November 6 and 7,2023, on TV3 morning programs “New Day” and “Good Morning Ghana” on Metro TV respectively, the Hon. Deputy Minister for Energy, Andrew Agyapa Mercer (MP) trying to give reasons for the Ghanaian economy tail spinning into chaos, stated that the Banking Sector clean-up, COVID 19, Russia-Ukraine war and excess capacity payments are to blame for our woes.
The essence of this write-up is to state the facts concerning the excess capacity payments, argue that excess capacity payments cannot be the main cause for the energy sector debt payments, and that there are different reasons why the energy sector debt has become a major risk for the Ghanaian Economy.
The government has always argued that power generation capacity in Ghana was more than demand and because of the “take or pay” power agreements signed under the previous NDC government, the country is forced to pay for excess capacity. Huge figures have been bandied about as to the level of debt occasioned by excess capacity. E. Mahamudu Bawumia, the current Vice President and Flagbearer for the NPP in the 2024 elections was quoted as saying the government had paid about GHS 21 billion to IPPs as a result of excess capacity.
Fortunately, during his censure hearing in Parliament, the Minister of Finance indicated that the government paid a total amount of GHS 31 billion (USS3,026.63 million) over the period (2017-2020) to Independent Power Producers(for power purchased and consumed and for shortfall in capacity payments), Fuel suppliers, and excess capacity charges. Out of the GHS17.31 billion paid, an amount of GHS10.01 billion was paid to power producers and GHS 4.99 billion for excess capacity. The remaining amount of GHc7.31 billion was payments to fuel suppliers (gas suppliers and ICO and HFO suppliers). This simply means that the energy sector payments included other elements aside from excess capacity charges.
The most pertinent question to ask is what these payments are and how they arise.
PAYMENTS TO IPPS
Payment to IPPs simply means the energy cost charged by the IPPs. This refers to the price that ECG pays for the actual electricity purchased. This cost covers the expenses associated with generating electricity, which includes Generation Costs, Ancillary Services Costs, Administrative and Overhead Costs, and Profit Margin. These are usually captured in the Power Purchase Agreements (PPAs) that are approved by the PURC and thus factored into the End User Tariff.
Unfortunately, every year, the Electricity Company of Ghana loses revenue of over US$180 million because consumers fail or refuse to pay their bills. Eighty percent (80%) of this amount, US$150 million, constitutes the indebtedness of Ministries, Departments, and Agencies (MDAs) to ECG due to both suppressed budgetary allocations for their energy use and a blatant refusal by some MDAs to pay for their energy cost. The current government appears to have abandoned the laudable initiative of the Mahama government which ensured a continuous replacement of post-paid (credit) meters with pre-paid meters. This was geared towards reducing the commercial losses of ECG caused by the refusal of customers to pay their bills.
The overall technical and commercial losses in the power sector as of now are about 34%. In monetary terms, it amounts to $600 million annually.
The altruistic quest to improve the technical and operational efficiency of ECG motivated the NDC administration to opt for the Millennium Challenge Corporation’s Compact II. As a result, the Government of the United States of America injected about $300 million into Ghana’s energy sector. But unfortunately, the United States canceled an additional $190 million which was expected to address the technical challenges of EC This huge financial loss was due to the present Government’s handling of the compact. A simple procurement process that transitioned ECG’s operational functions to PDS on March 1, 2019, was botched due to cronyism, nepotism, and an unbridled quest for self-gain. The consequential loss was easily avoidable and thus unforgivable.
Consequently, the technical and commercial losses have hindered ECG’s ability to account for the power it purchases. They therefore are unable to pay all their bills to the electricity providers. This explains why the state, the shareholder, steps in to take care of the shortfall capacity payments.
PAYMENTS TO FUEL SUPPLIERS
Payments to fuel suppliers in electricity generation are a significant component of the operational expenses for power generation companies. These payments involve compensating suppliers for the various types of fuel used in the generation process. The specifics of these payments can vary, but they typically include fuel purchase costs, transportation costs, contractual agreements, and price fluctuations. These payments are essential for maintaining a consistent supply of fuel to generate electricity. The structure and terms of these payments depend on the type of fuel and individual contractual arrangements. This cost is again factored into the tariff for consumers to pay and therefore catered for by the End User tariff.
EXCESS CAPACITY CHARGE IN “TAKE OR PAY AGREEMENTS”
In a take-or-pay agreement in electricity generation, an excess capacity charge is a provision that requires the purchaser (typically a utility e.g. ECG) to pay for a certain amount of electricity capacity, even if they do not consume or “take” that amount of electricity. This provision is often used to guarantee revenue for power generators, especially in situations where they have invested in the construction of new power plants or capacity expansion. On this, Peter Terium, a former CEO of RWE, a large German utility company said: “You don’t pay the firemen only when there is fire”. It can be seen as a form of insurance for the generator against revenue fluctuations and dispatch risk due to changes in electricity demand.
Take-or-pay agreements are common in long-term energy agreements worldwide and the specific terms, including the excess capacity charge in the case of electricity, are typically negotiated as part of the contract. Indeed, under the NPP government led by President John Kuffour the Power Purchase Agreement between Asogli Power Plant and the ECG was a “take or Pay” agreement. More interestingly, on September 24, 2019, under the current NPP government led by President Nana Addo, the Ghana National Petroleum Corporation signed a “take or pay” agreement with the Tema LNG Terminal Company to off-take liquified natural gas for our power plants. These two contracts are examples that speak to the fact that excess capacity charges a a feature of long-term energy contracts.
EXCESS POWER GENERATION CAPACITY AND GOVERNMENT’S EMPTY SPIN
According to the Government, power generation capacity in Ghana has been in excess and has led to huge capacity charge payments. Their spin has been that the NDC procured too much generation capacity which resulted in increasing debts from “take or pay” contracts. Too much generation capacity in an economy that should have been celebrating one factory in every district by now if the government had been sincere about its One-District-One-Factory promise.
Indeed, the government maintains that with new power plants coming onstream, excess generation capacity grew and increased the capacity charge costs
But, what the Government has deliberately hidden from Ghanaians is that the NDC government entered into several Power Purchase agreements which were scheduled to come on-stream in a step-by-step manner at later dates, to address annual electricity demand increases, meet the existing suppressed demand, cater for the deficits that will be occasioned when emergency plants with shorter tenure are taken off-stream and replace obsolete plants like the TAPCo plant that are old enough to be decommissioned.
Furthermore, we still have about 14% of Ghanaians who in this 21st century do not have access to electricity and must be hooked to the national grid to free them from poverty and enhance their chances of economic prosperity. Unfortunately, the NPP government has simply abandoned the National Electrification Scheme hence our inability to attain universal access to electricity as a country.
The VALCo plant over the years has been crying for 300MW of cheap electricity to enable it to increase its operations to five potlines to create the needed jobs in the integrated aluminum downstream industry. The NDC government, as a policy, had decided to dedicate part of our hydro resources to industries like VALCo to make them competitive as they create employment opportunities for our teaming youth.
Beyond local consumption of power, President John Dramani Mahama’s administration started the upgrade of the transmission line from Ghana to Burkina Faso from 161kV to 330kV. This was to enable Ghana to export power to our northern neighbors as part of the West Africa Power Pool. The target was to export about 400MW of power to the Sahelian country. Unfortunately, this project was suspended for some time because Agence Française de Development (AFD), the financiers of the project, felt that the financial covenants that GRIDCo had entered into with them as part of the agreement, had all not been met because of the avoidable liquidity crisis GRIDCo is experiencing presently even though the ESLA funds continue to accrue to Government coffers. It took a government guarantee for the project to proceed.
From the government’s spokespersons on energy, admission is made that since 2020 we have not had the cause to pay for excess capacity because we have wiped out our excess capacity as a result of increased demand. Indeed, the peak demand (the day when the demand for electricity is at its highest) from the beginning of the year to date is 3561MW while our dependable capacity is 3407MW. Therefore, at peak, not all Ghanaians can now have electricity. This explains the constant load shedding Ghanaians are experiencing of late because of the power generation deficit.
SO, WHAT IS THE TRUE REASON FOR THE STATE OF AFFAIRS
Understanding our difficulties is the first step in the search for solutions. To quote Togbe Afede, the Paramount Chief of the Asogli State: “Our chaotic economic situation is the product of a toxic mix of, among others, our dishonesty; partisanship, cronyism, and tribalism; greed-fuelled corruption; lack of proper planning, and the consequent episodic approach to economic management; and bad monetary policy….”. The Ghanaian economy is in deep crisis, a crisis marked by huge budget deficits mostly caused by over-expenditure in the 2020 elections, an unsustainable public debt, rising inflation, a depreciating currency, ever-rising cost of living, and loss of confidence in both domestic and international investors. These challenges have been self-inflicted and the earlier the NPP took responsibility the better for the country to recover from this nightmare.
- “Take or Pay” agreements are a common feature in long-term energy contracts. It serves as insurance for the initial huge investments. This is evidenced in the Tema LNG Terminal Company contract with GNPC signed in September 2019 under the Akuffo Addo Government.
- If the NPP government had continued with the plan of the NDC to ensure that all Ghanaians have access to electricity by 2020, rapidly complete the upgrade of the necessary infrastructure to enable power export and make electricity available to VALCo to run at full capacity, the country would not have been discussing the issue of excess capacity.
- GHS 12.32 billion of the total power sector payments as of 2020 were due to debts occasioned by refusal to pay for fuel suppliers, ECG not paying its bills to the IPPs for power supplied and consumed, and shortfalls in capacity payments due to inefficiency and corruption. These variables are passthrough items in the tariff computations and therefore have been paid for by the consumer. It is important to note that this debt has significantly grown because of the continuous non-payment of invoices by ECG to IPPs and fuel suppliers.
- The country has not paid for excess capacity since 2020 because there has not been an occasion when a generator has declared availability and has not been dispatched.
- Currently, the country has a power generation deficit. This is accounting for the load shedding the country is experiencing of late.
- More importantly, the state of the economy cannot be blamed on excess capacity payment but rather the reckless and bad management of the economy led by Vice President Mahamudu Bawumia.
MTN Ghana Introduces New Tariffs Effective November 28, 2023
On November 28, 2023, MTN Ghana implemented new tariffs, marking a significant change in the cost structure for their services. This move has captured the attention of consumers, prompting them to evaluate how these adjustments will impact their communication expenses.
The telecommunications industry is dynamic, with companies frequently reassessing their pricing strategies to align with market demands, technological advancements, and regulatory changes. MTN Ghana, as a major player in this sector, regularly updates its tariffs to maintain competitiveness and provide sustainable services.
One of the notable changes in the new tariffs is the adjustments to call rates. Customers can anticipate shifts in the cost per minute for both on-net and off-net calls. This modification is likely to impact the communication habits of subscribers, influencing the choice between making calls within the MTN network or to other networks.
Additionally, data tariffs have seen revisions, reflecting the growing importance of mobile data in our digital age. As individuals increasingly rely on smartphones for various activities, including work, entertainment, and social interactions, understanding the adjustments to data tariffs is crucial. MTN Ghana aims to strike a balance between affordability and quality service, ensuring that users can access the internet without compromising on speed and reliability.
Moreover, the new tariffs might include changes to SMS charges. With the prevalence of instant messaging apps, traditional SMS usage has declined. However, for certain services and communication scenarios, text messages remain relevant. Subscribers should be aware of any modifications in SMS rates to manage their messaging expenses effectively.
It’s essential for MTN Ghana customers to stay informed about these tariff adjustments to make informed decisions based on their communication needs and budget. The company typically communicates such changes through various channels, including SMS notifications, social media updates, and announcements on their official website.
This tariff adjustment by MTN Ghana may be a response to various factors, such as inflation, infrastructure investments, or changes in regulatory requirements. Understanding the reasons behind these adjustments can provide customers with a broader perspective on the evolving telecommunications landscape.
The new tariffs implemented by MTN Ghana on November 28, 2023, underscore the dynamic nature of the telecommunications industry. Customers are encouraged to review the changes, assess their communication patterns, and make informed choices to ensure their mobile usage remains both convenient and cost-effective in this ever-evolving digital age.
The changes in MTN Ghana’s tariffs are expected to influence consumer behavior in several ways. With adjustments to call rates, subscribers may reconsider their communication preferences, opting for on-net calls to leverage more cost-effective options. This shift could potentially strengthen MTN’s network usage as customers seek ways to optimize their spending. Similarly, alterations in data tariffs may prompt users to reevaluate their data consumption habits, potentially leading to increased reliance on Wi-Fi networks or more judicious use of mobile data. Understanding these shifts in consumer behavior is crucial for both MTN Ghana and its subscribers, as it enables the company to tailor its services to meet evolving needs.
The telecommunications industry is highly competitive, with various providers vying for market share. MTN Ghana’s tariff adjustments are likely influenced by the need to remain competitive in this dynamic environment. Analyzing how these changes position MTN in comparison to other players in the market provides valuable insights into the company’s strategic approach. Additionally, consumers may compare the new tariffs with those of competitors, exploring potential benefits or drawbacks that could influence their decision to stay with MTN or consider alternative service providers.
Effective communication and transparency play a pivotal role in managing customer expectations during tariff adjustments. MTN Ghana must ensure that its subscribers are well-informed about the changes, providing clear explanations for the reasons behind the adjustments. Transparent communication fosters trust and helps mitigate any potential backlash from customers who may be resistant to changes in pricing. Additionally, proactive communication can guide users on how to navigate the new tariff structure, empowering them to make informed choices that align with their communication needs and budget constraints.
Telecommunications companies operate within a regulatory framework that can impact their pricing strategies. Changes in tariffs may be influenced by regulatory requirements, and understanding this aspect is essential for both the company and its users. MTN Ghana’s compliance with regulations ensures a stable and legal operating environment. Subscribers should be aware of any regulatory factors that contribute to these tariff adjustments, as this knowledge can provide context for the changes and help users appreciate the broader industry dynamics shaping their mobile communication experiences.
Let’s live harmoniously to safeguard Ghana’s peace – Peace Council on recent clashes
The National Peace Council (NPC) has called on Ghanaians to live harmoniously with each other to safeguard the country’s peace.
It has urged Ghanaians to protect “the peace and security of the country by creating and using avenues of tolerance, cooperation, and coexistence to sustain the country’s identity as an oasis of peace in Africa.”
This follows the unfortunate violent clashes in some parts of the country which have resulted in the deaths of some citizens.
Reports from Kintampo in the Bono East Region, Nkwanta in the Oti Region, and Wenchiki in the Northeast Region indicate that violence has led to the destruction of lives and property in these affected communities.
In a statement issued on Wednesday, the NPC reminded Ghanaians “of paragraphs (c), (d) and (i) of
article 41 of the 1992 constitution of the Republic of Ghana which states thus: The exercise and enjoyment of rights and freedoms is inseparable from the performance of duties and obligations, and accordingly, it shall be the duty of every citizen.”
“To foster national unity and live in harmony with others; to respect the rights, freedoms and legitimate interests of others, and generally to refrain from doing acts detrimental to the welfare of other persons. To co-operate with lawful agencies in the maintenance of law and order.”
Read the full statement from the NPC here
Defence and National Security Ministers to appear before parliament today over Kintampo clash
The Ministers of Defence and National Security are expected to appear before the Defence and Interior Committee of Parliament on Thursday, November 23, to provide a briefing on actions being taken by the government to forestall a clash between the Mo and Wangara tribes in the Kintampo North municipality.
This comes on the back of a summons by the Speaker of Parliament, Alban Bagbin.
According to the Member of Parliament for the area, Joseph Kwame Kumah, tensions were high when the Mo tribe requested to perform rituals within the months of November and December, coinciding with the annual Klubi festival of the Wangara community.
In response to calls for a ceasefire by the MP, the Speaker directed that the government must take immediate steps to ensure peaceful coexistence.
“As the first authorities to come to this house to brief the committee on Defense and Interior, this is an urgent matter that should be handled with dispatch. I think Thursday should be okay for the two ministers and their commanders to appear before the committee early tomorrow morning by 9 am to brief the committee. It is an urgent matter.”
“The National Security Council through their regional office should immediately intervene because the chieftaincy institution is one of the cornerstones of the peace and security of our country, and we hold that institution dearly. We will do everything to prevent that institution from falling into disarray,” he stated.
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