The Independent Power Producers Ghana (IPPs) have issued a dire warning, indicating that the country's power sector faces an imminent exacerbation of its challenges, with the sector potentially accruing an additional debt of approximately USD$1.8 billion to IPPs alone by the end of 2024.
This warning comes in response to the recent decision by the Public Utilities Regulatory Commission (PURC) to further reduce electricity tariffs, a move aimed at providing relief to consumers but anticipated to escalate the financial burden on IPPs due to escalating variable costs associated with electricity production.
In a statement signed by its CEO, Dr Elikplim Kwabla Apetorgbor, the IPPs expressed concern over the mismatch between tariff reductions and production costs, citing escalating variable costs such as fuel, maintenance, and idle capacity charges, as well as the depreciation of the Ghanaian cedi. They highlighted that natural gas, for instance, currently sells at an average high price of 8.8 US Cents/mmscf, further adding to production costs.
The IPPs underscored that the tariff reductions, while beneficial for consumers, exacerbate the financial deficits within the sector, which is already plagued by inefficiencies, including high transmission and distribution losses.
They pointed to the repercussions of similar tariff actions by the PURC in 2018, which significantly contributed to the financial gap faced by the Electricity Company of Ghana (ECG), leading to operational and governance deficiencies.
The core of ECG's financial challenges, according to the IPPs, lies in the imbalance between revenue generation and operational costs. Despite ECG's commitment to a fixed US$43 million monthly sum to IPPs, it continues to accumulate about 70% of its monthly obligations to IPPs alone.
The IPPs cautioned that with the tariff reduction, appeals by the Government of Ghana for renegotiations with IPPs may face obstacles, as the risk of default on obligations going forward becomes high.
Overall, the IPPs' warning highlights the urgent need for comprehensive solutions to address the financial sustainability of Ghana's power sector amidst escalating challenges and tariff adjustments.
