The Public Utilities Regulatory Commission (PURC) has issued a warning that the Electricity Company of Ghana (ECG) is at risk of bankruptcy due to severe financial difficulties.
In a letter addressed to the Presidency, the Energy and Finance Ministers, and other key stakeholders, PURC’s Executive Secretary, Dr. Ismael Ackah, outlined the financial crisis, which is also impacting the operations of the Volta River Authority (VRA), Ghana Grid Company (GRIDCo), and the Bui Power Authority.
According to Dr. Ackah, the ongoing challenges have caused delays in salary payments and difficulties in meeting administrative costs, emphasizing the need for immediate action to avoid further decline.
Despite initiatives aimed at improving cash collection through digital and metering programmes, as well as significant tariff increases of over 75% since September 2022, ECG’s financial instability persists.
Financial Crisis at ECG
PURC’s letter reveals that ECG’s revenues for June and July 2024 stood at GHS 884.2 million and GHS 857 million, respectively—insufficient to cover the monthly $47 million Tier A plus WAPCo’s bill under the Cash Waterfall Mechanism. The situation worsened in August 2024, with revenues dropping below GHS 800 million, representing only about 42% of the expected revenue needed to pay sector players.
A report from PURC on ECG’s compliance with the Cash Waterfall Mechanism also highlighted an approximately GHS 860 million shortfall in payments to independent power producers, further exacerbating the crisis. This shortfall has left Tier B companies—including Ghana Gas, VRA, GRIDCo, ECG, Bui, and regulators—struggling to meet staff salaries and administrative costs.
Dr. Ackah stressed that the issues facing ECG require more than tariff adjustments, calling for deeper introspection and structural reforms.
Comparative Solutions from the Sub-Region
PURC’s letter also points to successful interventions from neighboring countries facing similar challenges:
- Kenya Power and Lighting Company: Listed approximately 50% of its equity on the stock exchange, raising non-tariff funding for critical investments.
- Tanzania Electric Supply Company Limited (TANESCO): The Tanzanian government converted a government on-lend loan of 2.4 trillion Tanzanian shillings into equity. Since 2022, TANESCO has consistently declared profits, reducing both technical and non-technical losses to around 9% as of June 2024.
- Uganda’s Umeme Concession: Involved the private sector in metering, billing, and collection services, achieving a collection rate of 98.7%.
Recommendations for Structural Reforms
PURC suggests that similar innovative measures could help stabilize ECG, but any intervention should include stringent performance indicators, such as:
- Drastic reductions in technical and commercial losses;
- Enhanced fiscal discipline, ensuring ECG avoids non-core activities;
- A reassessment of power purchase agreements and exchange rate regimes to reduce the burden on consumers;
- Independent economic and technical audits to evaluate ECG’s true financial and technical position.
Fuel payments are also affecting ECG’s financial sustainability. PURC has recommended that the Ministry of Energy, in collaboration with ECG, the State Interests and Governance Authority (SIGA), the Ministry of Finance, the Ministry of Public Enterprises, and other key stakeholders, undertake a comprehensive review of the root causes of ECG’s financial difficulties. The objective of this exercise would be to transform ECG and protect the broader energy sector.
PURC also calls for greater transparency from ECG on critical issues, including revenue collection versus Cash Waterfall Mechanism (CWM) declarations, major contracts, monthly commitments, commercial and technical losses, and non-core activities that are impeding the company’s financial sustainability.
Finally, PURC emphasized that privatization should be considered as a viable option to ensure ECG’s long-term financial stability and safeguard the energy sector in Ghana.