A Bitter Pill to Cure a Deeper Crisis: The New Fuel Levy

The government’s proposal and passage of a GHS 1 levy per litre on petroleum products is a bitter pill to swallow, especially at a time Ghanaians are just beginning to experience relief from the prolonged economic mess, hence burdensome.

However, a closer look reveals that this measure, while difficult, could be a necessary trade-off to avert a more damaging national crisis in the power sector.

The data shows that, as of January 2025, Ghana’s energy sector debt stood at approximately US$3.1 billion, with over US$1.7 billion owed to Independent Power Producers (IPPs). These IPPs provide a significant share of Ghana’s electricity, particularly through thermal generation, which depends on imported liquid fuels. The cost of these fuels is estimated at US$1.1 billion annually, but is not captured in current electricity tariffs, creating a growing fiscal imbalance.

The power sector continues to record a monthly financing gap of around GHS 2 billion, driven by a combination of high fuel costs, under-collection of revenues, operational inefficiencies, and long-standing governance issues, particularly within ECG. An amount of US$3.7 billion is required to clean up the sector.

The risk is clear: if this financial burden remains unaddressed, Ghana may face another cycle of severe power outages (Dumsor) with consequences for businesses, job creation, investor confidence, and the overall economy.

The macroeconomic indicators are pointing to the right direction, making the timing of this levy more favourable than it might have been in previous years. Inflation rate has been decreasing, the cedi has appreciated significantly, and fuel prices have declined from an average of GHS 16 per litre in January 2025 to around GHS 12 per litre. Consumer purchasing power, while still recovering, is showing signs of improvement, creating some room to absorb this additional cost.

Critical to this levy is based on accountability and transparency with pragmatic reforms. Ghanaians have grown wary of levies that are poorly managed or misallocated. For the new energy sector levy to gain legitimacy and public trust, government must:
1. Ring-fence the revenue strictly for its intended purpose.

2. Publish regular reports on collections and disbursements.

3. Implement structural reforms in ECG and the broader sector to address inefficiencies, losses, and revenue leakages.

This is indeed a bitter pill, but if administered with discipline, integrity, and a clear exit strategy, it could prove to be the intervention that stabilizes Ghana’s energy future once and for all.

Averting another Dumsor crisis is not just a technical decision, it is a moral one. The cost of inaction may be far greater than the temporary sacrifice this levy demands.

Xatse Derick Emmanuel
Economist, Energy and Finance Analyst

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