The Public Utilities Regulatory Commission (PURC) has sounded a dire warning that the Electricity Company of Ghana (ECG) is teetering on the edge of bankruptcy due to a deepening financial crisis.
In a letter addressed to the Presidency, the Ministers of Energy and Finance, and other key stakeholders, the Executive Secretary of PURC, Dr Ismael Ackah, outlined the severe challenges not only facing ECG but also impacting the operations of the Volta River Authority (VRA), Ghana Grid Company (GRIDCo), and the Bui Power Authority.
Dr. Ackah’s letter highlighted the urgency of the situation, revealing that ECG is struggling to meet basic financial obligations, including salary payments and administrative costs.
The letter noted that these operational difficulties persist despite attempts to bolster cash flow through digital collection systems, metering programs, and tariff hikes amounting to over 75% since September 2022.
The escalating crisis has led to concerns about the sustainability of Ghana’s energy sector, prompting PURC to call for immediate intervention to avert a potential collapse.
ECG’s Financial Distress Deepens
According to the letter, the financial health of ECG has reached critical levels, disclosing that in June and July 2024, ECG reported revenues of GHS 884.2 million and GHS 857 million, respectively.
However, PURC stated that these figures fell far short of the monthly $47 million required to meet obligations under the Cash Waterfall Mechanism (CWM), which ensures payments to key energy sector players, including the West African Gas Pipeline Company (WAPCo).
The letter further pointed out that the situation deteriorated further in August 2024, with ECG’s revenue plummeting below GHS 800 million, representing just 42% of the projected revenue needed to pay sector stakeholders.
The PURC’s compliance report also revealed a staggering GHS 860 million shortfall in payments owed to independent power producers (IPPs).
“This has resulted in Tier B companies, such as Ghana Gas, VRA, GRIDCo, ECG, Bui Power, and sector regulators, struggling to meet even basic operational costs, including employee wages and administrative expenses”.
Dr Ismael Ackah, Executive Secretary of PURC
Dr. Ackah warned that ECG’s financial difficulties, if left unchecked, could have severe ramifications across the entire energy supply chain. He emphasized that the issues at hand go beyond tariff increases and require profound structural reforms to address the systemic inefficiencies.
PURC Calls for Structural Reforms
Acknowledging the gravity of ECG’s financial plight, the PURC proffered a series of structural reforms aimed at stabilizing ECG and the wider energy sector.
Drawing on successful interventions from other countries, PURC’s letter outlined several comparative solutions that could serve as a blueprint for Ghana.
“Kenya Power and Lighting Company: Listed approximately 50% of its equity on the stock exchange, raising non-tariff funding for critical investments. Tanzania Electric Supply Company Limited (TANESCO): The Tanzanian government converted a government on-lend loan of 2.4 trillion Tanzanian shillings into equity.
“Since 2022, TANESCO has consistently declared profits, reducing both technical and non-technical losses to around 9% as of June 2024. Uganda’s Umeme Concession: Involved the private sector in metering, billing, and collection services, resulting in a collection rate of 98.7%”.
Dr Ismael Ackah, Executive Secretary of PURC
In light of the above, the PURC recommended that ECG consider similar innovative measures, but stressed that any intervention must be accompanied by stringent performance indicators.
It emphasized that key reforms should include drastic reductions in technical and commercial losses, enhanced fiscal discipline, and a clear focus on ECG’s core activities.
Additionally, the PURC called for a reassessment of ECG’s power purchase agreements and the development of an exchange rate regime that lessens the financial burden on consumers are critical steps toward long-term viability.
A Call for Transparency and Accountability
In its letter, PURC stressed the need for greater transparency in ECG’s operations. The Commission called for ECG to openly disclose vital information, including revenue collection figures versus CWM declarations, details of major contracts, monthly financial commitments, and data on both commercial and technical losses.
ECG’s involvement in non-core activities, which PURC believes contributes to the company’s financial instability, should be thoroughly reviewed and curtailed.
PURC also advocated for independent economic and technical audits to ascertain the true financial and operational position of ECG, underscoring that accurate data is essential for implementing meaningful reforms.
Exploring Privatization as a Solution
Perhaps the most significant recommendation from PURC is the suggestion that privatization be considered as a potential solution to ECG’s long-standing financial woes.
The Commission argued that privatizing parts or all of ECG could introduce the necessary capital and expertise to stabilize the company, ensure its long-term financial health, and secure the broader energy sector’s future.
According to Dr Ackah, ECG’s current situation demands decisive action from the Ministry of Energy, ECG, the State Interests and Governance Authority (SIGA), the Ministry of Finance, the Ministry of Public Enterprises, and other relevant stakeholders.
He stressed that a comprehensive examination of the root causes of ECG’s financial difficulties, combined with innovative restructuring and strict accountability, could pave the way for a sustainable turnaround.
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