Thursday, January 26, 2017

Boakye Agyarko’s prescription for ‘dumsor’

  • Proposals for tariff reduction sent to President Akufo-Addo
  • Energy sector debts restructuring
  • Elimination of gov’ts GH¢66m/month electricity bill
  • Implementing the Millennium Challenge Power Compact II
  • Consolidation of all hydro-power sources under one entity
  • Restructuring VRA to focus on core job of power generation
  • Review existing IPP contracts and streamlining same
Proposals for a reduction in utility tariffs, as promised in the New Patriotic Party’s 2016 manifesto, have been submitted to President Nana Addo Dankwa Akufo-Addo for his perusal and approval, Energy Minister designate, Boakye Agyarko, has said.

Mr. Agyarko told the Appointments Committee of Parliament that: “We are looking at major tariff reductions across board, particularly changing the structure for those in the lifeline. They are under 50KWH per month yet because of the jump in the tariff structure they are also hit. We have done some numbers and we believe that once the president gets it and assents, we will see some relief for them.”

The retail price of electricity in Ghana has seen nearly 600 percentage increase over the past decade, with the average end user tariff for electricity consumed per every kilowatt hour going up consistently from 7.8 pesewas in 2006 to 54 pesewas as at the end of 2015.

In December, 2015, the Public Utilities and Regulatory Commission approved a 59.2 percent increase in electricity tariffs for the fourth quarter of the year alone. This was met with huge public outcry.

Yet, the John Mahama-led government, at the beginning of January 2016, introduced an Energy Sector Levy, bringing the cumulative increase in electricity tariffs since December 2015 to about 73 percent.

Ex-President Mahama, in an address to Parliament last year, justified the imposition of the levy as necessary to pay-off the huge legacy debts of the Volta River Authority (VRA), the Ghana Grid Company (GridCO) and the Electricity Company of Ghana.

“The reality is that, while some subsidies have been paid over the years, perennial budget constraints and numerous competing demands have made it virtually impossible for successive governments to meet this obligation”, the Ex-President said.

Life-line consumers, small and medium scale enterprises and large industries, have all being grappling with the high utility tariffs.

The Energy Commission, which advises government on technical matters in the energy sector, admits that the current cost of buying power has made businesses uncompetitive.

According to the Commission, heavy industries like mines would require, on average, tariffs less than 6 US cents per kWh to stay competitive with similar products imported while light industries could go as high as 10 US cents per kWh to survive.

Businesses, it said, will be better off running own diesel powered generator sets since the current electricity tariff is largely anti-competitive. 

“Thus for current energy tariffs for industries ranging from 18 – 26 US cents per kWh, excluding service charges means they are on the very high-side.

For non-residential or Commerce/service customers, for a tariff range of 26-43 US cents per kWh for initial consumption of 300 kWh in a month, it would be cheaper running own diesel alternative if available, except for convenience.

Running a back-up generator at the current retail diesel price in the country would produce electricity at an average cost of 27 US cents per kWh. As if some service sector consumers have already realised it, they are switching to their backup gensets during the last two weeks of the month,” the Commission noted in July.

‘Dumsor:’ a finance, not technical problem  
Mr. Agyarko said: “In our estimation, ‘dumsor’ is not a technical problem. If you look across the spectrum of the energy sector, we have some of the best brains and technical people in our energy sector in Africa. The problem of ‘Dumsor’ has been principally one of money. The energy sector we find now is seriously cash-strapped, to the extent that we now leave in a debt merry-go-round.”

Available data indicates that, as at end of 2015, the Volta River Authority, Ghana Grid Company, the Electricity Company of Ghana and the Tema Oil Refinery held liabilities in excess of GH¢19.2 billion.

Out of the lot, VRA held the biggest share of GH¢7.7 billion, closely followed by the ECG, which owed GH¢7.1 billion in unpaid debt, while GRIDCo and TOR owed GH¢1.6 billion and GH¢2.7 billion respectively.  A fraction of this has since being paid, but the bulk of the debt still remains to be settled.

Ecobank, Stanchart, Unibank, Zenith bank, GT Bank, UBA, UMB, CAL Bank, ACCESS Bank, Stanbic Bank, Fidelity Bank, First Atlantic Bank, Ghana International Bank, among others, are all exposed by this web of debt.   

Given the large number of banks involved, the ails of the power sector have also been the ails of the banking sector, which struggled with non-performing loans (NPLs) last year.

“Roughly 40 percent of installed capacity is idle because we cannot get the gas to power these plants. In certain instances, we do not even have the money to do scheduled and regular maintenance, therefore, threatening the thermal plants in terms of warranty and insurance. So, the problem has largely been one of how the money has been managed in the energy sector.

We have come to a conclusion that, in trying to end ‘dumsor,’ we have to improve the financial management and structuring within the energy sector,” the former investment banker told Parliament.
Elimination of gov’ts GH¢66m/month electricity bill

Government and quasi government agencies, which include Ministries, Departments and Agencies (MMDAs), incur a monthly bill of GH¢66million for power consumed. This is rarely paid and is a fundamental contributor to the financial quagmire of the utilities.

To address this Mr. Agyarko said: “If we move to distribute solar power for those facilities that are incurring these costs, then it will mean that sooner than later those facilities will not incur this.”

Implementing the Millennium Challenge Power Compact II
Government is committed to ensuring the full implementation of the Millennium Challenge Power Compact II, even as it strives to remove the misconceptions raised by Electricity Company of Ghana (ECG) workers and civil society groups, Mr. Agyarko told the Appointments Committee.

He was optimistic that government will complete the processes outlined in the compact which will enable the country to access a grant of close to US$500 million to be invested in to the power sector. 
“Our position is: yes there is the compact; let us take on board all the issues that have been raised by ECG workers, Civil Society and others and let us see if we can find common grounds to reduce the tensions, remove some of the misconception so the project can move forward.

I believe that any socio-economic project such as this, which starts off with a lot of tension, anxieties and anger, does not end well in its implementation. At this early age of procurement, we are having problems even with delays and a lot of key milestones have been missed.”

Mr. Agyarko described the Millennium Power Compact II as a concession and not an outright sale of the ECG, explaining that the compact will only lease the assets and liabilities of ECG to the concessionaire to operate for a period of time.

“The concession is not a sale. If you read the compact very carefully it is explicitly clear that the assets remain with government but there is a lease on the assets so the concessionaire comes in O& M to use the assets of government. The assets never leave the book of records of government so it’s not a sale. So it is not a sale. It is not a sale. It is a grant of concession for a period,” he said.

“Let the concessionaire come in and take all the debt, assets and liability and move on and see if they will outperform ECG. Our position is , yes there is a compact let us take on board all the issue that have been raised both by ECG workers, Civil Society originations and others and let us see if we can have a common ground to reduce the tension so the project can move on,” he.

In 2016, workers of the ECG embarked on series of demonstrations against the compact, describing it as a subtle sale of ECG which may lead to job losses after the concessionaire operates it for five years.

Under the Power Compact, six projects will be implemented to address the root causes of the unavailability and unreliability of power in Ghana. The project includes ECG Financial and Operational Turnaround Project, NEDCo Financial and Operational Turnaround Project, Regulatory Strengthening and Capacity Building Project, and Access Project. The rest are: Power Generation Sector Improvement Project and Energy Efficiency, and Demand Side Management Project.

The Government of Ghana signed the Ghana Power Compact with the Millennium Challenge Corporation (MCC), an independent United States government agency, on the sidelines of the US Africa Leaders’ Summit in Washington on August 5, 2014.

The Compact, which is being implemented by the government through the Millennium Development Authority (MiDA), will channel approximately US$350 million of the grant as an investment into ECG to ensure its operational revival as well as make it financially more efficient. 

The government signed the Ghana Power Compact with the MCC, an independent United States government agency, on the sidelines of the US-Africa Leaders’ Summit in Washington on August 5, 2014.

The second phase of the compact seeks to enhance distribution system, effecting institutional changes and creating a Power Park to boost energy consumption.

The Compact is expected to provide Ghana with a grant sum of US$498,200,000 to improve the performance of Ghana’s power sector, unlock the country’s economic potential, create jobs, and reduce poverty.

Gov’t challenged to regulate agric financing

Professor of Finance and Dean of the University of Ghana Business School, Joshua Abor, has challenged government to take a serious look at the regulatory and legal framework for agricultural financing in the country.

Government, he said, can create an enabling environment for agriculture financing by improving the efficiency of the judiciary and the courts, and by consolidating land and property rights, and investing in infrastructure such as transport, telecommunications, electricity and water.

Speaking under the topic: ‘Improving Agricultural Financing and Insurance,’ at the 68th Annual New Year School, Prof. Abor made a strong case for an integrated approach to financing agriculture, as against the piecemeal approach that pertains.

Such an approach, he said, must encompass the agriculture value chain, non-farm enterprise and the household. “This integrated approach is necessitated by the fungible nature of money. It would not be enough to make funding available to farmers only for production purposes.”

Consumption needs of farmers, he said, are linked to their production needs as well as their nonfarm activities.
“If farmers know that they can only get funding for farming and not for their health, educational and other needs, they will still go for loans for farming purposes, but divert them to meet their most pressing and survival needs. Thus, a holistic approach to funding agriculture is the way to go.

Financial inclusion and financial innovation are critical channels by which financial products and services can be brought to the door steps of the rural population. Mobile banking, mobile payments and branchless banking services should be pursued by financial institutions and financial sector actors in this regard.”

Prof. Abor mentioned poor extension services, poor market accessibility, inadequate infrastructure, low productivity and low technology uptake, as challenges that are together stifling the growth of the agriculture the sector.

Available data from the Ghana Statistical Service (GSS), indicate that agriculture remains the leading employer, employing 44.7% of the workforce compared to 40.9% for the services sector and 14.4% for industry.

The sector’s contribution to GDP declined from 21.5% in 2014 to 20.2% in 2015. However, it inched up to 24.8 in third quarter of 2016.

Again, growth in the agricultural sector shrunk from 4.6% in 2014 to 2.5% in 2015. Prof. Abor observed that the sector, though beset by a lot of risks, has a lot of financing opportunities that make business sense.

Leveraging these opportunities, he said, will take a collaborative effort between government, financial institutions, development finance institutions and actors in the agriculture value chain.
“There is the need for capacity building programmes to strengthen the capacities of agricultural financial institutions and imbue farmers and agric entrepreneurs with the requisite knowledge to make the right financing decisions,” he said.

Agric Insurance
General Manager of the Ghana Agricultural Insurance Pool (GAIP), Alhaji Ali Muhammad Kato, said: “The future is bright for agricultural insurance; what we need now is for farmers to embrace it. That is why we are working towards that, because we have financial institutions who have expressed interest to partner with us and whatever they lend to farmers would have an insurance component, so that in the bad years the farmers would be comfortable and the financial institutions would be comfortable.” 

He indicated that since 2011, smallholder farmers in the northern parts of the country have been introduced to the drought index insurance scheme, a weather-related insurance product of GAIP.

He added that GAIP, which provides multiple crop insurance policies for large-scale farmers and poultry farmers, is also working to pilot a cattle insurance policy for smallholder farmers.

Dr. Betty Annan, the Country Manager of the Agribusiness Systems International (ASI), speaking under the topic, “Digital Finance: A promising trend in Financing Agricultural Value Chain,” explained how mobile finance is being used to solve the challenge of financial exclusion among smallholder rural farmers.

She said her company, in collaboration with Tigo Cash, is rolling out a “small bio-money” platform, where farmers would supply their produce to agribusinesses and get paid via mobile money.

She added that two other innovative projects: Rice Mobile Finance project (RiMFin), and another for oil palm producers, were ongoing, where payments of about GH¢4million have already been made to farmers as of January 18, through convenient and secure electronic payment platforms.