Sunday, 11 February 2018

Allow PURC independence in setting tariffs – Energy experts

Image result for Alexander Mould

Adnan Adams Mohammed

The immediate past chief executive of the Ghana National Petroleum Corporation (GNPC), the national oil company operating in the oil and gas industry on behalf of Ghanaians, Alexander Mould has added his voice to the many energy experts who condemned the President, Nana Akuffo Addo for announcing electricity tariff reduction proposals which were captured in the 2018 budget.

He is totally against government’s interference in utilities sector operations and management. This is because, the act of government interfering in setting of price for utilities has resulted in many state owned enterprises (SOEs) becoming bankrupt or collapsing due to indebtedness. 

He quizzed: “why on earth will a Finance Minister state what the tariff will be in a budget? Moreso for the President to announce a tariff reduction by himself.

“Is it that, the government through the budget is subsidizing the electricity, thereby necessitating the reduction by government?

“So, if that is the case, then the budget should state the actual subsidy and how it’s going to be funded,” he stated.

Mr Mould in interview with Economy Times further stated, “I am not sure that the SOEs in the power value chain, which do not have Power Purchasing Agreements (PPAs), like the Volta River Authority (VRA), have not yet agreed the tariffs with the Public Utility Regulations Commission (PURC); most of the other Thermal Plants have agreed tariffs (capacity + fuel components) from day one of production which are not negotiable or cannot be changed and are in US dollars except for the fuel tariff component which are pass through. And we must note that fuel prices have increased 40% since 2016”

The utility companies, have since complained that, the revenue from the tariffs given to them by PURC do not meet their costs of production, especially VRA; and as such ask for a subsidy from government in the form of government directly paying for a number of cargoes of crude oil and supply of gas for electricity generation.

Meanwhile, PURC, has also complained that the tariffs requested by the electricity sector players; VRA, ECG and GRIDCo are bloated with a lot of non-essential and non-operational costs.

According to Mr Mould, his understanding is that, PURC acts as a bully most times by not calling the utility companies for presentations, discussion and negotiations.

“With the thermal generation on the increase - currently 70-80% with no immediate increase in production from Akosombo on the horizon, and the increase in crude oil price and other petroleum derivative products - how would an average reduction in tariffs help the situation of bringing these SOEs into the black from the red they have been for the past number of years?

“If the utilities ask for an increase of say 20% , and PURC after their calculations and consultations agree to 14% increase, who will be responsible for the 6% difference, and if this is not paid as a subsidy by government to these SOEs on a timely basis, will the boards and management be responsible for shoddy service delivery, losses by these SOEs, and increased indebtedness, which ultimately will lead to a credit crunch, that is, their banks not being able to avail any new facilities to them such as letters of credit to purchase crude oil and other important input to deliver their service?” he asked.

Mr Mould, however noted that, it is important for Boards of these SOEs to ensure that they reduce the non-essential and non-operational expenditure and set key performance indicators for the SOEs that address operational efficiencies , reduce operational costs and at the same time raise the standard in training of their staff and in maintenance to be in line with international standards.

Reading the 2018 budget, the finance minister, Mr. Ken Ofori-Atta announced that government will be reducing electricity tariffs by between 13 to 21 percent beginning this year.

‘’Mr. Speaker, during the 2016 election campaign, the President, Nana Addo Dankwa Akufo-Addo, promised Ghanaians that with prudent management of the economy, the NPP government would ensure that electricity tariffs are reduced. In fulfillment of this promise, government has reviewed the tariff setting methodology and cost structure of power production. This review has resulted in recommendations that will be made to the PURC for consideration.’’ He noted.

The reductions in electricity tariff as contained in the 2018 budget are; Residential – Up to 13%, Nonresidential – 13%, Special Load Tariff-Low Voltage – 13% ,Special Load Tariff -Medium Voltage – 11%, Special Load Tariff -High Voltage – 14%, High Voltage Mines – 21%.

But, the Executive Director of Policy Think Tank, the African Centre for Energy (ACEP), Benjamin Boakye has asked government to clarify the details that informed the proposed reduction in the electricity tariffs.

“Tariffs in Ghana are extremely high and ought to come down, but the fundamentals will have to be checked to ensure that we are not going to put the institutions in distress. We know that the losses are high so you have to put some mechanisms in place to reduce the losses so we can pass on the relief to consumers.

“We haven’t seen that happen immediately and so we don’t know how that reduction is going to come about. It will be good to see what is informing reduction at this point.

“If it’s out of some negotiations they have had with the generators to cut down some costs and therefore, they are able to pass on that relief to consumers, which will be good news.

“But we now know the numbers of the quantum of reduction that is going to come but we don’t know how that reduction is coming about. And that is what is important for analysts like us so that we can interrogate the numbers and project what the implications are for the sector.”

Similarly, a former Chief Executive Officer (CEO) of the Volta River Authority (VRA), Dr. Charles Wereko-Brobby, has accused the government of trying to usurp the mandate of the Public Utilities Regulatory Commission (PURC), by announcing an average reduction of between 13 and 21 percent in electricity tariffs for residential and industrial consumers.
 Dr. Wereko-Brobby, has described the move by government as “extremely inappropriate,” adding that the government cannot make a recommendation to the PURC on possible cuts in utility costs as the Commission had the sole mandate of setting the tariffs.

“The idea that government should recommend specific numbers for tariffs is extremely inappropriate. Since 1997, we’ve had the PURC whose job it is to determine the methodology and the applicable rates, and also undertake three-monthly reviews of the tariffs in line with the changing circumstances such as price of fuel and the types of fuel mix that are being used by various generators, and the tariffs that are paid to the various generators.

“That is the sole purview of the PURC, and absolutely no government has got any right to recommend, let alone be specific about what reductions it should apply,” he said.

According to him, government could make proposals to the regulatory body about a possible reduction in the tariffs, citing possible changes in the cost of production.
He added however, that the final say on any adjustment of the tariffs should come from the PURC devoid of any pressure from the government.

“If circumstances have changed, and for example, government has been able to negotiate contracts with IPPs which have made the cost of producing power cheaper, it is incumbent on the government to draw the attention of the PURC to these changes in prices, and it must do so through the utilities who have got the actual contracts with the IPPs for the production of power. PURC will take a look at all this new information and make the necessary adjustments. But it is not up the government to say that they have changed the tariff setting mechanism and have collapsed the three bands into two. That is strictly not government’s business,” he argued.
“Governments are not supposed to make recommendations, if you make recommendations to the PURC, you don’t announce them in the budget. Proposals can be made to the PURC.”

‘In providing relief to the poor, who consume within the lifeline subsidies, but are likely to be living in compound houses, thus robbing of them such benefits, the current 4-tier tariff classification for residential consumers will be collapsed into lifeline and non-lifeline consumers in phases,” Mr. Ofori Atta said.

Lifeline users currently pay 33.56 pesewas per kilowatt hour in addition to the 633.17 pesewas service charge monthly.