The International Monetary Fund (IMF) has urged Ghana to undertake significant reforms aimed at enabling utility service providers to recover their costs effectively, ensuring reliable and sustainable power for homes and industries.
This call was made by Ms. Catherine Pattillo, Deputy Director at the IMF, and Mr. Luc Eyraud, Division Chief of the African Department at the IMF, during a press briefing held in Accra.
They emphasized the need to create a supportive environment for private sector involvement in expanding renewable energy usage. They also encouraged other African nations grappling with energy challenges to adopt similar strategies.
Ms. Pattillo highlighted that Ghana, like many other African countries, faces difficulties in recovering high costs through its current tariff system, which limits the operational capacity of utility providers.
“Sometimes, the setup of the energy sector does not provide the utilities the ability to have cost recovery from the charges that they make in order to operate profitably and efficiently and supply energy as needed.”
“We’re always discussing with countries on how to make sure that their energy sector, which often involves a number of State enterprises are well managed to recover their cost and provide services.”
Ms. Catherine Pattillo
Mr. Eyraud stressed the significance of adjusting tariff systems to enhance cost recovery, which in turn would support financial sustainability.
He also urged the government to implement mechanisms that would facilitate greater private sector involvement to increase Ghana’s use of renewable energy sources.
He mentioned South Africa as one country on the continent that had been doing well in the area of renewable energy, “by bringing in more private producers and reducing the barriers to enter into the market.”
Ghana Struggles with Outages and Debt
In recent weeks, Ghana has faced intermittent power outages mainly due to financial constraints affecting the procurement of fuel needed to operate certain power plants at full capacity. The government is also owing many Independent Power Producers (IPPs).
Nana Amoasi VII from the Institute for Energy Security (IES) emphasized the necessity of providing adequate resources to the Electricity Company of Ghana (ECG) to address the ongoing power supply disruptions.
“We expect the Ministry of Energy to coordinate and work with the Ministry of Finance to find alternative funding sources to deal with the challenge, thus, to procure fuel to get some of the power plants online.”
Nana Amoasi VII
The main problem with ECG indebtedness lies in the accumulation of unpaid bills by various entities, including government institutions. For instance, in March 2024, ECG issued demand notices to 91 hospitals across the country with outstanding bills totaling GH¢261 million.
If these debts are not settled, ECG faces operational challenges, which can affect its ability to provide a consistent electricity supply.
The Government of Ghana’s debt to IPPs is a complex issue involving the energy sector’s financial deficit. The government indicated plans to reach an agreement with IPPs on debt restructuring as part of measures to reduce this deficit.
The IPPs have threatened to shut down their plants unless a portion of the outstanding debt is paid, which amounts to about $1.9 billion. This debt has hindered IPPs’ access to working capital and their ability to finance essential inputs, affecting the overall power generation and supply in the country.
To solve the problem, the government is implementing a quarterly tariff adjustment review, which accounts for inflation, exchange rate depreciation, and changes in the generation mix, as well as a cash waterfall mechanism.
The government’s indebtedness to IPPs and the resulting financial challenges in the energy sector are significant issues that need to be addressed urgently to ensure the stability and sustainability of power supply in Ghana.
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