review, a 12.54% reduction in tariffs across the board for all categories of consumers is possible.
I am told that they are contemplating achieving this by first removing the 5% PURC benchmark Provision for uncollectibles which has been part of the revenue requirements for the Distribution Utilities and second, by taking into consideration a 31.5% growth in customer population between 2015 and 2018.
Notwithstanding the possible areas where the reduction will come from, a few questions need to be answered.
- Is this an attempt by PURC not to contradict the President who jumped the gun to announce reductions in tariffs for categories of customers? Categories that don’t exist in the categorisation of consumers by PURC.
- Has PURC taken into consideration forex losses to the Utility Service Providers due to continuing depreciation of the Ghana Cedi against the US dollar? The Cedi has lost value since the last review of tariffs. The current tariffs have been devalued by about 15% since the last review exercise. Without an appreciable shift in other variables, any reduction in tariffs can threaten the sustainability of the Utility Service Providers
III. Has PURC also taken into account the increasing dominance of thermal power generation in the overall generation mix?
- There are new thermal plants being introduced into the grid. Has PURC considered a possibility of increased distribution loses that must be accounted for?
- How will a proposed reduction cater for a further strengthening of the Transmission network and send signals to customers to improve efficiency? And how will this reduction minimise GRIDCo’s risk exposure to energy volume variations?
- There is excess capacity comprising AKSAKarpowership and CENIT totalling 780MW. This translates to a total energy of 6287GWh. In monetary terms, this constitutes about GHc 2.364 billion idle capacity payments. The consequence of not utilising this excess capacity is that government risk pilling debt as the guarantor of all the plants that will be available in excess of demand unless this is absorbed in the tariff. Has this been considered in the PURC proposal of tariff reduction?
VII. Has the Commission equally factored in the increasing natural gas requirements?
The government in recent weeks has been indicating a possible reduction in gas price for the industry at $6.5/MMBtu. At our last encounter with GNPC and the Ministry of energy in Koforidua, the Mines and Energy Committee could not be told clearly, the details on how that savings will be achieved. PURC must be transparent on the information given to them by the government in gas pricing. In addition, the recent Gas Sales Agreement between Government and Gazprom is expected to deliver gas to the Power Sector in 2019.(Government must be transparent and make available to the public the details of the Gazprom agreement) . Has PURC paid attention to the fact that LNG price is going to vary depending on Brent Crude oil removing the element of price stability associated with gas?
VIII. Why has the government in their proposal to PURC avoided its own burden on the industry?
Government must as a matter of urgency remove the 17.5% VAT on tariffs, as this tends to punish industry the more. The power sector must be seen as a strategic sector whose value lies in supporting economic growth from which government can derive revenues through taxes. This will be in line with government own policy of moving away from over taxation to more production. It is a lazy approach for government to use the Power Sector as a direct revenue-generating source.
- Is it true that this proposed reduction in tariffs is only cosmetic and a desperate attempt to fulfil an electoral promise? This is only a bait to console Ghanaians ahead of a possible increase in tariffs of about 50% when the Compact II kicks in in September?
I appreciate the enormity of the task before the PURC. Particularly as the Government, led by no less a person than the President of the republic, has been breathing down the Commission’s neck to ensure that an electoral promise is fulfilled even if it is at the peril of the Power Sector. The commission must be BOLD and stand up to bullying government and place the long-term interest of the state above a political party’s interest. I believe in tariff reduction. This is because many Ghanaians are either receiving low incomes or without any regular income. However, it is wrong for government to subject the Utility sector to profiteering. My proposal is that government must scrap all levies and taxes on electricity as a means to improving access and making it affordable to all Ghanaians. This is the way to go instead of the attempt to eating into the revenues of the Utility Service Providers.
Article: Edward BAWA