Ghana’s looming national black-out

Information reaching Goldstreet Business at the weekend that the Independent Power Producers operating in Ghana have given Power Distribution Services, their off-taker seven days to pay up its US$300 million debt owed them is most alarming and must be taken with the utmost seriousness.

The IPPs are mostly private entities (with the notable exception of those with investments by the state controlled SSNIT) and do not owe any obligation to Ghanaians to keep the lights on when their activities are not being rewarded with the income due them.

The obvious question now is: how did Ghana get into this situation?

This newspaper does not pretend to know the answer. The unsavoury truth is that the incumbent government, like the various political administrations that have preceded it, has tended to disingenuously engage in half-truths and diversionary claims when explaining the problems of Ghana’s energy sector to its citizens. The most common strategy in this regard has been to attribute power shortages caused by financial problems – which have tended to be the primary reason for power shortages in the past – to technical bottlenecks, which only power sector specialist engineers could possibly authenticate.

This time though, the cause of the looming crisis is right out in the open – and it is entirely financial. Simply put, PDS has failed to pay the IPPs what it should have under the terms of the Power Purchase Agreements which it inherited along with the assets and activities of the Electricity Company of Ghana in March this year when it commenced its 20-year concession.

While we do not pretend to know why this is so – although we can and will hazard an enlightened speculation – we certainly know that if the IPPs carry out their threat, Ghana will have a power crisis, the likes of which this country has not experienced in decades. IPPs are responsible for nearly half the dependable power generation in Ghana and this figure goes even higher if only the southern half of the country, where the population centres and productive industries are mainly sited, is considered.

It would be easy to blame PDS for this situation. The most convenient argument is that a foreign owned,  private sector entity has taken over from the state and in order to maximize profits it is ignoring its responsibilities.

However, before jumping to this conclusion it should be necessary to obtain more information. This newspaper reported a few months ago that in order to activate the PDS concession several financial issues relating to both debts being owed ECG by the state and the economic viability of tariffs applicable along the power sector supply chain, which were supposed to have been resolved before the concession commenced, were left to be resolved after it had started.

We now speculate that these are part of the financial problems that PDS has had to cope with, and which have contributed to its indebtedness to the IPPs. Indeed, new tariffs, which were supposed to take effect at the beginning of this year only were announced a few days ago and instructively, the 11.17 percent average increase in electricity tariffs fall far short of the 39 percent rise that some technical experts in the sector claim is required to restore economic viability along the supply chain. Besides this, being a private entity, PDS does not have access to the financial injections the state has regularly given ECG in lieu of payments for power provided.

These however are speculations, made in the absence of hard facts which government has customarily been reluctant to provide.

We end this editorial by returning to certainty: enough of sweeping the financial problems in the power sector under the carpet. Each time this is done they simply fester until they can no longer be hidden and by that time, the problem would have grown to crisis proportions.