Charging Realistic Power Tariffs In Ghana

Charles Wereko-Brobbey
Charles Wereko-Brobbey

Yippee!!!!.   I am happy to read that Ghana’s media have found another “former Chief Executive of the VRA’ besides me.  Twelve years after I left the position, and no matter what I do or talk about,   from the doctors’ strike to abolishing TV licence fees, every reportage starts with ‘the former Chief Executive of VRA…..

Whilst welcoming Kweku Awotwi to share the accolade, I could not help but wonder whether someone had not goofed again. Although Kweku is eminently qualified to talk about power tariffs, I can say confidently and without equivocation that he was acting in a different capacity when he made his reported comments on power tariffs. If I was to be charitable, I would say someone was being modest. But I think the truth is that the title ‘former Chief Executive of the VRA’ has come to be the valedictory title of anyone who has ever held the position

I cannot quibble with Kweku Awotwi’s statement that there must be ‘realistic’ tariffs.  Indeed it is to be welcomed by every Ghanaian Living Everywhere who is waiting anxiously for the ‘Omanhene’ of Ghana to “ fix rather than solve’ the temporary power crisis which tenure has almost reached the duration of the longest Provisional Government in our history. Coincidentally, or is it more of Orchestration, that the ‘Omanhene’ repeated the pledge at the same event, although with a little less certainty than in the ‘State of the Union” address last January.

I want to add to the debate by asking my fellow ‘former Chief…’ what he means by ‘realistic tariffs’ which is a refrain I heard from VRA staff from as long ago as 1988 when I served as Energy Policy Adviser to the provisional government and whose biggest cheerleader, Joseph Ofedie, is also a member of the ‘former Chief Executives of the VRA’ club.  By the way, the current Millennium Challenge Authority boss. Owura Safo, is also a member of the club, though I have not heard anyone describe him as such.

As for me, I prefer and would suggest we talk about “Economic tariffs’ rather than realistic tariffs. The term Economic is well understood, it describes the notion of covering all costs in delivering an outcome, plus a reasonable margin for investing in the venture. Unfortunately, realistic is a form of art, subject to political considerations, such as Kan Dapaah’s Affordability, and the general feeling of entitlement of most Ghanaians who think they should have power to chill their beer for free. Such feelings have dogged our country  and been exploited by every government ever since the Akosombo dam was opened 50 years ago

We borrowed World Bank money to build Akosombo. To be able to pay back the loan and save a little for a rainy day, we sold the power to Kaiser’s Valco. Valco paid an economic tariff in US cents, based on recovering the full costs and earning an eight percent rate of return on VRA’s assets. Like the present IMF demand for us to STRICTLY enforce the petroleum pricing formula (illegally and disingenuously sold as deregulation) there was no wiggle room for the politicians to feign concern for the people.

Because VRA recovered all of its costs and returns from Valco, the power for the people was virtually given away free. Nobody saw it fit, or to be fair, necessary, to charge an economic rather than a politically-motivated tariff to domestic and industrial consumers. Even when Rawlings’ Choker almost took our last breath away, prematurely in the 1983 drought and we discovered the necessity for ‘thermal complementation’, successive governments believed in the freebie tariff for domestic consumers; even as the proportion of the more expensive thermal proportion rose and rose to reach its current level of 50%.

So entrenched is our entitlement mentality that we are one of the few countries in the world that prioritizes the domestic consumers’ power needs over that of industry  which  produces the value addition to our natural resources to give us real wealth, and not ‘Dutch diseased petrol dollars.  Why do I say so? We continue to charge domestic consumers a lower tariff than industrial and commercial uses. And when we have gotten into our periodic Dumsor, we are proud to cut off supply to industry and focus all our energies on giving the little power we have to the domestic sector and so-called emergency services, such as the offices and homes of the governors.

Fortunately, the IMF’s ‘strictly’ rule as applies to the quarterly revision of power tariffs, although my brother Samuel Sarpong & niece Nana Yaa Jantuah of PURC, have disguised the moratorium on the last review as an eminently sensible show of concern when consumers have been waiting for almost four years for the Omanhene to fix the crisis

In case anyone is wondering what I am doing wasting your dark and sweaty nights with this ‘toli‘, here is the beef in the sandwich.  Coincidentally I am the beef in the Kweku Awotwi sandwich when it comes to ‘former chief Executives of the VRA’.  The gentle giant demoted me from Chairman to CEO when Kweku Awotwi first turned down the job. Then when the gentle giant bowed to Kwesi Pratt and co’s excessive noise about an ‘atakwame ‘shower falsely described as a Jacuzzi, Kweku Awotwi stepped into my seat, both as Chairman and CEO.  He then took an enforced retirement and returned as CEO under the ‘Asomdweehene’.

The problem is that the approach to setting of tariffs in Ghana’s power sector has been  moribund and untenable since the days when VRA had complete responsibility for all power generation in Ghana. It has continued to today where we are not sure if ECG is a distribution company or is slowly and inexorably assuming VRA’s generation role in addition to its distribution mandate;  Amuna’s GRIDCO IS  the meat in the supply sandwich.

Confusingly, VRA’s generation role has not been entirely abandoned. It is still called upon to sign generation power purchase agreements from time to time. The problem is that nobody has quite explained to Ghanaians when it is better to deal with VRA and when it is better to deal with ECG. The decision I suspect depends on whether we want everything to be above board in ‘Sor’ or we prefer to operate under a dum dum cloak and dagger manner.

From the birth of Akosombo, VRA’s procurement process has always been by open tendering. Under that we got the best value for what we wanted.  However, under constitutional governments, openness has ironically turned to ‘esumase’. ECG alone has been forced to sign over 22 power purchase agreements without tender. VRA has also signed some under dum dum conditions, having been forced to abandon its traditional transparent environment.

About 10 of the agreements have been signed under the label of Emergency Power, although those in charge cannot see the irony of a so-called emergency plant being deployed long after Dumsor has officially ended and my brother Kwabena Donkor’s job has been saved by the bell.  The truth is that the key to ending Dumsor lies with assured fuel supply for our now rehabilitated generators and a dehydrated Akosombo lake responding to the prayers of the pastors and our home grown ‘akomfo’

The trouble is that when things are done the way we are going about it now in the power sector, the costs for supplying power to all classes of consumers rocket up to take account of the ‘sleaze premium’.  Labeling something emergency automatically means paying a premium to get the service.  That’s a double whammy we have to factor into the costs of producing and delivering power, which of course needs to be fully recovered and a return added to achieve an economic or realistic cost.

The other issue that puts a monkey wrench in the spooks of arriving at and charging economic or realistic tariff is the changed but unplanned structure of doing business in the power sector.  ECG’s PPAs’ are priced with IPPs in dollar and cents, including Chinese-owned Asogli. ECG also bills us and collects our tariffs in the constantly wobbling Ghanaian cedi. VRA also signs all its contracts, PPAs, fuel purchases from WAGP and yes, Ghana Gas, and power purchases from Ivory Coast to watch football, in dollars and cents too.

Now here is the rub. The current PURC tariff methodology is based on the old and ordered system when VRA was in charge of all generation and ECG’s business was restricted to trying to distribute whatever power it got from VRA in an equitable manner.  Then it was simple; PURC determined the Bulk Supply Tariff(BST), and paid it to VRA (including GRIDCO) and ECG/NED collected and kept its portion of the End-User Tariff(EUT).

Now we have the added complication of ECG being forced to take on generation, much of which is classed as emergency and been procured under dum dum. As the one who has signed the PPA and also collects our tariffs, ECG is obliged to first pay its  IPP partners in dollars and cents at current forex rate, before it can share the rest of it with  VRA and , Gridco,

Unfortunately, both the cedi denoted BST and EUT rapidly lose their value against the dollar under a yo-yo performing cedi, destroying all of their planning assumptions.  Alas the reality is that ECG needs to convert the cedis into dollars to pay the IPPs. Even before then, they must pay their staff; and if there is anything left pay VRA, GRIDCO and anybody else in the supply chain. As for there being money for the maintenance of the distribution equipment, “Nyame wo ho”

To add insult to a ‘koobi- infested’ injury , the government and its various agencies refuse to pay for the power they use,  be it at work or at home or at play;  adding to the woes of our power producers and suppliers. This is how we have come to the unedifying and despicable spectacle of today: ECG being owed billions of cedis by GOG, VRA being owed billions of cedis by ECG, ECG unable to pay Asogli power for the most reliable source of thermal power; ASOGLI owing VRA for the gas it uses to produce power; VRA owning WAGP, and yes, Ghana gas, millions of dollars to supply fuel to run our thermal plants.

Rather than sorting the foregoing pretty mess, our government has rather sunk millions of dollars into acquiring new generation capacity on the pretence of fixing the power crisis instead of solving it. So much generation capacity is being brought in under the pretext of ‘emergency’ when in fact the urgent problems have to do with getting assured regular and ample fuel to power our existing home grown generators, which in turns is very much dependent on paying outstanding bills to the power producers and suppliers.

Unfortunately the approach to fixing the power problems leads to several obstacles to determining realistic or economic tariffs in Ghana. Under the system of contracting new generation from the IPPs, the cost of power has two main components, namely a Capacity charge, and an Operational charge.  Capacity charge represents a cost that is paid simply to have the plant here in Ghana.  It has nothing to do with whether it is producing power or not.

Therefore any power generation capacity acquired, beyond the peak load plus a spinning reserve of about 25%, which is just sitting doing nothing, is adding to the costs that go into the calculation of the realistic or economic tariffs. Therefore with our current peak load of about 2000 MW, the notion of racking up Ghana’s generation capacity to 5000MW  by 2016 -17 is both absurd, irrational; and ultimately costly to the consumers who have to pay the so called realistic tariffs

Already the ‘Omanhene’ and his ministers in charge of power have said we will have to pay more for power. As one who famously once suggested that “those who think that power is  expensive should try candles”, I cannot quibble with the principle of paying an economic rate  for reliable supply, except for the small matter of the politicians usurping the supposedly independent authority of the PURC to make such judgment calls.

So here is the scenario. The people we have elected to act on our behalf have contracted huge additional power generation capacity through non-transparent processes.  They have failed to convince us of the technical merits of the size of capacity to be optimal for our needs in the short, medium and long term. They have also failed to disclose and justify the costs of acquisition to we the people in whose name and on whose behalf they exercise power.

For me the case for increasing tariffs has to be made convincingly and justifiably on its own merits, notwithstanding what the Omanhene and his acolytes have pronounced.  Charging realistic tariffs is a no brainer in this discussion. However, arriving at what constitutes realistic or economic power tariffs is still a pending case, yet to be made convincingly to us the people through the PURC.

Let me offer a way forward to assist the process.  I want to invite all living former chief executives of VRA (the venerable Kobla Kalitsi, yours truly, Kwaku Awotwi, Joshua Ofedie, Owura Safo, and Kweku’s clone), plus their colleagues from ECG and GRIDCO, to a conclave on the approaches, choices and the costs of  the responses of decision makers to fixing the 3-4 year temporary crisis.  Apart from tea and fuel allowances, plus accommodation, we should consider this as legacy national service.  I believe our deliberations would make a welcome contribution to the impending debate on what should be the economic /realistic tariffs to ensure that never again would Ghana have endure an unreliable load shedding schedule

Charles WEREKOBROBBY(DR)

Chief Policy Analyst, GIPPO

( & former Chief Executive, VRA)               

Comments

comments

Leave a Reply

Your email address will not be published. Required fields are marked *