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Business News of Friday, 16 August 2013

Source: Graphic Online

TUC kicks against utility hikes

The Trades Union Congress (TUC) has stated that the proposed tariff increase of 166 per cent by the Electricity Company of Ghana is “too high and unacceptable.”

A statement signed by its Secretary General, Mr Kofi Asamoah, attributed the current state of the problem to the failure to allow the automatic adjustment mechanism to work as agreed among stakeholders in 2010.

It described the problem as a political failure for which Ghanaians should not be liable, pointing out that “the political establishment that scuttled the mechanism should deal with it”.

It argued that the argument that the proposed increase when granted would allow the ECG to move from a loss making position to a position where it could make profit, albeit, marginal was untenable.

“In 2010, the ECG made a marginal profit of about US$4 million partly as a result of the upward tariff adjustment that year. In 2011 and 2012, the company made losses of US$16 million and US$26 million respectively.

“Failure to automatically adjust tariffs could be part of the reasons for the losses. Going forward and given the dire economic situation many Ghanaians face, the TUC will recommend that ECG rather aims at cutting losses or at best, breaking even”, the statement added.

It said although the challenges facing the utility providers were “real, endemic and structural”, there were management and technical issues that were often packaged for consumers to pay in the form of tariffs.

“Tariff adjustment could potentially be part of the solution,” the statement said and added that experience over the years indicated that merely raising tariffs unaccompanied by other measures that address the systemic challenges has failed to improve the situation.

The statement said low tariffs had been the challenge cited but when the utility providers got the tariffs adjusted they were unable to improve service delivery because the structural challenges remained as binding constraints.

It said although the ECG made mention of a “Clearing House” arrangement through which government settled its indebtedness to the company, it had turned out that the system was suspended in 2012 by the Ministry of Finance and Economic Planning.

This, the statement said, shot government’s indebtedness to ECG in 2012 to over GH¢400 million,adding that “all this constrained the ability of the ECG to pay VRA and also meet its operational and investment needs”.

For the Ghana Water Company and its proposed tariff increase, the statement said its losses amounted to nearly half of what it produces.

It said that while its official target for what it calls Non-Revenue Water (NRW) was 46.3 percent, strangely, the Public Utilities Regulatory Commission (PURC) allowed for NRW of 45 per cent, meaning that the official regulator permits Ghana Water Company to lose nearly half of the product – water – it produces.

“It makes sense, therefore, that the company is in dire financial difficulties. And in the view of the TUC, the company requires something else rather than tariff increase to fix the many challenges it faces,” the statement added.

It said at this stage of national development, it was simply not possible for consumers to be asked to bear the investment cost of the utilities, with about 51 per cent of ECG’s customers being lifeline consumers, while domestic consumers accounted for 84 per cent of the customers of Ghana Water.

“Given the level of incomes prevailing in the country, it will be highly unrealistic to think that realistic utility pricing will occur in Ghana anytime soon. That is the fact and reality we must face,” the statement said.

It said government subsidies would therefore continue to be important in allowing the majority of Ghanaians to have access to electricity and water.

The statement, therefore, admonished the PURC and government to bear this in mind because any attempt to further over-burden Ghanaians could have undesirable social and political implications.

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