PDS, gov’t move to resolve power sector financial stress

…financial problems confirmed as a major reason behind outages

As energy sector SOEs continue to pose significant fiscal risks, major financial pressures from inefficiencies, weak governance and inadequate tariff structures continue to contribute to the energy shortfalls currently afflicting businesses and households in the country.

Despite assurances from government that the ongoing power outages – which have worsened over the past couple of days – are simply the result of the connection of gas generated from fields offshore of western Ghana to a pipeline that can carry it to thermal stations in the eastern half of the country, doubts continue to rise among the public, particularly business owners who are suffering significant production disruptions.

Available information to the Goldstreet Business indicates that there are several challenges which are yet to be resolved even as the concessionaire, Power Distribution Services, has taken over the assets and activities of Electricity Company of Ghana, commencing a 20-year concession arrangement which started on March 1. Crucially, these challenges were meant to have been resolved prior to the start of the concession, but this has not happened, meaning PDS and government are having to hammer out resolutions to crucial issues even as PDS adjusts to its new mandate.

Key here is that though various attempts have been initiated at debt restructuring and repayment procedures, it is still evident that the country’s energy sector agencies would have to do more to improve the sector’s financial situation, which is direly affecting the cashflows generated by PDS.

Ghana’s authorities have expressed confidence that the concession would help significantly improve the financial performance of the overall sector through enhanced transparency and accountability.

But some crucial “conditions precedent” for the concession have been converted to “conditions post” that remain to be resolved, including the establishment of a regulated electricity tariff consistent with sector viability.

With a new tariff, that will cover losses currently being incurred along the power sector value chain, expected to be announced by July 1, this year, authorities are also working with the World Bank on a comprehensive Energy Sector Recovery Program (ESRP) to ensure the sector’s financial viability and plan to reduce the large stock of intra-SOE and government payables in the energy sector, following the completion of an ongoing external audit of the payables.

Cashflow problems and inefficient operations are still adversely affecting electricity sector SOEs and the gas sector. The core electricity SOEs (the transmission company GRIDCo and power supplier VRA) have generated a negative average return on equity since 2014.

Electricity tariff cuts in March 2018 (of up to 30 percent) have added to these financial problems and, consequently, to fiscal risks.

In the gas sector, the off-take agreement for gas supply from the offshore Cape Three Points field, which entered into operation in October 2018, requires Ghana to make monthly payments equivalent to 0.7 percent of GDP annually. Government is hard put to meet the bills.

Consistent assurance from Power Distribution Services (PDS), that the country will no longer endure an irksome power outage until further notice has yielded little results because of the real underlying challenges.

The erratic power supply problem, locally referred to as ‘dumsor’ has again resurfaced this week once again raising doubts as to whether the ongoing gas pipeline tie-in is the only cause of the ongoing outages.

On Friday April 5, 2019, the electricity distributor released a statement, notifying the general public that it had suspended its load management programme, citing ‘sufficient and adequate generation’ as reasons.

The statement said, “GRIDCo has directed PDS to suspend with immediate effect the load management programme until further notice because there is sufficient generation.”

However, uncertainties among the general public and the woes of businesses regarding regular power supply are rising as the problem persists. While the self-imposed deadline for completion of the gas tie-in expired last week end, the outages actually worsened over the following days.

On Monday, April 15, most parts of the capital experienced unannounced outages, lasting more than two hours. As of yesterday, Tuesday, April 16, 35 suburbs in Accra, were off the national grid for seven hours, making small scale businesses to suffer significant production cutbacks.

The recent situation, however gives impetus to assertions by several energy sector and policy think tanks including the Institute of Energy Studies (IES) African Centre for Energy Policy (ACEP) an IMANI Ghana that the problem is financial rather than technical.

Indeed, IES has since February this year, warned Ghanaians to brace up for more such outages which would escalate in the future.

The IES has insisted that explanations being given for the outages do not quite add up.

Diversion works on the 330Kv Aboadze-Tema transmission line along the Pokuase Highway, was initially cited as the cause of the ‘dumsor’ which began in March. Though the diversion works were successfully completed, the problem still lingered.

On April 1, Ghana Gas’ CEO Dr. Ben Asante assured Ghanaians that the outages would stabilize once his company completed a tie in of pipelines from the Western part of the country to the Eastern part, giving a 12-day timeline to fix the problem. On April 8, Ghana Gas announced that it had completed the tie-in ahead of schedule, with expectations that the power situation would stabilize.

As of yesterday, businesses and the general public were wondering what excuses would be tendered again as the outages have reemerged.

Meanwhile, ACEP has called on the government to publish load shedding timetables to enable the public and businesses to plan their schedules.

ACEP’s Executive Director, Benjamin Boakye, last month, said the current power situation is symptomatic, citing financial constraints on the part of government.

By Wisdom Jonny-Nuekpe