Peter Amewu, Minister of Energy
The International Monetary Fund (IMF) has observed that state-owned enterprises (SOEs) in the energy sector are reeling under cash flow problems and inefficiencies that collectively make the sector a threat to fiscal stability.
It mentioned weak governance and inadequate tariff structure as other challenges that had contributed in placing “financial pressures” on firms in the sector.
“Electricity tariff cuts in March 2018 (of up to 30 per cent) have added to these financial problems and, consequently, to fiscal risks,” the fund said in its seventh and eighth review documents released earlier this month.
It noted that the situation in the energy sector was now “a key fiscal risk” to the economy, as the entities “contribute to a substantial drain on public finances”.
According to the fund, the three major SOEs in the energy sector – the Electricity Company of Ghana (ECG), the Ghana Grid Company (GRIDCo) and the Volta River Authority (VRA) – have been inefficient since 2014 and as a result, registered negative average return on equity over the last four years.
It, therefore, warned that although ongoing efforts to resolve legacy debts were helpful, they “cannot replace the need to secure the sector’s financial viability”.
Cost of fuel
In the documents that preceded the country’s exit from the Extended Credit Facility (ECF), the fund said “cash flow problems and inefficient operations affect electricity sector SOEs and the gas sector”.
“The core electricity SOEs – the electricity distributor, ECG2; the transmission company, GRIDCo; and the power supplier, VRA – have generated a negative average return on equity since 2014.
“A supplier to the ECG can expect to wait over a year, on average, to get paid.
“Simultaneously, the time it takes ECG to collect from its customers has increased to over 200 days,” it said.
It explained that the situation was not limited to the energy sector but extended to the gas sub-sector, where an off-take agreement for gas supply from the Offshore Cape Three Points field was impacting negatively on public finances.
It noted that the agreement, which entered into operation in October 2018, required Ghana to make monthly payments equivalent to 0.7 per cent of gross domestic product (GDP) annually.
With the 2018 GDP reported at GH¢300.59 billion, it means that the agreement cost the country about GH¢2.1 billion last year alone.
Fiscal Risk Statement
The fund noted that the taking over of the distribution network of ECG by Power Distribution Services (PDS), a private consortium, the streamlining of VRA through asset sales and the establishment of a single SOE as oversight agency “will help reduce SOE-related fiscal risks over the medium term”.
“The publication of the first Fiscal Risk Statement (by the Ministry of Finance in March) will help remind policy makers and citizens of existing fiscal risks and inform investors and other stakeholders about the steps the government is taking to address them,” it added.
New agency
The fund said the government had taken promising steps to increase monitoring, “including via the soon-to-be-established oversight entity, the State Interest and Governance Authority (SIGA).
“Much more needs to be done, though, starting with actions under the World Bank’s forthcoming budget support operation.
“Proper cost recovery for electricity tariffs is also needed,” it said.
In December 2018, the GRAPHIC BUSINESS found that the ECG suffered a net loss of GH¢1.15 billion as of June that year.
The losses were largely due to foreign exchange losses, resulting from the cedi depreciation, lower tariffs and strong growth in inefficiencies.
The half-year loss was more than double the loss the company posted in the whole of 2017.
In 2017, ECG recorded a loss of GH¢521.95 million – the highest since 2014, according to its statement of comprehensive income for the period ending June 30, 2018.
electricity SOEs – the electricity distributor, ECG2; the transmission company, GRIDCo; and the power supplier, VRA – have generated a negative average return on equity since 2014.
“A supplier to the ECG can expect to wait over a year, on average, to get paid.
“Simultaneously, the time it takes ECG to collect from its customers has increased to over 200 days,” it said.
It explained that the situation was not limited to the energy sector but extended to the gas sub-sector, where an off-take agreement for gas supply from the Offshore Cape Three Points field was impacting negatively on public finances.
It noted that the agreement, which entered into operation in October 2018, required Ghana to make monthly payments equivalent to 0.7 per cent of gross domestic product (GDP) annually.
With the 2018 GDP reported at GH¢300.59 billion, it means that the agreement cost the country about GH¢2.1 billion last year alone.
Source: Graphic.com.gh