Friday, 16 February 2018

Worker's Unions bargain for 20% utility tariffs cut

Image result for utility tariffs cut

Adnan Adams Mohammed

Member Associations of the Trades Union Congress (TUC) have expressed their appreciation to the government’s intention to reduce electricity tariffs this year as captured in the 2018 budget.

The various members of TUC said, given the negative impact of the existing high tariffs on economic activities and on the living standards of consumers, higher reduction is in the right direction.

However, they are demanding for not less than 20 percent tariffs cut.

“We think a significant reduction in tariffs is justified when we take into consideration the generally low incomes in the country,” TUC said in proposals for tariff review submitted to the Public Utilities and Regulatory Commission (PURC).

While government is promising reductions in electricity tariffs, utility companies are, on the other hand, seeking increases.

The utility companies cited foreign exchange losses as reason for seeking the increment, as most of their inputs are imported, in addition to other reasons such as bills paid in cedis and inflation.

The last tariff review was effected in 2015.

The workers’ union explained that the review should fulfill objectives such as access to reliable and affordable electricity and water, improvement in the quality of service of utility companies, and ensure that utility tariffs reflect prudent cost.

TUC observed that one major challenge for the growth of the private sector in Ghana has to do with high utility tariffs, adding that it is important that the review takes into account the plight of the domestic private sector, particularly the SMEs.

“The utility companies are demanding cost-reflective tariffs. We expect PURC to ensure that unjustifiable costs are not passed on to consumers.

“The resistance to tariff is due, partly, to the fact that consumers are paying for inefficiencies of utility companies, especially costs arising from political decisions that had only served the interest of some political elites,” it added.
Moreover, TUC wants levies and taxes on electricity scrapped.

It tasked government to treat the power sector as a strategic sector whose value lies in supporting economic growth, from which government can derive revenues through taxes.

“In our view, it is wrong for government to use the power sector as a direct revenue-generating source.

“Many Ghanaians are either receiving low incomes or are without any regular income. Therefore, it will be wrong to subject the utility sector to profiteering.

“The TUC expects government to scrap all the levies and taxes on electricity as a means of improving access and making it affordable to all Ghanaians in all parts of the country,” it said.

Meanwhile, The President Nana Akuffo Addo administration has reiterated plans to attract private sector investments into the country’s power sector to improve operations.

The government maintains that allowing private participation should provide the needed capital and eventually reduce the cost of power.

Presenting the State of the Nation Address to Parliament, a fortnight ago, President Akufo-Addo asked Ghanaians to exercise patience as his administration is working hard to ensure that the cost of power is reduced.

He explained that his administration inherited huge debt in the energy sector, stressing that the intolerable debt almost paralyzed the sector.

“A lot of hard work has gone into easing the intolerable debt situation that threatened to paralyze the energy industry, ” he said.

Apparently, the immediate past chief executive of the Ghana National Petroleum Corporation (GNPC), Alex 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 had 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 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.

‘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.
But, according to TUC, the assets of the state-owned utility companies are national assets which generate economic returns from the pass-through costs paid by end users.

It charged government, as the owner of these assets, to work with PURC to develop a clear policy on how to manage these national assets and the returns they generate.

It demanded that the call for reclassification of existing tariffs should consider the plight of people who can be described as energy poor in order not to worsen the condition of lifeline consumers.

With the development of improved technologies, the cost of renewable energy, such as solar, has reduced considerably.

For example, solar energy, which used to be 30 to 40 cents/KWh about a decade ago, now hovers around between 3 and 10 cents/KWh.

Increasing renewable energy in the energy mix should be the direction for the generation of electricity.

The union, therefore, urged government to develop a comprehensive policy direction to promote renewable energy in Ghana.

The TUC also called on government to undertake a full-scale review of the existing Power Purchase Agreements to ensure that Ghana gets good value for money to ensure that Ghanaians are not overburdened by excessive tariff increases due to errors committed by politicians who might have served their own interests with such agreements.

The demand for electricity in Ghana is growing at a rate around 12 percent per annum, which is far above the average demand of about three percent for Africa.

TUC, therefore, stressed the importance of intensifying education on the benefits of demand-side management to ensure that buildings are designed to reduce the use of air conditioners.