Showing posts with label PURC. Show all posts

Sunday, 29 September 2019

Alex Mould writes: Ghana needs to reset itself

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By : Alexander Mould

People are saying that the only reason why persons like you and I want to come into ‘power’ is to enrich ourselves, our friends, and our families. People are saying we are all alike and only have our self-interest at heart.

People have given up on the Leadership of our country. This is from empirical evidence and behavioural analysis of what is currently going on.

I cringe when I am told that the Citizens of a country elect leaders whose values sum up the values of those Citizens.

What makes me cringe more is how a foreign firm like Meralco, which is the only entity in the PDS Consortium that has the technical and financial clout to be in that Consortium, will be part of a grand scheme and/or allow itself to be used by the puppet masters that control government business to perpetuate this grand scheme.

Leaving into the hands of a few individuals, who have no prior or current expertise, the monopoly of distributing electricity to the consumer.
This is even better than owning the state lotteries.

The next thing we shall see is Public Utilities Regulatory Commission increasing tariffs mainly skewed towards the distribution portion of the power value chain.

More is expected of our leaders in the fight to reduce the inequality in our economy; an Oxfam report recently released raises this issue where in Africa, the Richest 0.0001% own 40% of the continents entire wealth.

For God sake, Our People are asking for just the basics and instead of fighting for their basic rights by giving them access to jobs, which that will elevate them from poverty, and make affordable the basic needs - such as healthcare, education, potable water, electricity, and shelter - all we find each day we wake up are schemes to make rich only those that have the power, directly - and indirectly by the puppet master - to decide the outcomes of many government business decisions by tweaking procurement rules, policies, and laws.


Ghana deserves better!
All I know is that as a country, we cannot continue on this path!!!

Friday, 23 August 2019

US$7bn savings on power agreement cancellation misleading - Mould

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Adnan Adams Mohammed

A former banker and energy expert has challenged and described government's assertion that it made over US$7billion savings from the cancellation of some Power Purchase Agreements (PPA)'s signed erstwhile in President Mahama's administration as misleading.

The PPA were signed between Independent Power Plant (IPP) investors’ and the off-taker (in this case Electricity Company of Ghana (ECG)), nowhere was government directly a party to those agreement, the former senior banker at Standard Chartered Bank and former Chief Executive of the Ghana National Petroleum Corporation (GNPC), Mr Alex Mould has said.

According to him, since government was not obliged to give such political risk support to the IPP development; "in the form of a Government Consent and Support Agreement (GCSA) or in more recent times a Put/Call Option Agreement (PCOA), unless of course the government wanted a particular IPP developed, all the PPAs would expire worthless as no IPP could be developed without the explicit support of government".

"Government is only involved when the investors’ financiers require a guarantee to mitigate political risk", he revealed.

In his latest educative series on project financing, the Energy and Finance expert said a PPA was not the end of the transaction but rather a necessary requirement to get the investor’s financiers interested in commencing the approval process.

Mr Mould stated that since the IPP investors had not reached a financial investment decision to move forward with the IPP projects they thus had not committed financially to the project and that, "this cannot be said to be costing the Government of Ghana significantly, let alone $7B (USD)."

"How then does cancelling a number of PPA's when Investors’ financiers have not committed to these IPPs (with no mention of accompanying Government Consent and Support Agreement/PCOAs), save the Government of Ghana so much money?" he queried.

Mr. Mould who is also the former Executive Director of Standard Chartered Bank said such "references are disturbingly misleading to the public, and can only be alleged either from a strong point of ignorance of the overall process or simple  political maneuvering - or both."

Read Full Statement below:


In recent times, there have been discussions about the current administration’s ability to save the people of Ghana USD7 billion by terminating some of the Power Purchase Agreements (PPAs) signed with Independent Power Producers (IPP)’s during the former administration under H.E John Mahama.

These PPAs -  initiated by the Electricity Company of Ghana (ECG) and approved by PURC were entered into with the aim of resolving the power crisis at the time (Dumsor) - are being portrayed as some of the reckless agreements the NDC govt entered into and which the NPP Govt is seeking to rectify.

In order to decipher the validity of this claim, it is important to stay educated on the overall process and nuisances surrounding any IPP investor’s ability to obtain financing for a power plant project end-to-end.

One must also understand the role of important agreements in the value chain of such Power Purchase Agreements (PPAs), Government Consent and Support Agreements (GSCAs) etc., and appreciate the roles of key participants such as Off-Takers, Financing Institutions/Creditors, Government, etc.

To kick off the financing process, an interested IPP investor must prove its capability to raise the necessary project financing to ECG. While doing this, the IPP investor must concurrently convince its financing partners (i.e. banks/financial institutions) of its ability to produce a solid Off-Taker agreement with a credible power Off-Taker i.e. ECG.

This dynamic dilemma of balancing these two adjoining work streams (1: Demonstrate promise of financing capability 2: Provide assurance of credible off-take) creates a known “chicken and egg” situation for the IPP investor i.e. which one comes first?

To move forward in the process and be taken seriously by its financing partners, the IPP investor must work diligently to enter a signed PPA with Off-Taker (i.e ECG).

This PPA allows for required due diligence activities required by financing partners (i.e. banks) to commence, which include investigating validity of demand, and the creditworthiness of the counterparty (i.e. ECG) to fulfill its obligations. 

To demonstrate the “chicken and egg” realities embodying this early stage of the process, please note that before entering the PPA, the Off-Taker (ECG) also seeks to comfort from the financial institutions backing the IPP investors, and uses these interactions to assess the IPP investor’s overall financial whir-withal to reach financial close, known as Financial Investment Decision (FID), to bring the IPP development to fruition;

Following the requirement of obtaining a solid PPA with ECG, financing partners of the IPP investor reviews the country’s political risk, and most likely will require government support in the form of a Government Consent and Support Agreement (GCSA) or a Put/Call Option Agreement (PCOA)).

This agreement is necessary if the financial institutions believe, as in the normal practice in developing countries, that there is a high potential of interference by Government (current or future administrations) which may jeopardize the IPP investor’s ability to meet its obligations to them.  

Used as a mitigation agreement between the IPP investor and key Off-Taker, this agreement basically places a burden on the Government to make the IPP investor whole, if there is a default caused by the government or any of its agencies i.e. Public Utility Regulatory Commission(PURC) or, if there is Government interference on pricing and or payments due from Government - a common practice in our parts of the world.

To partake in a solid GCSA /PCOA with any serious IPP investors, it is common knowledge that the Government of Ghana was unable to instill the long-term confidence required independently, and needed the backing of renowned credit worthy development financial institutions such as World Bank, AfDB for the tenor required (approximately 15 years). In other words, any serious IPP investor, together with its financial partners, who entered into a PPA with ECG from 2006 onwards, would not be able to build the Independent Power Plant in Ghana unless it had supportive assurances made by the Government of Ghana’s (which would have to be credit-enhanced by a development bank such as World Bank or AfDB).

Take for instance the eniGhana Sankofa-Gye-Nyame gas project; as a requirement for support of the E&P gas development project, the World Bank was also required to support the financing of the 4 IPPs to off-take the gas to produce power (Gas2Power) by backing the PCOA issued by government required for the financing of the IPPs, the PCOAs issued by Government of Ghana was credit enhanced (i.e supported) by the World Bank.

In this project, the World Bank acted in two key roles -  as credit enhancer to the chosen IPP and also to the SGN Gas Project directly . Without this innovative arrangement, the project would not have been executed.

Please note that when a PPA is signed between an IPP investor and ECG, Government is not obliged to give a PCOA unless the Government finds it necessary to do so i.e. unless Government wants that particular IPP developed.

Giving the lack of creditworthiness, and common challenges to recover full execution costs that have plagued the power industry for years, no Independent Power Producer (IPP) investor will endeavor to build an IPP without clear support by Government (GCSA/PCOA).

In short, without a GSCA or a PCOA no IPP can be developed irrespective of the strength of the PPAs signed between ECG and IPP investor.

So, a PPA on its own - without a GCSA/PCOA - is only a preliminary requirement, in a very long negotiating process. 

A PPA on its own does not guarantee the financial backing of an IPP investor, and is used by IPP investors to simply kick-start the process of garnering early interest of financial institutions in the potential opportunity. And normally, a timeframe is stipulated in a PPA for the investor to obtain final investment decision (FID) from its financial institutions after all the above due diligence has been fully undertaken

In actuality, only about 6/7 PPA’s have resulted in government backing these developments by the issuance of a GCSA/PCOA since 2008, and each GCSA/PCOA also has been credit enhanced (supported) by a AAA credit development financial organisation such as the World Bank or AfDB (again, at the request of the Government of Ghana).

How then does cancelling a number of PPA’s (with no mention of accompanying GCSA/PCOAs), save the Government of Ghana so much money?

These PPAs which have not reached a financial investment decision to move forward with the IPP investment, cannot be costing the Government of Ghana significantly, let alone USD7bn .

Such references are disturbingly misleading to the public, and can only be alleged either from a strong point of ignorance of the overall process, political maneuvering - or both.

Obtaining a PPA is not the end of the transaction but rather the beginning of the transaction and a long negotiation process.

It is our duty to keep the Citizens of Ghana informed.



Saturday, 10 August 2019

Expert questions ECG and PDS deal

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Adnan Adams Mohammed

Following the fall out of the Power Distribution Services (PDS) take-over of the Electricity Company of Ghana (ECG) many Ghanaians including energy and financial experts have had a bite on the issue with many condemning the process and composition of the joint venture, PDS.  

The Millennium Development Authority (MiDA), the implementing agency and supervisor of the power compact, has said contrary to the public allegations, each step of the ECG PSP transaction process, prior to the handover of ECG’s distribution business and assets to PDS, was subjected to careful scrutiny and various stakeholder approvals. This was contained in a statement it released last week.

“In line with best practice in International Business Transactions, all documents submitted as part of the transaction were accepted on the basis of good faith and the presumption in law as to their validity,” MiDA said.

But, Mr Alex Mould who was also skeptical about the whole process and agreement has explained the process and has raised some mind boggling questions.

He explains that, it was a lease and assign agreement for the Bulk Supply in connection with sale of Capacity and Net Electrical Output for a term of 20 years - yes, not a sale; it is also an agency agreement to administer the portfolio of Power Purchase Agreements.

PDS will get from Energy Commission a distribution license and a rental sale license.ECG sells capacity and Net electrical output (NEO) to PDS. The company (PDS) is obliged to buy the capacity and NEO - an exclusive right.

The Form of Demand Guarantee in the signed Bulk Supply Agreement as stated in Annex 1 of Schedule 4 states it will be a Bank Guarantee which needs to be posted to ECG.

The Bank Guarantee was contingent on coming out with new tariffs based on an agreed tariff methodology. But, PURC delayed the announcement of new tariffs so no bank was willing to grant the guarantee.

So PDS approached the conditions precedent committee proposing an A-rated insurance company.  This was referred to the ECG board that approved it.

The questions follow: “On the Guarantees;
What was the role of CAL Bank in issuing the insurance, and does CAL Bank play any other role with PDS?

Who was the insurance company that initially issued the Guarantee? What is the net worth of the issuing insurance company?

What role did Jo Australia and Al-koot play?

On the shareholders, who are the shareholders of Meridian? Where are Meridian shareholders registered?

Do we really know the beneficial ownership of all the shareholders of PDS?”

The government has suspended the concession agreement with Power Distribution Services (PDS), bringing back the Electricity Company of Ghana (ECG) to be in full control of power distribution.

According to Information Minister, Kojo Oppong Nkrumah, the decision was taken after government detected “fundamental and material breaches of PDS’s obligation in the provision of Payment Securities (Demand Guarantees) for the transaction which has been discovered upon further due diligence.”

He said government wants to secure ECG’s assets that were handed to PDS as part of the concession agreement.

“While the current development is an unfortunate setback to the progress of the Concession, MiDA wishes to assure the public that it welcomes investigations into this matter,” it said.

MiDA also assured Ghanaians that it will continue to work transparently and with a high level of integrity to achieve results in the best interest of Ghana in order to sustain the goodwill and prospects our country derives from the implementation of the Millennium Challenge Account Program.

MiDA advised the public to be circumspect in drawing conclusions not supported by facts and evidence while investigations are ongoing.

Monday, 8 July 2019

Inflation to rise further

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Adnan Adams Mohammed

Year on year inflation is expected to rise in the months as two major production factors have recorded tariffs increase.

The Public Utilities Regulatory Commission (PURC) recently approved an 11.17 percent tariff increment for electricity and 8.1 percent increment for water, all of which took effect last week.

According to the Ghana National Chamber of Commerce and Industry (GNCCI), manufacturers and services providers are likely to transfer to Ghanaians, the cost associated with the recent increases.

Mark Badu-Aboagye, CEO OF the GNCCI has said, “In the meantime businesses cannot increase their prices to accommodate for the recent increase in tariffs. In the long-term the likelihood is that a portion of this increment will be passed on to consumers, otherwise these businesses will collapse. And this is something we have to critically consider.”

However, the Public Utilities Regulatory Commission at a press conference recently highlighted the factors that have necessitated an increment in these tariffs including the dollar to cedi rate, projected inflation rate and increasing electricity and water demands.

Electricity Cost and cost of the chemicals for water treatment were also cited as reasons for the tariff increases.

The PURC noted, it approved the increase after considering proposals from the Volta River Authority (VRA), the Ghana Grid Company Limited (GRIDCo), the Electricity Company of Ghana (ECG), Power Distribution Services (PDS) Ghana Limited, the Northern Distribution Company (NEDCo) and Enclave Power Company Limited (EPC).

The Executive Secretary of PURC, Maame Dufie Ofori explained that, “Tariff proposals for water also came from these stakeholders and in line with the commission’s regulatory oversight mandate, extensive technical and financial analyses of the proposals were undertaken.

“The key objective of the tariff review was to sustain the financial viability of the utility service providers as well as ensuring the delivery of quality service to consumers,” she explained further.

The last major tariff change  came in September 2018 when the PURC has ordered a 10.08 percent tariff reduction on prevailing rates for all customers of the Ghana Water Company Limited (GWCL).

Saturday, 22 June 2019

Ghanaians to pay 11% more for electricity

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Adnan Adams Mohammed

The Public Utilities Regulatory Commission (PURC) has approved an 11.17% tariff increase for electricity from July 1, 2019.

The increase is to help the recovery of total electricity revenue requirement for the regulated electricity market, PURC explained in a press release issued, last week.

This means that, the domestic and industrial consumers of electricity in the country are to expect an upwards adjustment in their bills by not less than 11% as per their threshold.

“This 2019-2020 Major Tariff Review Decision is the outcome of prudent cost review and effective monitoring undertaken by the Commission. Details of the approved electricity tariffs and the rationale for the decision will be published on the Commission's website,” the statement announced.

The statement further stated that, “In taking the above decisions, the Commission received and considered tariff proposals from stakeholders including the following utility service providers in the electricity and water sectors: Volta River Authority (VRA), Ghana Grid Company Limited (GRIDCo), Electricity Company of Ghana (ECG), Power Distribution Services (PDS) Ghana Limited, Northern Electricity Distribution Company (NEDCo) and Enclave Power Company Limited (EPC).

“In line with the Commission's regulatory oversight mandate, extensive technical and financial analyses of the proposals were undertaken. The key objective of the tariff review was to sustain the financial viability of utility service providers as well as ensuring delivery of quality service to consumers,” PURC said.

According to the Commission, as a major policy shift aimed at enhancing the competitiveness of Ghanaian industries, it has eliminated the Maximum Demand Charge on industrial customers (Special Load Tariff-SLT Customers). It is expected that this policy will result in some 5LT customers experiencing savings in their overall electricity bills.

The Commission has also received a tariff proposal from the Ghana Water Company Limited (GWCL) but is yet to announce its decision.

In February this year, the PURC announced that the new electricity tariff would take effect from July 1, 2019, following a mandatory major tariff review consultations in January this year.

In a press statement issued on February 27, 2019, the Commission explained that its decision to postpone the announcement of the tariff to July was due to critical emerging issues in the sector which are expected to affect the final tariff setting.

Among others, it cited the emerging issues are related to the planned relocation of the Karpowership Plant resulting in fuel switch savings from Heavy Fuel Oil (HFO) to Natural Gas.

The Commission also cited reductions in the price of natural gas are anticipated due to ongoing negotiations by the government as the reason for the postponement.

These matters are outside the purview of PURC but their outcomes are likely to have a measurable impact on the Commission's decision.

Saturday, 15 June 2019

Ghana’s fuel and utility prices set to anchor inflation for the rest of year

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By First National Bank Ghana Corporate and Investment Banking Unit
Following Ghana’s release of first-quarter fiscal numbers that showed the government missing the budget deficit target, it drew the attention of investors as to whether it represented potential threat to inflation or currency stability.

Ghana recorded a budget deficit of 1.6% of gross domestic product in the first three months of the year against a target of 1.4% of GDP. The wider gap was primarily due to the government's inability to collect 9.7% of the revenue target for the period. The budget shortfall would have been much wider but for the authorities also cutting expenditures by 9.6%.

Clearly the slight overrun suggests there's not much threat to inflation and currency stability. Beyond the fiscals, we observe that fuel prices and utility tariffs are poised to trend downwards, thus anchoring inflation for the rest of the year. 

Ghana’s inflation accelerated for a third month to 9.5% in April from 9% in January. The reading was in line with our forecast earlier this year that consumer price growth will quicken but remain below 10% in the first half. Apart from currency risks and any significant fallout from the budget in coming months, we think inflation in Ghana will once again close the year in single digit.

With the outlook on consumer price growth subdued, we think there’s potential for another interest rate cut this year from the Bank of Ghana, however, due to currency risks and the fact that the central bank should keep interest rates attractive, the cut won’t be aggressive.
The cedi lost 10.8% in the first quarter but gained 1.3% in the subsequent two months. The trend on the larger part shows that the depreciation that was sparked by the central bank’s surprise 100 basis point rate cut in January, is beginning to dissipate, more than indicates that the currency gained ground against the U.S. dollar.

Given the developments, we want to note that the central bank took the right decision later on by leaving the rate unchanged at 16% when it met on April 1 and May 27. A cut would have been a wrong decision while an increase would have been too aggressive on the inflation outlook.

Moving forward, we think that any significant pressure on the cedi is kept at bay by the monetary policy stance, the government’s willingness to align spending with revenue and a favourable international gross reserves position of $9.3 billion, equivalent to cover 4.7 months of imports.

In addition to a relatively stable currency, the outlook on fuel prices and utility tariffs is dampening inflationary expectations. Information from the Public Utilities Regulatory Commission indicates tariffs will remain unchanged in June and they may be reduced from July due to some thermal plants switching to use cheaper natural gas from the more costly heavy fuel oil, and the price of natural gas likely to come down, from ongoing negotiations between government and natural gas producers.
Also, crude prices are forecast to continue falling in coming months on a lengthening and protraction of the infamous international trade war. The impact of the trade war is being felt in slowing down of global economies, which means lower demand for crude. The Organization of Petroleum Exporting Countries (OPEC) and its friends is not able to help prices in the circumstances as it keeps postponing a meeting to review production cuts.

Brent futures for December 19 delivery have dropped to $60.9 per barrel from $66.1 per barrel at the end of March. Products for August 19 delivery also eased to $63.3 per barrel from $67 per barrel over the period.

Away from China, U.S. President Donald Trump last two weeks announced tariffs on all imports from Mexico. A meeting by OPEC and its friends initially set for April to review production cut agreement has now been pushed to June 25 and even that does not look certain because Russia, which barely met production-cut targets in the last four months continues to push meetings dates.

With lower crude prices, the Ghanaian economy is expected to gain a lot, being a net importer.

In summary, we applaud the government for making effort to stay the fiscal course as it promised. We note that the drastic personnel changes at the Ghana Revenue Authority announced on June 2 were intended to help the agency to meet its revenue targets, which when attained will go far to improve the economic conditions. With the direction of the key drivers of inflation, we conclude by inclining with the central bank that inflation may drift towards the midpoint of the target band of 6%-10% by the end of the year.In addition, given the inflationary outlook, another rate cut, albeit non-aggressive,
may happen in the next few months.

Monday, 4 March 2019

Power companies may bear GH¢700m extra cost as PURC fails to review electricity tariff

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Adnan Adams Mohammed

The skyrocketing cedi depreciation amidst decision by the Public Utilities Regulatory Commission (PURC) to maintain tariffs for the first half of this year is likely to cost power companies of not less than GH¢700 million due to expected high cost of production and maintenance.
“We need to save our utility services by giving them a cost reflective tariff. PURC’s tariffs review from March to June will cost the utility services not less than GH¢700 million which will collapse them and we will be going back to power rationing, a member of Mines and Energy Committee of Parliament, Edward Bawa has disclosed.

He is therefore calling on government to be sincere with Ghanaians and admit that the cedi depreciation and other production costs make maintaining the tariff detrimental to the sustainability of the energy companies.

The PURC was expected to announce new tariffs on February 1, this year, but delayed the announcement till last week when it decided not to maintain the prevailing tariffs till end of the second quarter of the year.

This looks a more detrimental to the operation of the power companies which in the past have cried of not meeting or making profit due to low tariffs paid by consumers for electricity. Ghana Grid Company Limited (GRIDCO) has been running at a lost for the past two years, recording a loss of GH¢118 .28 million and GH¢31.10 million in 2018 and 2017 respectively.

The Ghana Grid Company Limited (GRIDCO) reduced its tariff in 2018 from ¢5.0400 to ¢4.283 kilowatts per hour which affected the company. “Because of this particular reduction of about 17 percent, as we speak today, if you compare their losses in 2016 and 2017, you have a situation where in 2016, they were making a profit of about ¢59.13 million. However, “In 2017, they made a loss of ¢31.10 million and in 2018, they also made a loss of ¢118 .28 million”, the former consultant with the Energy ministry, Edward Bawa has said.

According to him, GRIDCO made a loss of ¢148 million as a result of exchange rate depreciation.

Considering the country’s economy with the depreciating cedi and other factors which affect tariffs, the decision is not a prudent one, the Bongo MP added.

However, according to the Commission, it took the decision due to critical emerging issues in the sector which are expected to affect the final tariff setting.

It said the emerging issues are related to the planned relocation of the Karpowership Plant, resulting in savings from switch from Heavy field oil (HF) to natural gas.

Additionally, it explained that reduction in the price of natural gas was anticipated due to ongoing negotiations by government.

It said: “These matters are outside the purview of PURC, but their outcomes are likely to have measurable impact on the commission’s decision. In the interim, the commission will also closely monitor the operations of Power Distribution Services (PDS) Ghana Limited, which has taken over the assets of Electricity Company of Ghana (ECG).

“This is to establish PDS’ actual operational cost and any other efficiency gains in the running of the distribution network by PDS.”

Saturday, 17 March 2018

Electricity tariff reduction won't affect supply – PURC

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Adnan Adams Mohammed

The Public Utilities Regulatory Commission (PURC) Technical Committee, has disbanded fears that the reduction in electricity tariffs could jeopardise the effective operations of the power companies thereby resulting in erratic supply of power.

Some energy experts, after the announcement of the tariff reduction, commented that, the unexpected size of the reduction might affect the effective operations of the power companies, since the reduction has effects on the financial positions of the companies.

However, Ismael Ejekumhene, Chairman of the Public Utilities Regulatory Commission (PURC) Technical Committee has said, at the moment, Ghana has 2,800mw of power reserved, and so, the country will not experience erratic supply.

Beginning 1 April, electricity consumers both residential and commercial, are expected to enjoy between 10% and 30% reduction.

The PURC, which announced the reduction early this month, said residential customers will now enjoy 17.5% reduction, whilst non-residential customers will enjoy 30% reduction.

The mines are also entitled to 10% reduction, with special load tariff customers also enjoying 25% reduction.

But, the Minority spokesperson on Energy Adam Mutawakilu has said Ghanaians are likely to experience erratic power supply and general operational challenges due to the reduction in tariffs.

“In their statement, they indicated that the capacity for AMERI has been reduced but when you asked them whether they had renegotiated the AMERI agreement, they wouldn’t respond; they said transmission losses had been reduced from 4 percent to 3.8 percent and when you asked how they did that they won’t respond,” Mutawakilu said.

Responding to this claim, Mr Ejekumhene, who is also the Executive Director for the Kumasi Institute of Technology & Environment (KITE), said: “Let us ask ourselves what caused the erratic supply. The erratic supply was because of generational problems, our generational capacity did not meet the demands of consumers hence the rationing.

“But as we speak, today we are even struggling to find use for some of the plants because installed capacity is over 5000mw. Current peak demand is around 2200mw, this is more than 50 percent reserved margin. We have signed several contracts on how to dispatch some of the plants that we don’t need at the moment.

“And so what will be the cause of insufficient supply again? Now we have enough capacity and we are even struggling to figure out what to do with some of it.”

Meanwhile, a former Deputy Power Minister John Jinapor is asking the Public Utilities and Regulatory Commission (PURC) to publish the gazette confirming the new tariff reduction before its implementation.

The PURC announced new adjustments meant to take effect from Thursday, 15 March 2018, but the ECG has said the reductions will reflect from 1 April 2018.

Mr Jinapor reacting to the development believes the tariff review is a deception.

In a statement he said: “Electricity Consumers were informed recently that their tariffs have been reduced significantly leading to jubilation and celebrations.

“Indeed the PURC, announced that effective March 15, 2018, residential customers will enjoy a 17.5% reduction, while non-residential customers will see tariffs cut by 30%. It went further to state that those in the mining sector would witness a 10% tariff cut, and 25% cut for Special Load Tariff Customers (LV, MV & HV).

“Ten days after the announcement, the PURC has failed to publish the gazette confirming these reductions as required before the implementation of these adjustments.

“More disturbing is the fact that the Electricity Company of Ghana has equally failed or is unable to publish the official Reckoner which provides details to confirm these reductions.

“For the records, the Reckoner which provides information on the end user tariffs for the various consumption bands must precede the implementation date of 15th March 2018.

“How is the ECG/NEDCO going to implement the revised Tarrifs without a Reckoner?

“How can a consumer confirm that indeed the announced reductions are reflected in their bills without a Reckoner to compare?

“Is the PURC misleading Ghanaians or is it the case that they presented the reductions to Ghanaians under duress?

“What are the true reduction levels if any, and what is Government hiding from the good people of Ghana?

“If indeed there has been a 17.5%, 30%, 10% and 25% reduction for the various consumer brackets, why are the Distribution Companies not publishing the details from the Reckoner to confirm these figures?

“Who is Interfering and/or Manipulating the ECG and PURC from performing their various legitimate roles?

“There is a wise saying that; ‘you may succeed in using deception to achieve your objective in the present but be certain it will always take it away in the future’”.

“Ghanaian deserve the right to know the authenticity or otherwise of these announcements and that must be done through the publication immediately.”

Businesses positive about electricity tariffs reduction

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Adnan Adams Mohammed

Business owners in the country have expressed joy and optimism over the reduction in electricity tariffs for both residential and commercial establishments announced recently by government through the Public Utilities Regulatory Commission (PURC).
The Private Enterprises Federation (PEF), Association of Ghana Industries (AGI) and Industry and Commercial workers Union (ICU) have qall said, it will bring a huge relief to businesses and the general public.

PEF, in a statement said, its members are very elated and it would like to express its profound appreciation to the government and the PURC for the reduction of electricity tariffs.

“The march towards advocating for the creation of conducive business environment to promote a profitable, competitive and sustainable private sector in Ghana has been given a huge boost by the government and we believe this will continue,” the statement, signed by PEF’s CEO, Nana Osei Bonsu, added.

Per the new electricity tariff regime recently announced by government, residential consumers will enjoy a 17.5 percent reduction and non-residential/ businesses 30 percent. Players in the mining sector will also experience a 10 percent reduction, with 25 percent savings going for Special Load Tariff Customers (LV, MV &HV).

However, the reduction in tariffs, which was supposed to be effective from March 15, 2018 according PURC, will now be effective from April 1.

This is because the Electricity Company of Ghana (ECG) explains that the implementation cannot reflect on the bills of consumers due to the monthly cycle billing system it uses.

The Managing Director of ECG, Ingineer Samuel Boakye-Appiah addressing a press conference, explained that “the monthly billing cycle of the prepayment metering system does not technically allow ECG to implement the review in the middle of the month”.

“Consequently, prepaid customers of ECG should note that the programming of the billing system will refund the reduction from the implementation date of the 15th to 31st March 2018 when they deposit cash or purchase electricity from 1st April 2018 onwards,” he added.

Ingineer Boakye-Appiah pointed out that, the prepayment system will detect aggregate purchase for consumers on the month of March, and then compute the reduction due them, from the effective date of 15th March to 31st March.

“This will be refunded to you on your next visit to vending point”.

He stated that the average percentage reduction , which is 15.5 percent for residential, 30 percent for non-residential, 25 percent for SLT and 10 percent for the mines, effective 15th March 2018 is only on energy consumption.

“Therefore the addition of statutory levies and other fixed charges will reduce the average percentage relief announced by the PURC”, he warned.

Ingineer Boakye-Appiah disclosed that ECG has catalogued all unit consumption and expected cost in a “reckoner” which clearly explains how the tariff is calculated and billed regardless of the type of metering.

“This will be displayed at all district offices and revenue centres nationwide to guide consumers on their electricity purchase”.

Reacting to a question, however, Ingineer Boakye-Appiah gave the strongest indication that the power distributing company will not hesitate to go back to the PURC if the implementation of the tariff reduction leads to losses.

But, PEF believes, among other things, the reduction will impact positively on operations of businesses by helping reduce operating and production costs, and by extension contribute to reducing the cost of doing business in the country.

The federation said it will also help improve the competitiveness of Micro, Small and Medium Enterprises (MSMEs) in the country.

“This bold action, coming on the back of progressive reduction in the rate of inflation, collectively constitute strategic efforts in the right direction that will inure to the benefit of Ghanaians by easing the cost of living and attendant improvement in livelihoods.

“PEF and its member associations and chambers encourage the government to make all efforts to bring down the cost of borrowing (interest rate) and also build a pool of long-term funding to support private sector investments,” it added.

Also, a statement issued recently and signed by Dr Yaw Adu Gyamfi, AGI President commended government and said, it is a welcome gesture, particularly coming on the heels of the recent stakeholder consultations.

Since the last tariff review in December 2015, high cost of electricity has often emerged as the number one difficulty facing businesses, according to the AGI business barometer reports.

Consultations on electricity tariff and calls on government to re-consider the current tariff levels have since been a major advocacy agenda for AGI and other groups.

“AGI is therefore happy that this concern has received government’s attention, taking cognizance of some of the factors we believe impact on energy pricing.

“While awaiting details of the gazetted tariffs in the coming days, AGI is optimistic the reductions will open up new prospects for businesses and inure to our competitiveness as a country. We look forward to the new tariffs taking effect from 15th March, 2018 with the right billing systems put in place to ensure smooth implementation.”

The AGI additionally acknowledged the bold step taken by government and the PURC towards the electricity tariff reductions and noted: “we hope to continue the dialogue to ensure utility rates for industry remain competitive.”

Similarly, mining companies are expecting a ten percent reduction in electricity tariffs.

Though the sector believes plans may have been distorted a little, the Director of Communications at the Chamber of Mines, Ahmed Naatogmah says they will still comply with the directive.

“Definitely you were expecting something to start so you would have planned for it but I wouldn’t say we are disappointed. Unless of course at the end of the process the reimbursement is still not done, then we can have some concerns to raise,” he argued.

Monday, 12 March 2018

We are working to improve efficiency - ECG assures

Image result for electricity tariff

Adnan Adams Mohammed

The management of Electricity Company of Ghana (ECG) has said, it was working hard to ensure reliable power distribution to avoid “involuntary job loses” for customers as happened during the power crisis.

He said electricity had become an important element in business development and growth and that efforts were being made to prevent job losses during power crisis.

Mr Samuel Boakye Appiah, Managing Director of ECG has claimed that, the lack of cost reflective tariffs, and issues of payment charges to some independent power producers had imposed heavy burdens on the Company’s finances, which threatened the power sector.

However, the Company assured that, it had engaged in renewal research projects to help improve the power system, ensuring effective and reliable power distribution towards the country’s rapid socio- economic development.

Meanwhile, in other news, while Ghanaians are waiting for March 15 to come so they can start to enjoy the anticipated reduced electricity bills.
The ECG in their proposal presented to the Public Utilities and Regulatory Commission (PURC) before the new tariffs annoucement revealed that, government will pay GH¢2.3 billion (GH¢2.364 billion) in 2018 for idle capacity.

This is to cover the capacity charge for 780 megawatts of idle capacity, which translates into 6,287 Gigawatts hours (GWh) from power plants which the ECG has contracted on bilateral contract basis.

According to ECG, the amount will be paid to three companies; namely, ASKA, Karpowership and CENIT, totalling 780MW.

These are contained in a PURC document titled ‘Draft 2018 major electricity and water review results and explanatory notes’.

PURC sources explained that a percentage of the capacity charge has been factored into the new tariff.

In addition, PURC charged the utilities to explore the possibility of selling the power from the excess capacity to neighbouring countries.

The PURC reduced electricity tariffs, it said, would take effect from next Thursday, March 15, 2018, and are expected to be reviewed again in 2019.

The percentage reduction for residential customers is 17.5 percent, with that of non-residential customers at 30 percent.

That of Special Load Tariff Customers (LV, MV & HV) is 25 percent, with the mines will get a 10 percent reduction.

30% electricity tariff reduction higher than expectations…but experts raise questions

Adnan Adams Mohammed

The Public Utility Regulatory Commission (PURC), announced last week that, starting March 15, residential and non-residential customers will enjoy 17.5 percent and 30 percent electricity tariff reduction respectively.

The announcement was made following extensive consultations with stakeholders including the government, Volta River Authority, Independent Power Producers (IPP) and civil society organisations.
However, these reductions are twice as much as the expectations of industry and other consumers.
Member Associations of the Trades Union Congress (TUC), as reported in an earlier edition of the Economy Times, demanded for 20 percent tariffs cut and expressed their appreciation of the government’s intention to reduce electricity tariffs this year as captured in the 2018 budget.
The various member labour unions of TUC said, given the negative impact of the existing high tariffs on economic activities and on the living standards of households, a significant reduction is in the right direction.

 “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).
The PURC, was initially against any tariff reduction due to the fact that the power utility companies had called for increase in tariffs, but surprisingly has announced such a high reduction for all categories of users. The utility companies cited foreign exchange losses as reason for seeking the increment, as most of their inputs are imported, while bills are paid in cedis as well as the effects of inflation. Indeed they claim they have been incurring financial losses.
This has kept some energy experts and general public conjecturing and asking, if there is something  somewhere along the power supply chain that the public is not been informed about, or if PURC simply acted under undue pressure from government to tow its line as it had promise in the 2018 budget that it wanted to reduce tariffs. However, the PURC has come out to clear such doubts that, they acted under undue pressure to announce the reduction.
PURC, in pursuance of section 3a and 16 of the PURC Act 1997 (Act 538) and in line with its electricity rates setting guidelines, in February 2018, held a series of consultations with stakeholders in the sector during which some of the service providers pushed for an increased in their allocations and received tariff proposals from the Volta River Authority (VRA), the Ghana Grid Company Limited (GRIDCo), Electricity Company of Ghana (ECG), Northern Electricity Distribution Company Limited ((NEDCo), and Enclave Power Company Limited.
The VRA request was in respect of 128.4% upward adjustment in the Bulk Generation Tariff (BGT). On the other hand GRIDCo suggested a 62.9% increase in the Transmission Service Charge (TSC). ECG and NEDCo proposed a 64.9% and 204% respective increase in the Distribution Service Charge (DSC).

Economy Times information gathered reveals that, PURC’s review and analysis of the tariff proposal submitted by the Utility Service Providers (USPs) indicated a total revenue requirement of GHC 58.138 billion to be recovered from the regulated electricity market.

The overall effect of the requested BGT, TSC and DSC increases is that there should be a 27.4% increase in Average End User Tariff – from GHp 63.7694/kWh to GHp 81.2309/kWh.
Notwithstanding the proposals by the Utility Service Providers, PURC indicates that based on the results of their own analysis and review, a 12.54% reduction in tariffs across board for all categories of consumers is possible. The parties contemplated achieving this, by first removing the 5% PURC benchmark provision for uncollectibles which has been part of the revenue requirements for the Distribution Utilities and second, by taking into consideration a 31.5% growth in customer population between 2015 and 2018.
Moreover, the African Centre for Energy Policy (ACEP) and Industrial and Commercial Workers Union (ICU) have lauded the Public Utilities Regulatory Commission (PURC) over the reduction of electricity tariff.

Describing the action as the best news ever in recent years, the two organisations said it will bring relief to Ghanaians and bolster businesses.

But, a member of Parliament’s Committee on Mines and Energy, Edward Bawa believes the PURC was pressured by government to reduce tariffs beyond realistic margins.

Mr. Bawa advised the PURC to withstand what he termed as “bullying” from government and put the interest of the country ahead of political interest with regards to the adjustment of utility tariffs.

“I appreciate the enormity of the task before the PURC. Particularly as the Government, led by no less a person than the President of the republic, has been breathing down the Commission’s neck to ensure that an electoral promise is fulfilled even if it is at the peril of the Power Sector. The Commission must be bold and stand up to the bullying government and place the long-term interest of the state above a political party’s interest,” he said in a statement.

He pointed out that, had reported that PURC may not be able to reduce tariffs by the 14% margin for industrial and residential users promised by President Nana Akufo-Addo, arguing that documents sighted by indicate that the PURC was instead pushing for a 12.54% reduction in the tariffs for businesses instead.

Although Mr. Bawa, said he is not against a reduction in the tariffs, he stated that it would be unfortunate for the government to mount undue pressure on the PURC in order to fulfill political promises.

He however admonished government to remove the taxes on utilities if they want to drive the costs for Ghanaians down, instead of putting the PURC in a tight corner.

“I believe in tariff reduction. This is because many Ghanaians are either receiving low incomes or are without any regular income. However, it is wrong for government to subject the utility sector to profiteering. My proposal is that government must scrap all levies and taxes on electricity as a means of improving access and making it affordable to all Ghanaians. This is the way to go instead of the attempt to eat into the revenues of the Utility Service Providers,” he added.

 PURC Director of Operations, Abubakar Jabaru however has explained that the renegotiation of some energy deals and the customer growth rate of the utility companies informed the decision.

"We looked at their presentations and [decided] to revise the benchmark from 4 percent to 3.8 percent," he said of the companies in a discussion with Joy News' Evans Mensah.

He said the government has shown the commitment to reduce tariffs and as utility regulator, the PURC believes it is time the benchmark is revised.

Although shocked by the reduction, ACEP Executive Director Benjamin Boakye said it will spur industrial growth and make Ghana competitive in the sub-region.

"It's good for competitiveness [and] we can expect many consumers coming onto the grid but what I do hope is that the utilities will pick up and up their game and be efficient in delivering their services," he said.

Welcoming the announcement as the best news in recent times, ICU General Secretary, Solomon Kotei said the cost of living in the country will go down as a result of the reduction.

But Ghanaians are going to take their calculators to keenly monitor how much would be knocked off their bills when implementation starts, he said.

"It is a huge relief to the society...we will not experience dumsor," he said, but he could not confirm whether their members will reduce the price of their commodities.
Mr Bawa, aware of initiat deliberations between the utility services providers and PURC, said notwithstanding the possible areas where the reduction will come from, a few questions need to be answered. Below are the questions: “Is this an attempt by PURC not to contradict the President who jumped the gun to announce reductions in tariffs for categories of customers?

“Without an appreciable shift in other variables, any reduction in tariffs can threaten the sustainability of the Utility Service Providers and has PURC, also taken into account the increasing dominance of thermal power generation in the overall generation mix?

“There are new thermal plants being introduced onto the grid, so  has PURC considered a possibility of increased distribution losses that must be accounted for?

He further asked, “How will a proposed reduction cater for a further strengthening of the Transmission network and send signals to customers to improve efficiency. And how will this reduction minimise GRIDCo’s risk exposure to energy volume variations?

“There is excess capacity comprising AKSA Karpowership and CENIT totalling 780MW. This translates to a total energy of 6287GWh. In monetary terms this constitutes about GHC 2.364 billion idle capacity payments. The consequence of not utilising this excess capacity is that government risks pilling debt as the guarantor of all the plants’ production capacity that will be available in excess of demand unless, this is absorbed in the tariff. Has this been considered in the PURC proposal of tariff reduction?
“Has the Commission equally factored in the increasing natural gas requirements?. PURC must pay attention to the fact that LNG price is going to vary depending on Brent Crude oil removing the element of price stability associated with gas.”
In their proposal to PURC before the recent review of tariffs and subsequent announcement of the new tariffs, 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.

“ The review process resulted in reductions in key utility cost. The reductions, which are based on PURC’s 2015 Gazetted Electricity Tariffs, are only on the energy charges and range from 10% to 30%. Maximum Demand and Service Charges remain the same as that of the 2015 gazetted tariffs,” a statement from PURC said.

It captured the market-driven and macroeconomic issues like price of crude oil, heavy fuel oil, distillate fuel oil, price of natural gas (from indigenous market and from WAPCo), Ghana cedi to US dollar exchange rate and inflation.

Further, it said that the basis for the reduction were the “removal of 5% PURC Benchmark Provision for Uncollectible, which over the years has been allowed as part of the overall revenue requirements for the distribution utilities, and also a 31.5% growth in customer population from 3,575,733 in 2015 to 4,702,735, by 2018, which would have an adverse effect on cost of production.

The PURC said it also took into consideration the impending Private Sector Participation (PSP) concession within the Electricity Distribution Sector.

The commission said the decision was arrived at after extensive consultations with stakeholders in the sector, as well as detailed analyses of proposals tendered in by companies in the power distribution chain.

“The PURC, after extensive stakeholders’ consultations, detailed technical analysis of utility tariff proposals and consideration of inputs and concerns of consumers, has approved tariff reductions for various electricity consumer categories, effective 15th March, 2018,” the statement said.

The commission, however, failed to reduce water tariffs.

“Review of water tariffs requires further consultations, and the commission is unable to announce a decision at this time. Water tariffs, therefore, remain the same and a decision will be taken in the coming weeks,” the statement said.

The commission received tariff proposals from the utility service providers in the electricity sectors; namely, Ghana Grid Company Limited (GRIDCo), Electricity Company of Ghana (ECG), Northern Electricity Distribution Company (NEDCo), Enclave Power Company Limited (EPCL), and the Ghana Water Company Limited (GWCL).