Ghana Excess Electricity Energy Create Debt Problem to the Govt

Finance Minister Ken Ofori-Atta

With capacity that’s almost double the country’s peak demand needs, Ghana’s power utility has to pay independent producers about $450 million every year for energy that it doesn’t need or use. This adds to the sector’s liabilities, which are the biggest debt threat to a nation that seven months ago completed its 16th bailout program with the International Monetary Fund.

Finance Minister Ken Ofori-Atta, who will present the 2020 budget next week, has warned that the sector’s “unsustainable” liabilities may amount to $12.5 billion  about a fifth of gross domestic product  by 2023 from about $2.5 billion in January.

“Financing of the energy sector is going to be a key risk going forward in terms of debt sustainability,” Cobus de Hart, chief economist for west, central and north Africa at NKC African Economics in Paarl, South Africa, said by phone. While Ghana is doing well to keep expenses under control, “debts keep rising at a much faster pace.”

Debt Origin

Ghana’s energy losses stem from a combination of the liabilities Like:

•  Excess supplies,
•  Slow customer payments,
•  Under-recovery of costs and even 
• Government ministries and agencies unpaid lighting bills

From 2020, excess gas supplies could add as much as $850 million per year to the liabilities.

At Stake

The energy sector’s shortfall for 2019 is expected to be $1.3 billion, according to Ofori-Atta. While the government is not directly responsible for shouldering all of this, it often needs to help the power utility to cover these losses.

The IMF forecasts debt will reach 63% of GDP at the end of December, from 51% in January. Not all of that is due to the energy contracts. A bailout of the banking sector has also added to the debt as investors fear a repeat of excessive spending in the run-up to elections, of which the next is scheduled for December 2020.

Government’s Steps

The power losses contributed to the 5.2 billion cedis ($935 million) that Afori-Atta added to Ghana’s debt stock in July to prevent the government from breaching its budget-deficit ceiling. A month later, he started talks with independent power producers to restructure their agreements, a move that the industry fiercely resists. While initially saying the talks would take three months, there has been little progress and Ofori-Atta now says he’s unsure when they will conclude. That raises the risk that the payment obligations will continue in 2020.

“There’s always room to negotiate if there’s a good solution for both parties,” said Vilar Ferrenbach. “They have to negotiate case by case. A blanket solution” won’t work, he said. The government must also restart a process to find a private operator for the power-distribution network after it terminated an earlier agreement.

Market Reaction

Ghana’s dollar bonds have returned 1.7% since Ofori-Atta’s announcement in July that he’ll renegotiate deals with private producers, lagging African peers which have returned an average of 2%.

There’s additional risk to the budget, said Yvonne Mhango, head of research for sub-Sahara Africa at Renaissance Capital in Johannesburg. “It’s going to be a challenging time for them given that it’s going to be the year of the election, and there are constraints in terms of what they’ll like to achieve while at the same time trying to meet debt obligations.”

SOURCE:BnnBloomberg

Share This:

Facebook Twitter Pinterest Linkedin Whatsapp Whatsapp

About Binnabook

Binnabook Magazine Believes in Free Speech,Social Journalism with newsgathering and verification of Data.