KEY POINTS
- ECG faces a severe financial crisis, leading to delays in salary payments.
- Efforts to stabilize ECG through tariff increases have not been sufficient.
- PURC suggests structural reforms and privatization to ensure long-term stability.
The Public Utilities Regulatory Commission (PURC) has issued a warning to the Electricity Company of Ghana (ECG), adding that ECG may be on the verge of bankruptcy due to increasing financial challenges.
In a letter addressed to the Presidency, the Energy and Finance Ministries, and key stakeholders, PURC’s Executive Secretary, Dr. Ismael Ackah, detailed the financial crisis affecting ECG, the Volta River Authority (VRA), Ghana Grid Company (GRIDCo), and the Bui Power Authority.
According to Dr. Ackah, the situation has resulted in delayed salary payments.
The Agency is also finding it difficult to cover administrative expenses, highlighting the urgent need for immediate government intervention.
Efforts to stabilize ECG falter despite tariff increases
Despite initiatives to enhance cash collection through digital systems and metering programs, as well as tariff hikes of over 75 percent since September 2022.
According to MyJoyOnline, discovered that ECG’s financial instability remains a pressing concern.
“In June and July 2024, ECG reported revenues of GHS 884.2 million and GHS 857 million, respectively”
Stating that the amount is insufficient to cover its monthly $47 million Tier A and WAPCo bill under the Cash Waterfall Mechanism.
The situation worsened further in August 2024 when ECG’s revenue fell below GHS 800 million, which resulted in amounting to just 42 percent of the expected income required to pay its sector partners.
A report by PURC also identified a GHS 860 million shortfall in payments to independent power producers which has left several Tier B companies including Ghana Gas, VRA, GRIDCo, and Bui Power Authority struggling to cover operational costs.
Dr. Ackah emphasized that while tariff adjustments have been implemented, deeper structural reforms are necessary to restore ECG’s financial health.
Comparative solutions from neighbouring countries
According to MyJoyOnline, PURC’s letter presented examples of successful interventions from other African countries facing similar issues:
Kenya Power and Lighting Company, listed 50 percent of its equity on the stock exchange, raising non-tariff funds for crucial investment,
Tanzania Electric Supply Company (TANESCO), where the Tanzanian government converted a loan of 2.4 trillion Tanzanian shillings into equity, allowing TANESCO to declare profits since 2022, and
Uganda’s Umeme Concession, which was involved in private sector participation in metering, billing, and collection services, achieved a collection rate of 98.7 percent.
Recommendations for structural reforms
PURC recommends adopting innovative strategies similar to those used in neighbouring countries to rescue ECG from financial collapse.
These reforms should include strict performance indicators such as:
- Significant reductions in technical and commercial losses;
- Enhanced fiscal discipline, with directives for ECG to avoid non-core activities;
- A reassessment of power purchase agreements and exchange rate mechanisms to lessen the burden on consumers;
- Independent audits to determine ECG’s actual financial and technical status.
Additionally, PURC highlighted that fuel payments are severely impacting ECG’s financial sustainability. The Commission has called for a thorough examination of the root causes of ECG’s difficulties
This will involve key stakeholders like the Ministry of Energy, the State Interests and Governance Authority (SIGA), and the Ministry of Finance. PURC also urged greater transparency on ECG’s revenue collection, major contracts, and monthly financial commitments
