IES Calls for Transparency and Reforms in Ghana’s Power Sector Crisis

The Institute for Energy Security (IES) has expressed grave concerns over the ongoing crisis in Ghana’s power sector, citing a sharp decline in operational efficiency, financial management, and transparency under the current government. Despite inheriting a relatively stable energy sector in 2017, the government’s handling of the sector has led to significant challenges that now threaten economic growth and public confidence.

Resources and Missed Opportunities

In 2017, the government inherited several key assets in the power sector:

1. Excess Capacity
   • Ghana’s installed generation capacity was 4,599 MW, with dependable capacity at 4,127 MW, exceeding peak demand of 2,078 MW in December 2016.
   • By 2023, installed capacity increased to 5,639 MW, but demand growth to 3,618 MW has been met with frequent power outages, revealing inefficiencies in planning and utilization.
2. Energy Sector Levy Act (ESLA)
   • Introduced in 2016, ESLA generated approximately $650 million annually to clear energy sector debts.
   • Mismanagement of these funds through collateralization has left the sector with over $2 billion in debt, raising accountability concerns.
3. Transition to Domestic Gas
   • Ghana reduced reliance on liquid fuels in favor of domestic natural gas from fields like Jubilee, TEN, and SGN. However, infrastructure stagnation has led to increased dependence on imported fuels and Nigerian gas, exposing the country to global price fluctuations.
4. Financial Stability of Utilities
   • State utilities like Electricity Company of Ghana (ECG) and Volta River Authority (VRA) were profitable before 2017. Today, ECG records 30% technical and commercial losses, with revenue collections meeting only 50% of expected targets.
5. Private Sector Participation (PSP)
   • An MCC Compact II agreement to enhance ECG operations through private sector involvement failed due to transparency and accountability issues.
6. Cash Waterfall Mechanism (CWM)
   • Designed to equitably distribute revenue across the value chain, the mechanism is now plagued by diversion of funds and mismanagement.

Current Challenges

The power sector now faces several critical issues:

1. Frequent Outages
   • The resurgence of dumsor (load-shedding) disrupts businesses and households, increasing reliance on costly alternatives like diesel generators.
2. Unpaid Arrears to IPPs
   • Independent Power Producers (IPPs), responsible for over 60% of power generation, face financial distress due to unpaid bills. Shutdowns by key IPPs, such as Asogli Power, have exacerbated power supply issues.
3. Transparency Issues
   • The GRIDCo “Condition Sheet”, once public, is now restricted. Limited access to data undermines public trust and accountability.
4. Rising Dependency on Imports
   • Despite abundant domestic gas reserves, policy inertia has increased reliance on imported fuels, straining foreign reserves and exposing the sector to price volatility.
5. Inefficient Revenue Collection
   • ECG’s technical and commercial losses exceed 30%, contributing to financial instability and limiting reinvestment.

Recommendations by IES

The IES has outlined a comprehensive action plan to address the crisis:

1. Immediate Payment of IPP Arrears
   • Prioritize settling debts to IPPs to restore confidence and operational capacity.
2. Reinstate Transparency
   • Make key power sector data, such as GRIDCo’s daily “Condition Sheet,” publicly accessible.
3. Enforce the CWM
   • Ensure proper revenue distribution to alleviate financial bottlenecks across the value chain.
4. Expand Gas Infrastructure
   • Invest in additional processing and storage facilities to optimize domestic gas use and reduce reliance on imports.
5. Institutional Reforms
   • Enhance efficiency in utilities like ECG by reducing losses, improving collections, and encouraging private investment.
6. Load Management Planning
   • Implement a reliable load-shedding schedule to minimize disruptions for businesses and households.
7. Long-term Policy Framework
   • Develop a sustainable energy policy emphasizing diversification, renewable energy, and financing mechanisms.
8. Rebuild Investor Confidence
   • Establish a predictable and transparent payment structure to attract private sector investment.

Conclusion

The current power sector challenges reflect mismanagement of resources and opportunities inherited in 2017. The restoration of the Asogli Power Plant is a positive step, but systemic issues like unpaid arrears, transparency lapses, and infrastructure deficits remain unresolved.

The IES urges the government to take immediate and sustainable actions to stabilize the sector, restore investor confidence, and ensure reliable power supply for economic growth and social development. Without comprehensive reforms, Ghana’s energy sector risks long-term instability and diminished public trust.