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Business News of Tuesday, 30 July 2019

Source: Graphic.com.gh

Challenges in the energy sector and how government intends to resolve it

The Minister of Finance, Ken Ofori-Atta has indicated that starting August 1, 2019, government will cancel all existing power-purchasing agreements which require that the country pays for power which it does not consume.
According to him, the country pays over half a billion U.S. dollars or over GH¢2.5 billion annually for power generation capacity that is not needed.

Presenting the mid-year budget review to Parliament, Mr Ofori-Atta said the wasteful expenditures in the energy sector are one of the main causes of increases in end-user electricity tariffs; making Ghana uncompetitive for manufacturing.

He noted that government had put in place measures to address the challenges facing the energy sector.

Challenges

According to Mr Ofori-Atta, the challenges in the energy sector, include:

-electricity tariffs that do not cover the costs of non-portfolio Power Purchase Agreements (PPAs);

- low collection, high technical and commercial losses;

- absence of a proper system for measuring and paying for the costs of power for street lighting;

- non-payment of utility bills by MDAs; and

- a high level of net sector arrears of US$2.7 billion (GH¢14.04 billion) as of January 2019.

What has been done so far

The Finance Minister noted that the total costs in the energy sector that government had to cover in 2018 amounted to US$520 million (GH¢2.7 billion).

He said by end-June 2019, government had made total payments of US$604 million (GH¢3.14 billion).

Forecast

According to Mr Ofori-Atta, if urgent steps are not taken to address the problems in the energy sector, projected payments in 2019 will be at least US$1 billion, (GH¢5.2 billion).

He added that the Energy Sector Reform Programme (ESRP) estimates that government would be paying over US$12.5 billion by 2023.

Resolution

As part of measures to address the energy sector challenges, Mr Ofori-Atta noted that government would convert all Take-or-pay contracts to Take-and-pay contracts.

“Accordingly, starting August 1st 2019, Government is to pay for energy and gas that we actually consume. All Take-or-pay contracts will be renegotiated to convert to Take-and-pay for both PPAs and Gas Supply Agreements (GSAs). Government will seek Parliamentary ratification where appropriate,” he said.

Consequently, Government has resolved as follows:

- to suspend indefinitely or terminate all PPAs currently under negotiation;
to immediately place a complete moratorium on signing new PPAs and Put-Call Option Agreements (PCOAs);

- to subject all future PPAs competitive and transparent procurement procedures. Government will therefore no longer entertain any unsolicited proposals.

- to implement the economic merit order dispatch which means that the most efficient power plants will be dispatched first;

- to improving the performance of the distribution utility and has agreed with the concessionaire a plan to reduce electricity losses and increase collections based on an agreed investment plan.

- to significantly shift in the medium-term, the energy mix to gas and renewables.

- to implement the recommendations of the Energy Sector Recovery Programme (ESRP) as approved by Cabinet; and

- to mandate the Energy Sector Task Force, as constituted by Cabinet based on the recommendations in the ESRP, to ensure and oversee the implementation of

- the sector recovery programme.

In addition to the above, Government is also taking steps to:

- Relocate the Karpowership to Takoradi to immediately utilize Sankofa gas;

- Increase power exports by extending the grid to other West African countries;

- Streamline management of street lighting to ensure accountability and transparency in billing and payments;

- Increase productive uses of electricity and natural gas to spur industrialization; and

- Engage gas suppliers with a view to reducing the price of natural gas.