Is There A Looming Crisis In Ghana’s Power Sector?

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By: Paa Kwasi Anamua Sakyi

 

Electricity is widely regarded as a major determinant of economic prosperity of any State. It is the force that propels any economic activity, and indeed the pillar of wealth creation. Onakoya et al. (2013) finds the output of the energy sector (electricity and the petroleum products) usually consolidating the activities of the other sectors which provide essential services to direct the production activities in agriculture, manufacturing, mining, commerce et cetera. Electricity according to Kumi (2017), plays a significant role in undertaking daily activities from cooking, lighting, heating to powering machines in the industrial sector. It is also essential for quality healthcare delivery, education, transport, effective communication, mineral exploration and many more.

Notwithstanding its vital role to the economic segment of the global economy, the power sector is often plagued with crisis which have led to increased poverty rate, slow pace of economic activities, poor health delivery system, environmental degradation, and major development setbacks. Poor funding of the sector, corruption, and shutting down of major power plants due to infrastructural decay and non- performance are to be blamed, according to Emem (2015).

A 2019 research by the African Development Bank (ADB) and Association of Power Utilities of Africa (APUA) in Nigeria concludes that the energy crisis in Nigeria for example, is associated with multiple technical and commercial challenges in its power sector; including high losses, poor maintenance, poor financial viability, supply shortfalls, frequent outages, and unsustainable tariffs below cost recovery levels.

Past Incidents of Power Crisis in Ghana

With the inauguration of Ghana’s Akosombo hydroelectric dam in 1966, hopes were that the power generated from the “Volta Lake” as it came to be called, would perpetually take the country out of darkness; practically availing power to every home and offering stimulus for the modernization of new and existing industries.

However, Ghana was confronted with its first electricity crisis in 1984 as the nation was plunged into darkness as a result of a severe drought of the lake; very much attributable to climate between 1982 and 1984. According to Kumi (2017), the total inflow into the dam between 1982 and 1984 was reported to be less than 15 percent of the expected total, and this triggered power rationing and a reduction of electricity supply to neighboring countries, including Togo and Benin. The country’s failure to add on to the generation capacity in tandem with population growth largely exposed it over-dependence on the hydro power.

Notwithstanding the addition of 160MW to the country’s installed capacity with the commissioning of the Kpong Hydro-electric power station in 1982 (Asante and Clottey, 2007), another power crisis emerged in 1998, largely as a result of low rainfalls and inflows to the Volta Lake; even when the demand for electricity had falling slightly from 5110 GWh in 1991 to 4965 GWh by 1998 (Eshun and Amoako-Tuffour, 2016).

Beyond the first two power crisis, the country had to experience yet another period of inadequate power supply between 2006 and 2007. The third round of power rationing led to the introduction of Thermal Power Plants into Ghana’s generation mix, with the first of these thermal plants being the 550 MW facility (Tapco and Tico) at Aboadze in the Western Region of Ghana (Kumi, 2017).

After 2007, the country was once again visited with darkness between 2012 and 2016. The uniqueness of the 2012 – 2016 power crisis was the longer period the Ghanaian had to endure with rotating Load Shedding timetable, which earned the name “Dumsor”. However, by close of 2016, the country had experience some form of stability in power supply as power plants installed capacity grew from 3,175 megawatts (MW) in 2015 to approximately 3,775 MW by the close of 2016 through the interventions of Karpower Barge (225MW) and AMERI (250MW) et cetera (Energy Commission, 2017).

Low generation capacity to meet the projected demand, poor maintenance schedule for power plants, inadequate supply of natural gas, low stock of liquid fuels, and delay in the completion of Ghana Gas Project — for reason of lack of funds, were identified as key factors that impacted on the reliability of power supply between the period 2012 and 2016 (Energy Commission 2017; Ministry of Finance 2017).

2018/2019 Incident

The country boasted of over 4,310 MW of installed generation capacity as at January 2018, with net dependable capacity exceeding 3,890 MW. Peak demand recorded in 2018 rarely exceeded 2,525 MW. The country also had a significant quantity of natural gas to fuel the power plants which are largely dual-fuel-fired. And the Volta Lake had a decent water level of over 79 meters at January 4th 2019, compared to the prior year level of 76 meters at January 4th 2018 (Energy Commission, 2019).

But in spite of the fact that these situations presents great comfort for a State, Ghana between November 2018 and September 2019, experienced yet another recurring power outages. This situation had developed even though the installed generation capacity was far in excess of the country’s peak demand. The power sector’s poor financial health resulting from mounting legacy debt, poor planning, poor tariff structure, and political interference in decision making, were some of the factors known to have influenced the situation.

Still Waters

Currently the country seem to be enjoying some form of stable power supply, since gas started flowing from the Western power corridor to the Eastern corridor; taking away the huge burden of importing liquid fuels for power generating plants. Plants availability looks quite good with the relocation of the Karpower Plant from the East to the Western corridor, with a decent Volta lake level, and with installed power capacity far exceeding peak power demand. These are comforting enough, as the assurance of power generation in the country is high.

However, the predominant challenge to the provision of reliable electricity supply had been the weak financial position of the power utilities which impact on the ability to produce more power, the ability to transmit and the ability to distribute generated power in an effective and efficient manner.

Availability of funds to ensure system maintenance and expansion remain ever vital. High costs and operational inefficiencies stemming from high payments for installed capacity to power producers; high transmission and distribution losses; poor revenue collections by distributors; and non-payment by Government entities, are still creating additional debts. And to sustain their operations, sector utilities have had to resort to expensive external debt, thus worsening the situation and creating financial distress.

Today the indications are that the country’s power sector debt has soared to unprecedented heights; leaving power generating, transmission and distribution companies in perilous financial position. The sector’s accumulated debt which stood at US$2.3 billion as of March 2017, is reported to have climbed close to US$4 billion. This situation of course is quite worrying, as past experiences have clearly shown that it is the illiquidity in the power sector that has always been a problem in ensuring consistent and reliable power supply in the country.

Writings on the Wall

Since the first quarter of the year 2019, certain developments within the power sector is clearly giving indications that all may not be well with the country’s power sector, and that the country may be sitting on a time bomb.

A report released by the Finance Committee of Ghana’s Parliament in early July 2019, warned that liquidity challenge in the power sector may spur the return of Dumsor if steps are not taken to address it. The report had it that Ghana’s energy sector is currently overburdened with growing indebtedness as it battles with a debt portfolio of over US$4billion. The report revealed that state-owned enterprises (SOEs) in the sector like GRIDCo, Power Distribution Services (ECG/PDS) and the Northern Distribution Company (NEDCo) have for the past two and half years all posted revenue losses. Government’s indebtedness to Karpower was captured as US$150million, ENI US$160million, NEDCo US$162million, IPPs US$1billion, GRIDCO US$171million and Ghana Gas Company US$735billion.

Barely a week after the Legislative Committee report, six (6) IPPs in the country which supply about 1,500 MW of electricity threatened for the first time to shut down their power plants if ECG/PDS failed to settle debts amounting to over US$700 million within eight (8) working days. The IPPs rescinded their decision to shut down their plants in protest, when the ECG made some part-payment to the group. However in late October 2019, the IPPs threatened once more that the country could experience erratic power supply if they are not paid on time, having disclosed that power distributors in Ghana owes them US$1.5 billion.

As if that was not enough, the Senior Staff Association of GRIDCo a power sector stakeholder, threatened government with series of “industrial actions” in late October 2019, if the Finance Ministry does not act immediately to settle the debts owed them by the ECG, VALCO, amongst others. This follows an initial indication to government on May Day this year when the group protested at the march for non-payment of monies owed them by some entities. According to the staff group, the failure by the ECG, VALCO and NEDCo to defray their debts could plunge the country into darkness following the possible withdrawal of service.

In the face of all these developments, one is left to ask if there is a fresh and looming crisis in Ghana’s power sector.

 

Written by Paa Kwasi Anamua Sakyi, Institute for Energy Security ©2019

The writer has over 22 years of experience in the technical and management areas of Oil and Gas Management, Banking and Finance, and Mechanical Engineering; working in both the Gold Mining and Oil sector. He is currently working as an Oil Trader, Consultant, and Policy Analyst in the global energy sector. He serves as a resource to many global energy research firms, including Argus Media and CNBC Africa.

Contact: paakwasi@iesgh.org, +233 69 00 95

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