The recent announcement of 6.56% and 4.98% reductions in electricity tariffs for residential consumers and non-residential consumers of electricity above 301kWh by PURC has sparked concerns in Ghana’s power sector.
While some are arguing that the reductions are in order, citing the issue of energy mix and other factors, others believe the reductions would increase the insolvency in the power sector.
One body that is worried about the development is the independent power producers (IPPs) in the country.
In an opinion piece, Dr. Elikplim Kwabla Apetorgbor, who is the Chief Executive Officer (CEO) of Independent Power Producers Ghana, warned that the debt owed their members is likely to exacerbate to about US$1.8 billion by the end of the year 2024.
He argued that the debt is likely to exacerbate due to escalating variable costs of electricity production such as fuel, maintenance, idle capacity charges as a result of commissioned generation capacities coming from on-grid and off-grid generations.
In buttressing his point, Dr. Apetorgbor said natural gas, for instance, sells currently at an average high price of 8.8 US cents/mmscf, and mentioned the continuous depreciation of the Ghana cedi, etc.
Again, he said the generation tariffs are set for an automatic upward adjustments necessitated by the increasing variable costs and other increased-cost-events.
“The tariff reductions, while beneficial for consumers, have not been matched with a decrease in production costs (decreased costs), leading to significant financial deficits.
“The sector is plagued by inefficiencies, including high transmission and distribution losses, which exacerbate the financial challenges,” he stated.
According to him, this situation mirrors the repercussions of similar tariff actions by the PURC in 2018 by 17.5% and 30% for both residential and non-residential customers, which significantly contributed to the financial gap faced by the Electricity Company of Ghana (ECG).
He said since then, ECG had never met the revenue requirement of the sector.
This has placed an avoidable strain on the sustainability of ECG, resulting in a cycle of financial insolvency, operational and governance deficiencies.
The core of ECG’s financial woes lies in the imbalance between revenue generation and operational costs.
He said despite ECG’s commitment to a fixed US$43 million monthly sum to IPPs, it continues to pile up about 70% of its monthly obligations to the IPPs alone.
“With this tariff reduction, the Government of Ghana renegotiation appeals to IPPs may hit the rock, as the risk of default on obligations going forward becomes high,” he warned.
However, the Executive Secretary of PURC, Dr Ishmael Ackah, indicated that the reviews were undertaken in line with the quarterly tariff review (QTR) mechanism of the commission, which tracks and incorporates movements in key uncontrollable factors, namely the exchange rate between the US dollar and the Ghana cedi, domestic inflation rate, the electricity generation mix and the cost of fuel, mainly natural gas.
He emphasised that the objective of the QTR is to ensure that the utilities recover their revenues (revenue requirement) which include allocations for operational and maintenance cost, capital investment and other important regulatory costs.
Dr. Ackah underscored another important objective of the April to June 2024 QTR, which is to reduce existing residential tariff bands as part of measures to reduce the cross-subsidy, reduce non-residential class bands to two, as well as a reduction in industrial tariff bands to reward the productive use of electricity.
This reduction in the tariff bands for electricity customers, he noted, is to allow for ease of implementation of the approved tariff bands, ease of interpretation to customers, and ultimately make meters more affordable to consumers in the long run.
The executive secretary added that the QTR sought to recover the total revenue requirement for the period between April and June 2024.
Furthermore, whilst there has been a depreciation of the projected Ghana cedi to the US dollar in the quarter compared to the previous quarter (December 2023 – February 2024), the projected inflation rate, on the other hand, has reduced from 40.43% in the previous quarter to 28.27%.
The projected hydrothermal generation mix was also increased from 31.91% to 34.81% for hydro, and reduced from 68.09% to 65.19% for thermal in the April to June 2024 QTR.
Following the above changes in the variables considered in the determination of QTRs and with gas prices remaining constant, Dr Ackah indicated that this meant the utilities were projected to gain some windfall in their revenue requirements.
Thus, the PURC took advantage of this projected surplus to merge some of the tariff bands across the various electricity customer classifications.
He, however, mentioned that, notwithstanding the adjustments made, the lifeline tariff customer group and the low voltage (LV) and mines customer groups did not experience any change in their tariffs for the April to June 2024 tariff review period.
Dr Ackah reiterated that for the review period under consideration, only some residential customers and high voltage (HV) customers experienced reductions in their electricity tariffs, while the steel companies customer groups will witness more than 30% increase in their tariffs. Other customers experienced marginal upward adjustments.
According to the executive secretary, the public should dispel misinformation that the few customer groups that witnessed a reduction in the tariffs would consequently compound the debts in the energy sector.
He assured the public that the PURC is mindful of the financial sustainability of all utilities and the welfare of the paying consumer.
He further clarified that upward adjustments in tariffs do not automatically result in reduction of energy sector debts or guaranteed payments to IPPs.
Source: https://energynewsafrica.com