The Africa Centre for Energy Policy (ACEP) is seeking clarification regarding the Electricity Company of Ghana’s (ECG) GH¢540 million discretionary spending, despite the power sector facing tight liquidity concerns.
In a statement, ACEP expressed concern that the power distribution company had spent GH¢540 million out of the GH¢1.1 billion it recovered from consumers in March and April this year, as part of the ongoing debt recovery exercise. ACEP criticized the lack of justification for such discretionary spending, especially considering the financial challenges faced by the power sector.
The power sector has been grappling with well-documented challenges, including the government’s struggle to settle a debt of GH¢1.9 billion to Independent Power Producers (IPPs) by the end of June. This difficulty arises from the ECG’s inability to effectively collect revenues from the power it supplies to consumers.
ACEP noted that there has been no noticeable improvement in liquidity within the sector, particularly through the Cash Waterfall Mechanism (CMW). The CMW serves as the established framework for tracking collections and payments along the power sector value chain.
“There has been no discernible improvement in liquidity, at least through the Cash Waterfall Mechanism (CMW) – the established mechanism for tracking collections and payments along the power sector value chain.
“ACEP’s analysis of the CWM data indicates that ‘substantial portions of ECG’s collections were not directed toward paying off the value chain or making any substantial impact on the continually escalating debt owed to the Independent Power Producers (IPPs) and the rest of stakeholders’,” the energy think-tank statement read.
The Electricity Company of Ghana (ECG), a state-owned entity, initiated a debt recovery campaign to collect an estimated GH¢5.7 billion owed by power consumers. However, the company only managed to recover approximately GH¢3.1 billion.
The civil society organization emphasizes that according to the Cash Waterfall Mechanism (CWM), all revenues should be properly accounted for, and distributions should be carried out based on approved proportions determined by the CWM committee.
Reports from the CWM reveal that the ECG’s earnings for the two months amount to GH¢1.1 billion, which represents approximately 35 percent of the GH¢3.1 billion claimed to have been recovered by the ECG.
ACEP asserts that more than 50 percent of the reported revenue is allegedly allocated for discretionary spending by the ECG, leaving a balance of only about 11 percent of the revenue required for the sector under the CWM for March and April 2023.
According to ACEP’s recent report on the power sector, the ECG has stated that it utilized GH¢540 million to procure liquid fuel for certain power plants during periods of gas supply shortages, while refusing to pay the gas suppliers through the Ghana National Petroleum Corporation (GNPC).
However, based on the Cash Waterfall Mechanism (CWM) formula, the ECG was entitled to 26.37 percent of the revenue, which should have amounted to approximately GH¢113.5 million out of the reported revenue of about GH¢430 million for March and April.
Surprisingly, the ECG allocated around GH¢256 million (roughly 59 percent of the CWM revenue) to itself, deviating significantly from the prescribed allocation formula. The GH¢256 million acquired by the ECG represents about 78.4 percent of its billed invoices for March and April.
In contrast, the ECG paid only between 3.1 percent and 12.4 percent of the invoices billed by other entities within the power value chain.
ACEP’s report highlights that beyond the 78.4 percent disbursement, the ECG’s claim of improved revenue collection suggests that a substantial portion of the collected revenues is not being reported under the CWM.
“The non-payment to gas sector companies compelled the West Africa Pipeline Company Limited (WAPCO) to reduce Reverse Flow gas volumes from the West to the East to the contracted volume of 60mmscfd. On July 1, 2023, WAPCO curtailed the reverse flow of gas for hours because of the outstanding payments.
“Out of the prior agreed scheduled payment of US$15.236million due for June 2023, GNPC could pay only US$1.246million – attracting the activation of contractual clauses to cut supply. Subsequently, gas supply has been restored on condition that government pays half the outstanding balance of US$20million by July 7, 2023,” ACEP said.
Additionally, there are outstanding gas supply payments from the Sankofa Gye Nyame (SGN) field, totaling nearly US$600 million. This amount includes approximately US$380 million for letter of credit (LC) drawdowns and additional invoices of about US$207 million.
Furthermore, it has been revealed that the government has already disbursed over US$1 billion for gas consumed by the power sector since 2018, although these costs are incorporated in the tariff.
In light of these facts, ACEP has concluded that the ECG’s decision to prioritize the payment for liquid fuel while undermining gas supply demonstrates a lack of concern for the financial damage it inflicts on the public purse.