This blog topic is to justify the need for private participation in Ghana's power sector as it is currently bedeviled with power shortages, slow economic growth, operational and political challenges. There is a cocktail of challenges that sets the scene for the justification of private participation. However, without the right ingredients - economics, politics and appropriate institutions to ensure transparency and accountability, this will only remain a mirage. My intention is to commence a dialogue among all stakeholders - Government, Private Sector and Civil Society to ensure that the key ingredients for success in introducing private participation benefits all.
This discussion aims to highlight the centrality of fixing the problems in the power sector in Ghana as a path to ensuring that Ghana’s economic growth ambitions are not stymied by a lack of electricity. The problems and their solutions are well known; what has been lacking is decisive and timely decision making to break the tendency to adopt reactive measures that often come too late when proactive measures would have led to better outcomes.
Ghana’s Power Sector
Up to 2012, the Ghanaian economy was achieving sustained growth in excess of 6% annually, with ambitions to raise this further. At the end of 2013 Ghana was touted by the as the star of Africa with an unprecedented GDP growth rate of 14% driven by the emergence of the oil find. This growth rate declined to 7% in 2014, 4.5% in 2014 with 2015 looking quite bleak bedeviled with the mot prolonged power rationing exercise in the history of Ghana.
Despite these strides in economic growth the power supply has not matched the rate of economic growth leading to historical power shortages with its adverse effects on the economy anytime the water levels of the hydro plants fall to critical levels due to lack of rains. The supply mix has hydro accounting for 50% of total with other hydrocarbons.
Very High Demand
A major, avoidable power crisis in 2006–7 was estimated to have cost the country nearly 1% in lost growth of gross domestic product during those years. Five years later, Ghana once again was plunged into power shortages, which also could have been avoided if lessons from the past had been learned and decisions taken to ensure that adequate dual-fuel generation capacity was built. The recent power shortages, which arose from a cut-off of imported gas from Nigeria, could have been mitigated if Ghana’s own gas from the Jubilee field had been developed in a timely manner in parallel with oil production that began in 2010.
Large investments are needed to meet expanding demand. Ghana needs to invest over US$4 billion in the next 10 years to make up for the past investment deficit and upgrade its power sector infrastructure. Generation, transmission, and distribution all need substantial upgrading, and the necessary investments must take place in a synchronized manner.
Current Challenges Requiring Private Participation
The power sector faces two challenges arising from forces external to the sector: the lack of adequate and secure quantities of reasonably priced fuel for power generation, and the lack of adequate public funds to finance the sector’s investment requirements. These challenges are aggravated by the poor technical and financial performance of the largest distributor - Electricity Company of Ghana (ECG), the major supplier Volta River Authority (VRA) and the only transmitter - the Ghana Grid Company Limited (GRIDCo). Operationally, ECG, the entity responsible for ensuring the financial sustainability of the downstream entities (GRIDCO, VRA & other IPPs) is bedeviled with serious challenges – Total Losses at 23-26%, with commercial losses accounting for almost 70%, very high receivables with the biggest culprit being the Government of Ghana owing almost $400M, serious political interference as with the entity having 12 Managing Directors over 22 years (Average MD tenure < 2 years) and a polarized workforce in line with the two major political parties. This cocktail of challenges has puts the only off-taker’s “ability-to-pay” in question as we have a lot of Independent Power Producers, IPPs who have signed Power Purchase Agreements (PPAs) but are unwilling to invest as the economic risks are too high to bear and the government of Ghana is not willing to absorb 100% of this risk which is a requirement from the IPPs.
In recent times, and despite these seemingly obvious challenges in the sector, the public has had to bear unprecedented electricity price increases, not matched with increase in income, approved and sanctioned by the regulator in a bid to eliminate all subsidies leading to serious public outcry as the power shortages continue unabated in this current era of economic slowdown. Industry and the public understand the necessity of the increment and are willing to pay but what they have always demanded is availability and reliability of supply which has not been met. This has led to increase operational expenditures for most industries leading to massive lay-offs with small and medium-sized businesses being the worst hit.
Perception of lack of transparency. The Government, in recent times has announced the introduction of private participation in the distribution sector, especially ECG but this has been received with skepticism from the public as previous experiences was not transparent and others failed woefully.