Energy Economist Ebenezer Baiden has explained why the Electricity Company of Ghana (ECG) is requesting a 225% tariff increase, arguing that its current 11% share of tariffs is far too low to sustain operations.
Speaking on Joy FM’s Super Morning Show while discussing the tariff proposals of ECG and the Ghana Water Company Limited (GWCL), Mr Baiden said the request falls under the multi-year tariff review cycle.
“So we normally go through minor adjustments, which we call automatic adjustments. There are parameters to consider. So, for example, it looks at some macroeconomic adjustment variables and then also it looks at variation in dispatch and then the varied fuel used,” he explained.
He added that Ghana is currently at the stage of a major review.
“Now we are looking at a multi-year order, which is a major tariff review. Normally, it takes 5 years for that to happen. So, we have been working through this from 2022 to 2025, and the multi-year order ends.
“Then 2026 to 2030, another multi-year order begins. Now this looks at structural issues, works that may have happened within the period, how we finance them, and then how to recover those costs.”
Mr Baiden said that ECG has had to pre-finance projects before seeking tariff adjustments, leaving the company heavily indebted.
“Currently, the ECG tariff structure is such that, or the PURC tariff structure is such that you have to pre-finance projects, bring them into service before you can now ask for a tariff adjustment. They should visibly see that whatever you invested in is working, and customers are benefiting from it, before you can apply for that.
“So we’ve gone through some facilities, supplier credits, taking loans from banks and all that. Today, our books are all in the red. And it is to say that all those works that we committed to across the ECG operational areas, commencing from Techiman to down south, which control over 75% of electricity consumption in Ghana, we’ve been able to expand networks. We’ve been able to do network intensifications where we have low voltages. We’ve injected transformers and all that. Today, generally, the supply quality is better than before.”
He said it was now necessary for ECG to recover the investments made.
“Now it’s time we’ve gone to the PURC to say that these are the cost that we have incurred, let’s sit and discuss. But what we have incurred in our books, we need to now pay for it, empower us to now be able to go back and do more.
“About digitalisation, today you sit in your room and you can now buy credit. You can pay your bills. You can report a fault, and technical men are on their way to your place. You don’t need to come to the district office to queue for electricity.
“These are some of the interventions that have been done to improve supply services, and based on that, the cost we have incurred with the PURC, it’s time to communicate that to seek customer support and then get that as part of the electricity. So this is why we have a proposal before the PURC, and we are asking for a stretch adjustment.”
Breaking down the numbers, Mr Baiden revealed that ECG currently retains only 11% of total electricity revenue, with about 65–70 per cent going to generation and another portion to the transmission company GRIDCo.
“Currently, our tariff is 19%. In fact, it dropped in the last quarter review to 17. Customers are paying 17 pesewas, the total is about 1 cedi 59 pesewas. A bigger chunk of it, about 65 to 70% goes to generation, then transmission, which is GRIDCo, will take a portion of it. Now ECG’s portion is 11% and it is the ECG portion that we are talking about that it has to be rebased.
“Standard utility operation, we have it between 30 to 35%. We are working with 11%. You collect the revenue and you pay all out.”
Using an illustration, he explained the company’s challenge:
“If it costs 10 cedis to purchase power from the power producer, and then let’s say GRIDCo adds 1 cedi to it, let’s say ECG adds 2 cedis to it, we have a build-up, total build-up of 13 cedis. And your cost or my price to the customer should be around 13cedis. Today our number is somewhere around 8.
“So what this means is that if, by even looking at paying for power producers only, we go into the red, this is a challenge for us. So that’s how come we are talking about that number, the 61 pesewas,” he explained.