Killer Water, Electricity Bills Won’t Go Away

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…President Tells Ghanaians

Ghana’s energy sector, is currently in a “heavily indebted” state, President Akufo-Addo has said, suggesting that the water and electricity bills, which he and his party had condemned while in opposition, won’t be reduced as promised.

The New Patriotic Party’s (NPP) key 2016 campaign promises to Ghanaian electorates was; the scrapping of the energy sector taxes.

The Manifesto had promised: “we shall abolish nuisance taxes” but realities of governance have hit the Akufo-Addo government and it has moved from the promise.

But addressing Parliament in his first state of the nation yesterday, the President said that, the sector has enormous problems that must be addressed urgently.

“We have inherited a heavily indebted energy sector with a net debt reaching $2.4bn as of December 2016. I have to point out the alarming facts that $800 million of this debt is owed to local banks which threaten their stability and that of the whole financial sector. Indeed, the huge indebtedness of the energy sector constitutes the single major hurdle to Ghanaians enjoying reliable and affordable electricity supply,” Akufo-Addo said.

Two prominent ministers in the Akufo-Addo government are in public disagreement over one of the NPP 2016 campaign promise to Ghanaian electorates; the scrapping of the energy sector taxes.

While the Energy Minister, had announced an ambitious plan by the NPP government to reduce the taxes on the energy sector when he appeared before Parliament’s Appointments Committee on Monday, January 23, 2017, the Finance Minister, has given indication they are needed to “extinguish” the web of debt in the energy sector to protect the banking sector.

Addressing the press late Sunday evening, the Finance Minister, Ken Ofori-Atta spoke of avenues through which the new government will be dealing with the mountains of debt in the energy sector, mentioning the levies as one of the measures.

This is sharp contrast to Boakye Agyarko’s promise that the Akufo-Addo’s government will revise the energy sector levies.

The energy sector levies based on the Energy Sector Levies Act (Act 899) passed by the erstwhile Mahama government were introduced in 2015, as part of measures to raise funds to settle the indebtedness of Volta River Authority (VRA) and Electricity Company of Ghana (ECG) to some commercial banks in the country.

President Akufo-Addo, is the latest to suggest the taxes won’t be reduced as he noted that the country’s power supply had improved significantly since November 2016, however the sector’s problems “are far from over.”

Akufo-Addo, bemoaned the high cost of electricity in the country, which he said greatly affects businesses.

“The current state of the energy situation in our country is unsatisfactory. The problems are enormous; but we must and we will confront them,” he said.

Stating some interventions he will introduce to address the challenges, the President said he will prioritize transparency in the sector by introducing a new tariff policy to reclassify consumer categories.

“We will also reduce significantly some of the levies and taxes on the tariff. At the end of 2016, ECG had signed 43 power purchase agreements, while a further 23 were under discussion. The Government is conducting a review of all the power agreements entered into by the previous government in order to prioritize, renegotiate, defer or cancel outright if necessary in the national interest,” Akufo-Addo said.

He noted that, the government was drawing a national electricity master plan to list the Volta River Authority (VRA) and the Ghana Grid Company (GRIDCo) on the stock exchange.

The president said his government will insist on open and competitive bidding for power capacity procurement agreements.

“…This will not only reduce the cost of power projects and ensure value for money; but also address the problem of unplanned procurement.”

He added that, government will review the Renewable Energy Act to provide further incentives to attract the private sector to invest in the sector.

The Energy Sector Levies Act (Act 899), seeks to harmonise energy sector levies and taxes on petroleum products, with proceeds from the levies used to ringfence the various energy sector legacy debts. But the NPP government had campaign on the law promising extensive cuts to what it termed “nuisance taxes,” to “recover the momentum of our economy.”

The NPP, while in opposition, decried the levies which saw fuel prices jump by at least 27 percent, a little over a year ago. Following public outcry, the opposition party promised it would scrap the levies if it won the elections, in a bid to provide relief to consumers.

Notwithstanding the fact that the previous government had used the proceeds from the energy sector levies to secure a deal with creditors of the SOEs, the opposition party maintained its stance on the biting effects the levies would on businesses and consumers.

But the Finance Minister at the press conference has changed position explained, however, that his ministry is aware of the attendant challenges the SOEs indebtedness have on the balance sheets of the banks and the rising non-performing loans ratio.

“On the banking industry, we have just gone through a period in which the Ministry did not have a clear bird’s eye view of what the SOEs were doing…We need to be engaged in any of these commitments that these SOEs have or sign…So, the banking industry we have ESLA [Energy Sector Levies Act] etc. I think those will gradually move to extinguish those debts,” the Minister said.

Mr. Agyarko had believed that the power challenges facing the country are largely financial. He was also optimistic the new plan by the NPP should create a more flexible system to deal with the matter.

“We will revise the energy sector levies for the simple fact that if we rely on the present tax fiscal space to deal with this matter, we will not get very far. If we rely on the local banks who have exceeded their single line obligors in order to reify the problem we have we will not get very far,” the Minister Nominee had told the Appointments Committee.

“We will start by reviewing the levies downwards and as we finish the financial engineering of the non-recourse approach then it may be necessary not to have it altogether or use it as part of the dedicated stream of revenues to service the ten to fifteen year tenure,” Boakye Agyarko added.

The Energy sector levies were introduced in December 2015.

The primary aim was to among others, raise revenue to meet the increasing debts owed major institutions in the energy sector, that is the Volta River Authority (VRA), Ghana Grid Company (GRIDCo) and the Electricity Company of Ghana (ECG).

The Mahama government subsequently in July 2016 restructured the 4.4 billion cedis (1.4 billion dollars) debt with the major banks owed in the country.

As part of the arrangements, the government together with the Bank of Ghana agreed to create an escrow account to transfer 250 million cedis to settle part of the debts owed to 12 banks in the country.

In addition, the dollar component was reduced from 11 percent to 8.5 percent, while the cedi component was reduced from 30 to 22 percent.

Government has since made two separate payments to the affected banks.

While lauding the current plan embarked on by the Mahama government, Mr. Boakye Agyarko described the move as woefully inadequate, explaining that the decision to adopt non-recourse financing should improve the situation.

“The restructuring that is currently being done, in my estimation is woefully inadequate, it’s a good intention but woefully inadequate, that is why I used the word non-recourse financing so that we can get the space not on the books of records of the agencies and the sector players or the local banks.

“As I review the single line obligor of local banks I am frightened that the banks mentioned herein are all on their way to receivership and we can’t allow that to happen in an economy.” he concluded.

 

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