Power sector faces deepening insolvency

By Thomas-Moore ADINGO

The power sector is bracing for intensified financial strain, with debts to Independent Power Producers (IPPs) set to soar to approximately US$1.8billion by the close of 2024.

This, according to the IPPs Chamber, stems from the Public Utilities Regulatory Commission’s (PURC) decision to slash electricity tariffs by 6.56 percent effective next April, exacerbating the sector’s mounting liquidity challenges.

Despite the tariff cuts aimed at easing consumer burdens, production costs remain unabated, triggering significant financial shortfalls. Escalating variable, costs such as fuel, maintenance and idle capacity charges coupled with the depreciation of the cedi, have compounded the sector’s financial woes.

The ongoing depreciation drives natural gas prices to an average high of 8.8 US cents/mmscf, further straining operational costs of producers.

The latest tariff adjustments, the IPPs said in a statement, mirror past actions in 2018, where reductions of 17.5 percent and 30 percent for residential and non-residential customers, respectively, inflicted substantial financial gaps on the Electricity Company of Ghana (ECG).

Since then, the ECG, the statement added, has struggled to meet sector revenue requirements, perpetuating a cycle of financial instability and operational inefficiencies.

Central to ECG’s financial challenges is the imbalance between revenue generation and operational expenses. Despite committing to a fixed monthly payment of US$43million to IPPs, ECG finds itself burdened with fulfilling nearly 70 percent of its monthly obligations to Independent Power Producers.

The remaining 30 percent keeps piling up, with analysts expressing fears that the debt to IPPs could reach alarming levels if urgent measures are not taken.

“With the latest tariff reduction, the prospect of renegotiating agreements with IPPs becomes increasingly precarious, heightening the risk of default on future obligations,” the statement signed by Elikplim Apetorgbor (PhD), Chief Executive Officer of the IPPs Chamber, said.

“The tariff reductions, while beneficial for consumers, have not been matched with a decrease in production costs (decreased costs), leading to significant financial deficits. Meanwhile, the sector is plagued by inefficiencies, including high transmission and distribution losses, which exacerbate the financial challenge,” he concluded.

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