Gov’t settles GHc720m MDA debt to ECG

…as Meralco prepares to invest US$586m

  • takeover begins Feb 1

The final major hurdle left to cross before the concessionaire agreement through which a private company, Meralco, can take over the management of the Electricity Company Ghana, has been overcome.

Instructively, government has settled its GHc720 million debts owed ECG which will therefore put the state-owned electricity distributor on the requisite sound financial footing with regards to liquidity and cash flow, for Meralco to begin fulfilling its 20 year management contract.

Julius Kwame Kpekpene, Chief Operating Officer at the United States government agency, Millenium Development Authority MiDA, which is implementing the Compact Programme for reforming Ghana’s energy sector, explained that the payment is part of conditions to implement the compact.

“By December 2017, government had made payment of GHc720 million to the ECG and we have a letter to that effect, though the commitment was for the debt to be paid in five years,” he noted. The bullet payment of the debt therefore puts ECG on a better financial footing at the commencement of the concessionaire agreement than was originally envisaged by MiDA and Meralco.

The amount paid, Kpekpene said, covers power consumption for Ministries, Departments and Agencies including streetlights consumption among others.

“If there is any other accrued debt, then we don’t know about the status; but what is owed under the compact has been paid” he stated.

Kpekpene however explained that other consumptions such as ECG’s debt to the state-owned Volta River Authority and GRIDCo are separate from direct consumption by government and its agencies.

This news will definitely be good for the ECG and its new management company, Meralco, which is preparing to take over the company in about two weeks’ time,  being that, an adequate amount of liquidity can now be relied on to commence the operations of ECG under Meralco’s management.

Meralco’s takeover

Meralco Consortium will officially take over the ECG on February 1, 2019 with the company expected to bring in new investment to the tune of US$586 million.

It is anticipated that a chunk of this money will be invested in implementing measures that will curb power losses and power theft.

“That is what Meralco is expected to do. To reduce the losses, improve efficiency and invest to ensure that the business is viable and they’ll do that”, Kpekpene assured.

Meanwhile, the minority in Parliament is predicting a possible 60 percent hike in electricity tariffs as Power Distribution Services (PDS) Ghana Ltd, – the special purpose corporate vehicle being used by Meralco –  gears up to take over ECG.

Meralco has majority shares in PDS.

Minority Spokesperson on Energy, Adams Mutawakilu explained; “because ECG’s debt to its service providers, including GRIDCo, VRA among others is ballooning towards GHc2 billion, the new manager will be forced to raise tariffs to survive.”

Ironically, this debt is largely the result of the significant reduction in electricity tariffs applicable to various types of customers – ranging from 17.5% to 30% – effected in April last year, despite warnings from the state owned corporations along the electricity generation, transmission and distribution supply chain, that the cuts would cause them significant financial losses.

While the impending tariff increases are unlikely to be as high as the politically driven predictions of the Parliamentary minority predicts, senior government officials in the energy sector now admit that ECG is running at a loss and this needs to be reversed by significant tariff hikes.

ECG needs an average 37% tariff hike just to break even and when debt amortization and capital investment needs are taken into consideration the requisite tariff hikes would be higher still.

However, it is expected that under Meralco’s management, better managerial and technical operational efficiency should allow for significant tariff reductions for consumers, and the increase in the use of domestically generated natural gas as feedstock for thermal power stations should lower power generation costs as well, enabling further tariff cuts for consumers.

By Wisdom Jonny-Nuekpe