Tariffs review: Utilities seek more than 100% jump

Power utilities want consumers to pay more than twice the current level of tariffs in their proposals to the Public Utilities Regulatory Commission (PURC), B&FT has gathered.

The Volta River Authority (VRA), which sells power to the Electricity Company of Ghana (ECG), is seeking an increase of around 130 percent to the current tariff, which it says will enable it break even and run a viable operation.

VRA at present is paid 4 cents per kilowatt hour of electricity sold to the ECG, but it is proposing an increase to 9.2 cents per kilowatt hour, said Ekow Acquah, VRA Manager for Sales Contracts and Regulations, in an interview with the B&FT.

ECG, which declined to disclose its tariff request, is likely to seek a rate commensurate with the VRA’s proposal, being its main customer, the B&FT was told.

Independent Power Producers (IPPs) such as Asogli, whose tariffs are guaranteed by contract, receive 10 cents per kilowatt from ECG; whereas power producers in Togo, Benin, Burkina Faso and Ivory Coast earn between 10-13 cents.

“The VRA’s tariff proposal is the weighted average of the cost of hydro, light crude oil and a bit of gas in the generation mix,” Mr. Acquah said. But the continued unavailability of natural gas from the West Africa Gas Pipeline -- and indications that Ghana’s own gas is not likely to come on-stream this year -- may lead the VRA to seek an even higher tariff to compensate for the use of crude oil just to power its thermal plants.

“We are updating our proposal because, in asking for 9.2 cents, we assumed that the West Africa Gas Pipeline would be discharging gas by April and that Ghana Gas would be producing by the end of the year. Now the whole picture has changed, because the volume of gas that we were expecting to receive to enable us produce at 9.2 cents per kilowatt hour is not going to come. So the tariff must go up,” Mr. Acquah said.

Power and water tariffs have been fixed since November 30, 2011. The PURC said last week it will soon kick-start a “major tariff review process” after receiving proposals from service providers for an increase in the rates.

A major tariff review is the kind that ultimately leads to a one-time substantial jump in utility tariffs, buffeting consumers’ pockets and dislocating business budgets. The last such review occurred three years ago and led to electricity tariffs going up by 89 percent, and water tariffs by 36 percent.

In 2011, the PURC started reviewing tariffs quarterly in accordance with an adjustment formula that measures factors affecting the tariffs – such as the exchange rate, consumer inflation and production costs. In 2012, however, the formula was set aside even as production costs and other elements rose, and Government sought to pay for the difference through subsidies.

Unlike the quarterly adjustment, a major review of tariffs incorporates additional factors such as the investment needs of the utilities.

The utilities’ request for more tariffs has set them on a collision course with consumers and businesses, who are demanding improved services first before they pay more. The utilities contend, however, that the under-pricing of their services has accounted for the under-investment and inefficiencies in their operations. They also argue that “unrealistic” tariffs imperil their finances, threatening their survival.

VRA incurs losses of US$3million daily from its use of crude oil to run thermal generating plants, Chairman of the Parliamentary Select Committee on Mines and Energy, Dr. Kwabena Donkor, said last week. Failure to increase the tariffs will cause the VRA’s “collapse”, he added.

A jump in electricity tariffs raises the cost of water production, for which electricity is a key input. About a third of the population lacks access to potable water, which the Ghana Water Company Limited blames on weak investment due to low tariffs.

Tariff increases will also affect producer- and consumer-price inflation as businesses pass on the higher costs to buyers. Consumer inflation accelerated from 8.8 percent to 10.6 percent in the first four months of the year. Utility prices together with housing account for 6.98 percent of the inflation basket.