The implementation of the cash waterfall mechanism, intended to streamline revenue distribution in Ghana’s power sector, was expected to bring about a more equitable allocation of funds.
However, according to Dr. Nii Asante Board former member of the Public Utilities Regulatory Commission (PURC), the problems faced today were foreseeable from the very beginning.
He explained that how the Electricity Company of Ghana (ECG) handled revenue collection and distribution played a key role in the growing financial challenges the sector now faces.
Dr. Nii Asante provided insights into how the system deteriorated and highlighted key aspects of ECG’s financial decisions over the years.
The Shortcomings of the Cash Waterfall Mechanism
Dr. Nii Asante Began by outlining the inherent issues in the setup of the cash waterfall mechanism.
From day one, he suggested, it was clear that there would be challenges with its operation, especially regarding ECG’s role in determining how much of the revenue it retained and how much was left for distribution among other stakeholders.
Dr. Nii Asante’s analysis sheds light on the deep-seated problems within the revenue allocation process.
“What you’re observing was expected to happen from day 1 when the cash waterfall was set up. It’s not a surprise that matters got worse over time.”
Dr. Nii Darko Asante former PURC Board Member
This sentiment underscored the fact that the system’s current struggles were not sudden but rather the result of structural flaws in the revenue-sharing process that were never properly addressed.
ECG’s Dominance in Revenue Collection
One of the key issues, according to Dr. Nii Asante, is the way ECG positioned itself as the primary decision-maker in revenue distribution.
He explained that ECG would collect money from consumers and then decide on its own what portion of the revenue to keep before distributing the remainder to the other stakeholders in the power sector.
This led to significant imbalances in how funds were allocated.
“Historically, ECG has shortchanged the sector in terms of revenue. It collects from consumers and then it takes, if you like, what it wants, what it considers to be its share of the revenue, and then decides who gets what is left.”
Dr. Nii Darko Asante former PURC Board Member
This statement highlighted the ECG’s considerable influence and unilateral decision-making powers in a system where revenue should have been more evenly shared among all players.
The Discrepancy Between Collection and Retention
Dr. Nii Darko Asante provided a detailed example of how ECG’s approach to revenue collection and retention created problems for the broader power sector.
The unfair distribution of resources not only weakened the sector but also contributed to worsening financial imbalances over time.
“Now ECG was the sole arbiter deciding what its share of the revenue was. So, if they were supposed to collect 100 cedis and their share or their costs were 20 cedis, but they only collected 40 cedis. If they still choose to retain the full 20 cedis, that reflects their cost, then the whole remaining sector, which should have been sharing 80 cedis, is left with only 20 cedis to squabble over.”
Dr. Nii Darko Asante former PURC Board Member
This scenario highlighted the fundamental flaws in ECG’s handling of revenue and the consequences that followed for the other participants in the energy sector.
The Sector’s Decline Over Time
Dr. Nii Asante noted that the situation worsened over time, largely due to ECG’s continued dominance over revenue decisions.
As the shortfall between what was collected even what was retained grew, the other stakeholders in the power sector, including power producers and suppliers, found themselves grappling with financial instability.
“And this has been happening over many years,” Dr. Nii Asante stated pointing out the long-term nature of the issue. He further emphasizes how the financial challenges within the sector have progressively escalated, resulting in an unsustainable situation. The longer these imbalances persisted, the harder it became for the sector to maintain stability.
The Need for a More Equitable System
Dr. Nii Asante’s analysis of the cash waterfall mechanism raised critical questions about the fairness and effectiveness of the system in its current form.
His observations suggested that without a more transparent and equitable distribution of revenue, the energy sector will continue to face financial challenges that will only worsen over time.
The power sector is essential for the economy and public well-being, making it crucial to address these issues before the situation becomes irreparable.
Dr. Nii Darko Asante’s commentary provided a clear and sobering perspective on the revenue distribution issues plaguing Ghana’s power sector.
His critique of the ECG’s approach to retaining more revenue than is fair, combined with the worsening financial conditions of other stakeholders, offers a crucial insight into the structural problems of the cash waterfall mechanism.
Dr. Nii Asante’s warning that these problems were expected from the outset signals the need for a more balanced and transparent system to ensure that all players in the power sector can operate sustainably.
“It has been progressively getting worse,” Dr. Nii Asante concluded, reinforcing the urgency of addressing these issues. Without reform, the sector’s continued decline seems inevitable, with potentially severe consequences for both the economy and the public at large.
Dr. Steve Manteaw Defends Cost-Benefit Justification for ECG Agreement
Meanwhile, The Leader of the Alliance of Civil Society Organizations working on Extractive, Anti-Corruption, and Good Governance, Dr. Steve Manteaw, has emphasized the importance of evaluating both the cost and benefit sides when assessing the impact of agreements concerning the Electricity Company of Ghana (ECG).
He highlighted the need to scrutinize how much revenue the ECG has been able to generate post-agreement and how that compares to the cost incurred by the state. Dr. Manteaw underscored the necessity of considering international best practices and benchmarking in such analyses.
Revenue Growth Justifies the Agreement
Speaking on the topic of the ECG agreement, Dr. Manteaw noted the significant increase in ECG’s revenue since the inception of the deal.
“If ECG was doing something in the region of 700 million cedis monthly before the inception, and now they are doing somewhere in the region of 1.3 billion cedis, then, of course, they’ve added about 600 and million cedis to the revenue.”
Dr. Steve Manteaw Leader of the Alliance of Civil Society Organizations working on Extractive, Anti-Corruption, and Good Governance
This revenue growth, according to Dr. Manteaw, supports the justification for the agreement.
“For me, if you were even taking 10% of the added revenue, that gives you about 60 million cedis,” Manteaw explained.
Uncertainty on Cost Details
“I’m not too sure what the cost has been in terms of the real figures, but I’m saying that look, there’s been a certain jump in revenue which justifies the deal.”
Dr. Steve Manteaw Leader of the Alliance of Civil Society Organizations working on Extractive, Anti-Corruption, and Good Governance
He concluded by reiterating that, before the agreement, the ECG had not been performing well financially, and the recent jump in revenue is a testament to the benefits of the deal.
Dr. Manteaw emphasized, reinforcing his belief in the positive impact of the arrangement.
Dr. Manteaw’s comments highlighted the need for a thorough cost-benefit analysis in evaluating agreements of this nature. While the cost remains unclear, the substantial increase in revenue stands as a strong indicator that the ECG agreement has had a positive financial impact.
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