WORLD BANK REPORT ON POWER SECTOR

A.    Key Messages

1.                   The financial situation of the power sector in Ghana is deteriorating quickly. The main reasons are the lack of a tariff adjustment for over one year to compensate for inflation, higher crude oil costs and depreciation of the Cedi, combined with the recent gas supply interruption, which has imposed a significant additional cost on the sector. VRA and ECG will both make substantial losses in 2012 and only GRIDCo will have a positive financial result. The cumulated deficit of the three utilities will be around US$ 395 million in 2012 and US$ 124 million in 2013.[1]This is not sustainable. As a result, both VRA & ECG will have to scale back their capex programs in 2012-2013). This will lead to a deterioration of quality of service as they struggle to keep up with ever-rising demand for power.

Table 1: Combined Power Sector Utilities Net Result (2011-2013)

	Unit	2011	2012	2013
VRA	US$  M	53	(375)	(97)
GRIDCo	US$  M	56	24	33
ECG	US$  M	(16)	(44)	(60)
Total profit/(loss)	US$  M	93	(395)	(124)

Source: World Bank based on VRA, ECG, and GRIDCo financial information.

2.                  The temporary interruption of natural gas supply has a significant cost for Ghana.Using light crude oil (LCO) instead of gas means additional costs of US$ 27 million per month to operate dual-fuel thermal power stations on oil instead of gas. VRA and the Ministry of Finance (MoFEP) are financing the additional costs through short term debt incurred with crude oil suppliers which have to be refinanced in 2013. Starting from a preexisting situation of significant cash flow deficit, this is not sustainable.The total short term debt accumulated by VRA and the GoG to purchase oil for VRA will be around US$ 550 million by end 2012, which is almost equivalent to VRA’s annual turnover in 2012. VRA will require financial support to be able to pay this large short term debt. GoG will have to inject cash, either through equity or soft loans.

3.                  Even when gas supply resumes, the current tariff would not be sufficient to cover the costs of the utilities in the sector.The absence of adjustment of the tariff has resulted in a substantial reduction in its real value over a one-year period. VRA and ECG will make substantial losses in 2013 evenassumingfavorable gas supply (assuming gas pipeline from Nigeria is operational all of 2013 and gas from the Jubilee field is available from mid-year). The current level of the Bulk Generation Charge (8.45 GHp/kWh or 4.5 USc/kWh) is well below the average cost (about 14 GHp/kWh), even based on natural gas^[2], and only about 1/6^th of the system short run marginal costwith light crude oil (LCO) - about 28 USc/kWh, against 11 USc/kWh with natural gas.

4.                  PURC should resume without delay the automatic quarterly tariff adjustment mechanismwhich it had established in early 2011. There was a consensus at the time that this mechanism for timely and automatic indexing of tariff levels was a precondition for sustainablyrestoring the financial viability of the sector utilities. This remains the case. The inability of PURC to implement theindexing mechanisms consistently is detrimental to its credibility.

5.                  In the absence of tariff adjustment, vastGoG financial support to VRA is required to maintain power supply in the country.The GoG has stopped making payments for its electricity bills since the first half of 2011. As a result, large payment arrears have accumulated in the clearinghouse mechanisms (ECG, which is not being paid by GoG has consequently accumulated large debts with VRA and GRIDCo). The imperative starting point for GoGto support the electricity sector financially would be to clear its outstanding bills and remain current on its current electricity consumption.

6.                  The aluminum smelter Valco has remained in operation despite its high economic cost for Ghana. Electricity is sold to Valco at a subsidized low rate at the time when the rest of the country is undergoing power cuts. Based on LCO single cycle generation, the deficit for the system of selling 600 GWh to Valco (one potline) is around US$150 million per year.[3]The fuel cost alone of the electricity required to produce one ton of aluminum is presently above $3,900/ton, much higher than current international aluminum prices (about $2,100/ton). Even with this massive subsidy, VALCO seems has accumulated significant payment arrears with VRA and GRIDCo.

7.                  Main recommandations :

-          GoG should resume paying its electricity bills on time, clear its arrears to the utilities and review the workings of the clearing house payments system.

-          MoFEP should scrutinize the list of state bodies whose electricity consumption GoG pays for and assess which could be removed from the list. These bodies should start paying their electricity consumption themselves.MoFEP should also instruct ECG to install prepayment meters in public institutions wherever practical.

-          PURC should resume applying the quarterly tariff adjustment mechanismwith immediate effect.

-          VRA and GoGshould make arrangements to refinance/reschedule expensive short term debt incurred for crude oil purchases.

-          ECG should make immediate efforts to improve its revenuecollection performance to reduce payment arrears from private consumers.

-          ECG should seek to reschedule repayment of short-term suppliers’ credits.

-          GoG should make explicit budgetary provision for reimbursing to VRA the real economic cost of providing Valco with power at artificially low electricity rates.

B.     Background

8.                 Progress occurred in 2010 and 2011 thanks to the financial recovery plan, natural gas availability, high hydropower output, June 2010 tariff review and adjustment, and quarterly adjustments from February 2011. However serious difficulties emerged again in 2012 as the regulator did not apply the quarterly adjustments and gas supply was reduced (rationing by Nigeria during the first semester[4] and complete shutdown of the pipeline since incident in August).

9.                  Hydrology is good in 2012, (albeit not as good as last year)[5] but this is not sufficient to mitigate the absence of gas. Also, the reservoir of the new 400MW Bui hydropower plant will probably not fill sufficiently for Bui to generate significant amountsof energy until late in 2013.[6]

Sector financial situation in October 2012 and prospects beyond^[7]

10.              The financial situation of the sector as of October 2012 is of deep concern. The cumulated deficit of the three utilities will be around US$ 395 million in 2012 and US$ 124 million in 2013. This is mainly because (i) PURC is not adjusting the tariffs to compensate for variations in inflation, cost of crude oil, and depreciation of the cedi and (ii) because of the gas supply issue in 2012 (but not in 2013). OnlyGRIDCowill have a positive result.

Table 2: Combined Power Sector Utilities Net Result and Cashflow (2011-2013)

	Unit	2011	2012	2013
VRA	US$  M	53	(375)	(97)
GRIDCo	US$  M	56	24	33
ECG	US$  M	(16)	(44)	(60)
Total profit/(loss)	US$  M	93	(395)	(124)
Net cashflow	US$  M	118	(437)	(619)

Source: World Bank based on VRA, ECG, and GRIDCo financial information.

11.               VRA’s indebtedness is growing rapidly and unsustainably. Short term debt related to crude oil and gas purchase is expected to rise to around US$ 350 million by year end. In parallel, instead of paying its bills and clearing its arrears (GoG has stopped making payments for its electricity bills since the first half of 2011)^[8], the GoG has also purchased fuel cargos on behalf of VRA (expected to reach US$ 300 million by year end). This is problematic in terms of transparency and conformity to good public finance management.

VRA Boss, Kweku Awotwi

C.    Volta River Authority (VRA)

Cost of crude oil purchases

12.              The extra cost to VRA of no gas from WAPCo is predictably high. Every month using light crude oil (LCO) instead of gas means an additional US$27 million of costs and load shedding for consumers. The current WAPCo estimate is that the pipeline will be operational again in December 2013 (an assumption used in our forecast for 2012). VRA also estimates that the gas pipeline from the Jubilee field will be operational in April 2013[9]. However delays are common with large gas supply infrastructure.

13.              In 2012, Ghana will need to buy between 10 to 12 cargos of LCO for power generation for a total cost of about US$ 500 million to US$ 600 million (approx. US$ 50 million per cargo of 430,000 barrels at an average price of $114 /barrel). So far, VRA and MoFEP have each bought three cargos and will need to buy up to three more each until the end of 2012. These cargos of fuel are being purchased with 90 day promissory notes which are being rolled over at maturity. Both VRA and MoFEP have had to refinance this debt through short term loans from local commercial banks. The interest cost for VRA is around 9% (for US$ denominated debt). VRA is currently negotiating a line of credit to refinance US$ 150 million. This line of credit would be repaid over 3 years and secured by payments from large customers who are billed in forex.

14.              Currently, the stock of VRA short term financial debt is around US$ 250 million (US$ 100 million at the beginning of the year plus the cost of crude oil cargos). Also, the GoG has incurred so far in 2012 around US$ 150 million of short term debt, which is being rolled over, to finance part of VRA’s fuel requirement. By the end of the year, VRA will likely carry around US$ 350 million of short term financial debt mostly related to fuel purchase, and the GOG around US$ 300 million (see table below). Conversely, as of October 2012, GoG owes VRA about US$ 190 million, GRIDCo US$ 8 million, and CEB US$ 3.9 million to VRA.

Table 3: VRA and MoFEP Short Term Debt for Fuel Cargos (in US$ mn)

US$ million	Beginning of 2012	Sep 2012	End 2012
VRA (only for fuel cargos)	-	150	250
MoFEP(only for fuel cargos)	-	150	300
Total (only for fuel cargos)	-	300	550
VRA (total)	100	250	350

Source: VRA

15.               VRA will clearly require financial support to pay this large short term debt. GoG will likely have to inject cash to VRA through a conversion of the crude oil purchases into an increase in equity in VRA.

Overallfinancial situation

16.              VRA is facing the most difficult financial situation of the three utilities. While it made a profit in 2011 (about US$55 million), the financial results will deteriorate sharply in 2012. The April 2012 revised budget, based on the assumption of the absence of tariff adjustment in 2012 and reduced gas volumes over the first half already indicated a significant loss. However, the temporary shutdown of gas supply and the further depreciation of the cedi against USD have made the situation much worse.

17.               The World Bank estimatesthat VRA’s loss for the year will amount to US$ 375 million, equivalent to half of its total revenues. This includes the entire costs of fuel purchase for VRA plants, including the cargos financed by the GoG. The actual loss at the end of the year will therefore be smaller if GoG covers some of the crude oil purchases, but the forecast better reflects the actual losses of VRA, before the injection of GoG support.

18.              Our forecast for 2013 indicates further, albeit reduced, losses at US$ 97 million. This is worrying since the forecast is based on fairly optimistic assumptions (stable gas supply from WAPCo all year round, flows of domestic gas starting in July and sustained availability of T1 combined cycle)butno tariff increase. Given the huge need for investment in additional capacity to meet the growth in demand, a generator with most of its generation based on hydro should generate significant cash-flow from current operation and be able to self-finance part of its investment program and to borrow based on the strength of its balance sheet.

VRA Logo

19.              Instead, VRA will be in a situation where, even with a fairly optimistic scenario for gas availability, current operations will result in net cash outflows. In addition, the company will have to deal with the large stock of short term debt accumulated in 2012.

Table 4: VRA’s Financial Results (2011-2013)

	Unit	2011	2012	2013
Total operating revenue	US$  M	764	750	764
Total operating costs	US$  M	672	1,111	860
Operating result	US$  M	92	(361)	(95)
Operating margin	%	12%	-48%	-12%
Financial and others	US$  M	(39)	(14)	(2)
Net result	US$  M	53	(375)	(97)
Net cashflow	US$  M	84	(425)	(507)

	Unit	2011	2012	2013
Total operating revenue	GHCm  M	1,147	1,313	1,533
Total operating costs	GHCm M	1,008	1,944	1,724
Operating result	GHCm M	138	(631)	(191)
Operating margin	%	12%	-48%	-12%
Financial and others	GHCmmM	(58)	(25)	(4)
Net result	GHCm M	80	(656)	(195)
Net cashflow	GHCmmmmmM	127	(743)	(1,016)

Source: World Bank based on VRA’s financial information.

20.             In addition, VRA’s capital expenditure program (as of April 2012) is no longer achievable, given the cashflow situation and the timing of these investments. In 2011, VRA invested only about US$ 67 million in capex (instead of the US$ 123 million originally planned). In 2013 and 2014, VRA is projecting large investments in generation with total capex of US$ 860 and US$ 595 million[10] respectively. It is apparent that VRA’s annual budgetary and investment  planning is not able to deal with the volatility of its operating costs. In the absence of any buffer or contingency funds, it is not clear how a loss-making VRA would finance even reasonable levels of capex in 2013.  Going forward, quarterly financial reviews of both opex and capex by VRA are essential and less expensive credit lines need to be put in place to help tide over unanticipated calls on cash.

D.   Ghana Grid Company Limited (GRIDCo)

21.              GRIDCo remains financially viable in the short term, with a profit of about US$ 24 million for 2012 and US$ 33 million in 2013 (although less than the US$ 56 million in 2011). However, as the Transmission Service Charge (TSC) has  not been adjusted[11], GRIDCO’s profitability and capacity to invest for the long term will go down due to:

-          Cost increases (inflation for local costs such as staff and O&M, and currency depreciation for imports). The currency depreciation will result in a reevaluation in Cedi of the value of debt (forex loss) further reducing the net income.

-          Decrease in volumes of energy transmitted (due to load shedding and gas supply disruption)

-          Higher energy losses than allowed by the regulator (4.2% against 3.5%), in part due to the generation mix with more hydro (hydropower plants are further away from consumption centers).

22.             In 2013, the operating profitability would go back to levels similar to 2011, provided that energy volumes recover from the decrease observed in 2012 due to generation/gas shortages. However, significant forex losses would still reduce the net income.

Table 5: GRIDCo’s Financial Results (2011-2013)

	Unit	2011	2012	2013
Total operating revenue	US$  M	158	138	144
Total operating costs	US$  M	101	100	92
Operating result	US$  M	57	38	52
Operating margin	%	36%	28%	36%
Financial and others	US$  M	(1)	(14)	(19)
Net result	US$  M	56	24	33
Net cashflow	US$  M	29	3	(15)

	Unit	2011	2012	2013
Total operating revenue	GHCmC	237	242	289
Total operating costs	GHCmmmC	152	175	184
Operating result	GHCm M	86	67	104
Operating margin	%	36%	28%	36%
Financial and others	GHCm M	(2)	(25)	(37)
Net result	GHCm M	84	42	67
Net cashflow	GHCm M	44	6	(29)

Source: World Bank based on GRIDCo’s financial information.

23.             In terms of arrears, ECG owes GRIDCo about US$ 43 million and agreed to repay all arrears by March 2013. However without a substantial reduction in GoG payment arrears to ECG, this seems unlikely. Valco owes GRIDCoabout US$ 8 million – equivalent to about one year of consumption. CEB now pays regularly and has little arrears. GRIDCoin turn owes US$ 8 million to VRA.

24.             GRIDCo is mobilizing financing for its investment program. It has signed a 141 million euros loan from the AgenceFrancaise de Developpement (not yet disbursed). This AFD loan is not backed  byaGoGguarantee, (“non-sovereign” loan), which means that AFD carried out a more thorough due diligence of the finances and business model of GRIDCo and continues to do so. GRIDCo is also negotiating several loans backed by Export Credit Agencies (ECA). GRIDCo just closed a 82 million euros loan with SociétéGénérale (12 years including 2 year grace, Euribor plus 1.7%, backed by French ECA COFACE) for two projects. It is also negotiating several other loans potentially backed by Norwegian, UK, and Korean ECAs on terms that appear reasonable. This is positive to finance an ambitiousinvestment program.

25.              GRIDCo is now a credible operator able to raise long-term financing on the strength of its balance sheet and prospects for future cash flow generation. It is important to secure this success by ensuring regular adjustments to the TSC (currently eroded by inflation) and other components of the tariff since GRIDCo is not immune from the problems affecting the other utilities (financial distress leading to payment arrears and generation shortages).  It is also critical to ensure that GRIDCo can comply with the commitments made to lenders (loan covenants such as Debt Service Coverage Ratio) and continue to monitor the amount/terms of the debts acquired to finance the capex program.

GRIDCo covenants with World Bank

26.             As per ongoing Credit agreements, GRIDCo has committed to comply with two financial performance covenants:

-          Maintaining a “current ratio” (ratio of current assets to current liabilities) of at least 1.2

-          Not incurring any new financial debt unless a “reasonable forecast” for the following fiscal year indicates that ECG will maintain a Debt Service Coverage ratio of at least 1.3.

27.              GRIDCo complies with the financial covenants. In 2011, it had a healthy current ratio of 2.6 and it is projected to remain strong. Similarly, its DSCR is above 1.3 but GRIDCo should remain vigilant as it is currently taking on more debt.

E.    Electricity Company of Ghana (ECG)

28.             ECG is in a difficult financial situation as it accumulates losses and has a large negative cashflow. After making a small profit in 2010 (about US$ 4 million), ECG made a small loss in 2011 (about US$ 16 million).[12] However, in coming years, we project significant losses for ECG (US$44 million in 2012 and US$ 60 million in 2013)[13]. ECG would also have a negative cashflow of respectively US$15 million in 2012[14] and US$ 97 million in 2013 (see table below), which is unsustainable. An 18% increase of the distribution service charge would be needed in 2013 to have a zero deficit that year.

Table 6: ECG’s Financial Results (2011-2013)

	Unit	2011		2012	2013
Total operating revenue	US$  M	806		795	746
Total operating costs	US$  M	833		827	789
Operating result	US$  M	(27)		(32)	(43)
Operating margin	%	-3%		-4%	-6%
Financial and others	US$  M	11		(12)	(16)
Net result	US$  M	(16)		(44)	(60)
Net cashflow	US$  M	4		(15)	(97)
	Unit		2011	2012	2013
Total operating revenue	GHC  M		1,209	1,391	1,495
Total operating costs	GHC M		1,249	1,447	1,582
Operating result	GHC M		(41)	(56)	(87)
Operating margin	%		-3%	-4%	-6%
Financial and others	GHC M		17	(21)	(33)
Net result	GHC M		(24)	(77)	(120)
Net cashflow	GHC M		7	(27)	(195)

Source: World Bank based on ECG’s financial information.

29.             The main reasons for ECG’s financial deterioration are that:

-          Costs are rising (local inflation for staff, administrative and O&M expenses, currency depreciation for debt repayment, some equipment, and purchases from SunonAsogli in US$)

-          The nominal revenue per unit is frozen in the absence of tariff adjustment.

-          Sales volumes are stagnating in 2012, given supply disruptions.

-          Distribution losses remain high (27% in the second quarter of 2012)

30.             The prospects of persistently negative cash flow for ECG is problematic, not only for the company itself, but for the entire sector. In practice, when ECG is faced with liquidity constraints, it reduces its payments to the other utilities (VRA and GRIDCo). At mid-year, ECG owed 60% more to its main suppliers (VRA, GRIDCo, and SunonAsogli) – a total of GHC 402 million, compared to GHC 250 million at the beginning of 2012 (see table below).[15]

Table 7: ECG Payables to Main Suppliers as of End June 2012 (in GHC million)

	Opening balance 2012	Billsin 2012	Paymentsin 2012	Balance - end of June 2012	Variation in 2012
VRA	211	285	154	342	+ 62%
GRIDCo	19	90	101	9	- 54%
SunonAsogli IPP	20	136	105	51	+ 149%
Total	250	510	359	402	+ 60%

31.              ECG has numerous suppliers’ creditsthat it contracted mainly in 2011.  This is a costly way to buy equipment as interest rates are embedded in the price of the goods. In the second half of 2012 alone, ECG will have to pay GHC 61.3 million for these contracts and GHC 76.4 million in 2013. If ECG could reschedule these liabilities over say five years, it would improve its cashflow by about GHC 49 million and GHC 48 million respectively in 2012 and 2013 (this is significant as projections for net cashflow are currently a negative GHC 27 million and GHC 195 million). Note that these liabilities are foreign-exchange based (as is the SunonAsogli IPP) and ECG uses its revenues from mining companies in forex to pay for these contracts. ECG does not yet seem to be applyingitsnew guidelines on suppliers’ credits since it continues to take on fresh commitments in 2012. ECG’s US$60m supply and install meter purchasing scheme for the Ashanti West Region is not included in the above and will further aggravate ECG’s cashflow in the coming years.

32.             As regards its substantial receivables problem, ECG reports that GoG owed them GHc 428.2 million and private customers (industrial, non-residential, and residential) about GHc 205.4 million^[16] as of June 2012. In total, this represents about 5.5 months of the expected 2012 total revenues and 1.4 times the amount owed by ECG to its main suppliers. Hence ECG’s insistence that a substantial reduction in public sector receivables would go a long way to ease its own payables to others.

33.             Despite predicted losses and shortfall in cash, ECG has an ambitious capexplanof US$ 190 million on average per year for 2012-2015. It is unclear how ECG can finance the capex in the current conditions.

ECG covenants with World Bank

34.             As per the GEDAP 2007 project agreement with the World Bank, ECG has committed to comply with two financial performance covenants:

-          Maintaining a “current ratio” (ratio of current assets to current liabilities) of at least 1.2

-          Not incurring any new financial debt unless a “reasonable forecast” for the following fiscal year indicates that ECG will maintain a Debt Service Coverage ratio of at least 1.3.

35.              In 2011, ECG did not comply with the first covenant. According to the financial statements, the current ratio is about 0.9 instead of the required 1.2[17]. While according to the Project Agreement, ECG “shall promptly take all necessary measures (including, without limitation, adjustments of the structure or levels of its rates) in order to meet such requirements” ECG or PURC are not taking such action and ECG does not project any improvements over coming years.

36.             ECG apparently still complies with the second covenant as the DSCR ratio for 2012 should remain above 1.3. However, according to its projections, ECG will not comply with it in coming years.

F.    Recommendations

Regulatory issues for PURC to address

37.              Resume the quarterly adjustments as soon as possible to avoid unsustainable losses for the utilities.

38.             Provide more information to the public regarding the adjustment parameters and assumptions.

39.             Continue to prepare next major tariff revision so that it can be implemented no later than mid-2013:

40.             Revisit some parameters for tariff regulation:

a.      Performance benchmark for ECG (allowed rate of distribution loss, normative cost of service assumptions needs to better differentiate between customer categories)

b.      Normative Regulatory Return on Assets for ECG (4%) appears low – the working capital requirements needs to be added to the asset base.

c.       Reassess  the tariff structure (excessive levels of cross-subsidies between users)

d.      Review the possibility to vary losses requirements on GRIDCo depending on the generation mix/location of the plants (currently more hydro leads to more losses for GRIDCo as transmission distances are longer).

VRA

41.              Agree with GoG how the large amount of short term debt will be repaid to crude oil suppliers/commercial banks.

GRIDCo

42.             Continue to monitor closely the amount/terms of the debts acquired to finance the large capex program and make sure that the repayment period is adapted to the financing of long-life assets. In particular GRIDCo should continue to estimate the impact on the debt service coverage ratio for GRIDCo to remain financially healthy and comply with current debt covenants.

ECG

43.             Renegotiate existing suppliers’ credits to spread out the repayment over at least 5 years.

44.              Revive the use of the corporate financial model to produce quarterly updates for senior management. Elaborate a commercial action plan and implement measures based on the recent loss study.

45.              Define and implement an appropriate long-term financing strategy for investments, and better manage cash flow:

-          Capital expenditures planning should be more realistic and provide basis for realistic cash flow forecasts.

-          Use the suppliers’ credit financing sparsely and apply the recently developed guidelines.

LIGHT S OUT

The truth, Propaganda, Claims And Lies

The supply of electricity in Ghana is fast reaching the low depths to which the country sank in 2007 when the country endured electricity blackouts for months.  Currently vast areas throughout the country are left in total darkness, especially in the evenings when people return from work or their farms.

The most disconcerting situation is that the electricity companies do not care about the excruciating discomfort faced by  the poor consumers who are not just suffering the heat but are having their household appliances being damaged. The fact is that neither the VRA nor the ECG is in a mood to announce a load-shedding programme and they do not care when they put off the lights. Not bothered by the inconvenience of customers, the Customer Service assistants of the ECG  display total ignorance of the problem when contacted. To add salt to injury, the PRO of GRIDCO felt bold to inform customers that “You cannot sue us”. These days, when the consumer comes home to see the  electricity on, s/he thanks  the stars; until the next minute when the lights would go off on him/her.

Unlike previously when an organised load-shedding programme would result in having lights on or off on alternative days, this week, some households have had lights off for four nights running.

Since  August 27th 2012, when the West African Gas Pipeline was severely damaged due to an attempted hi-jack by pirates off the coast of Togo, the electricity companies have been struggling to provide the required levels of electricity for consumers.

Before the incident, national grid was obtaining about 15% of electricity from the Sunon Asogli Power plant. When this was lost because of the  gas pipeline incident, the Volta River Authority (VRA) was compelled to rely on the use of crude oil to power the thermal plants in Tema and Aboadze (near Takoradi) to make up for some of the shortfall.. 

However, sources close to the VRA indicate that the Authority is totally broke. As a result, it cannot open letters of credit to pay for crude oil imports. It is believed that Central Government has been issuing VRA “chits” to borrow from the banks. However, with no sign that the VRA is going to settle their accounts in the foreseeable future, the banks have been rejecting the “chits”.  

While this is happening, the VRA is owed more than One Billion Ghana Cedis in unpaid bills. The controversial and inexplicable activation of the loss making VALCO  has resulted in a situation whereby the Company is unable to pay for the electricity they use. However, government insists that VALCO should be supplied with electricity on credit. At the same time various Government Ministries, Departments and Agencies owe the ECG to the tune of more than GH¢230 million. The irony of the situation is that while fee-paying households are in the dark, buildings in Government Ministries are brimming with lights throughout the night although they do not pay their electricity bills.

The knock-on effect is that the ECG is owing GRIDCO more than GH¢70 million because Government Departments owe ECG and they (ECG) cannot pay GRIDCO . It is also believed that the loss-making VALCO is owing GRIDCO more than GH¢10 Million in unpaid bills. 

It is within this context that the Government is very soon, going to announce further price increases for the bill-paying public who are sleeping in darkness. However, when they announce the increases, the PURC would claim that they are removing “subsidies”.   

In October 2012, the World Bank issued a report in which they stated that the “financial situation of the power sector in Ghana is deteriorating quickly” and that “VRA and ECG will both make substantial losses in 2012 and only GRIDCo will have a positive financial result”. The report further stated that “the total short term debt accumulated by VRA and the Government of Ghana to purchase oil for VRA will be around US$ 550 million by end 2012, which is almost equivalent to VRA’s annual turnover in 2012”.

As Government agencies fail to pay their electricity bills, the debts of the VRA and ECG would keep growing at unsustainable levels; and the only answer would be to worsen the plight of individual households by demanding higher bills from them.

The World Bank report made the following recommendations:

-          GoG should resume paying its electricity bills on time, clear its arrears to the utilities and review the workings of the clearing house payments system.

-          MoFEP should scrutinize the list of state bodies whose electricity consumption GoG pays for and assess which could be removed from the list. These bodies should start paying their electricity consumption themselves. MoFEP should also instruct ECG to install prepayment meters in public institutions wherever practical.

-          PURC should resume applying the quarterly tariff adjustment mechanism with immediate effect.

-          VRA and GoG should make arrangements to refinance/reschedule expensive short term debt incurred for crude oil purchases.

-          ECG should make immediate efforts to improve its revenue collection performance to reduce payment arrears from private consumers.

-          ECG should seek to reschedule repayment of short-term suppliers’ credits.

-          GoG should make explicit budgetary provision for reimbursing to VRA the real economic cost of providing VALCO with power at artificially low electricity rates.

The claim by VRA that gas from the West Africa Gas Pipeline  may be flowing in April may have to be taken with a pinch of salt, since every other month, they promise that there gas damage would be on stream in two months time.  

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[1]Key assumptions include resumption of WAPCo gas supply at 100 MMCF/day from December 2012, supply of domestic gas at 60 MMCF/day from July 2013, oil price at US$114/bbl, no tariff adjustment, energy losses of 25% for ECG in 2012 and 24% in 2013, and an average exchange rate of 1.75 GHC/US$ in 2012, and 2.00 in 2013.

[2] Even if gas was widely available and replaced entirely LCO, the short run marginal cost of the system would be around 11 USc/kWh more than twice the current generation tariff.

[3] The GoG is supposed to compensate VRA for the difference between the BGC and the price paid by Valco, but this represents less than 10% of the full cost of Valco for the power system.

[4] The contract for provision of gas to Ghana has not reached official commercial effectiveness (where volume due is 123,000 MMCF/day). In 2011, Ghana received about 100,000MMCF/day but in 2012 the average was around 60,000 MMCF/day although it was back to 100,000 MMCF/day before the August accident.

[5] As of October 5, the reservoir for Akosombo was at about 268 feet of a maximum 278 (3 feet less than last year at the same time).

[6]GoG has not decided yet how the Bui hydropower plant will be operated. In any case, the cost of servicing the debt and low load factor will make the energy from Bui relatively expensive for hydropower.

[7] For exchange rate, we assumed an average of 1.50 Ghc/US$ in 2011, 1.75 in 2012, 2.00 in 2013 and 2.15 in 2014.

[8] The GoG has also failed to make payments for items outside the clearinghouse mechanism (e.g. payment to ECG for extension of lifeline tariff and compensation for Valco to VRA).

[9]. We assumeJubilee gas will be available from July 2013 and will be priced at the same level as Nigerian gas.

[10]As per VRA’s 2012 revised corporate budget from April 2012, this includes a 100 MW wind plant for US$ 243 million (although the project is delayed), TT1PP steam portion expansion for US$ 194 million (but it is not clear what VRA’s share of this expansion would be), Pwalugu hydro project for US$ 227 million (but construction will not begin till 2015, so it is unclear why it is in the 2013-14 program), Juale hydro project for US$ 210 million (but feasibility study has yet to start) , and Takoradi3 expansion for US$ 149 million (VRA is planning to contact various potential companies, which may propose financing attached, and then make a decision).

[11]GRIDCo estimates that the required Transmission Service Charge would be 2.68 GHc/kWh instead of the current 2.48 GHc/kWh.

[12] This comparison is however a bit misleading because a significant asset revaluation in the 2011 financial statements led to a near doubling of depreciation charges (and at the same time of the net book value of fixed assets and of equity).

[13]  We assumed 25% losses in 2012 and 24% in 2013. This is higher than what ECG reports recently but lower than what it reports for 2011.

[14]  ECG forecasts to pay its creditors 2.5 months later than its clients would pay it, hence a negative cashflow of “only” US$ 15 million in 2012.

[15] ECG confirmed that the difference in the amounts invoiced by SAPP and the amounts considered due and paid by ECG is still not solved.

[16]GHc 299.4 million if we include the additional 30% that was invoiced but not due at the time.

[17]  Current assets stand at 689.0 GHc million and current liabilities at 752.2 GHc million (2011 financial statements).

EDITORIAL

PLEASE FIND A SOLUTION NOW !

Many Ghanaian are getting fed up with the numerious excuses being  offered by officials for irregular power supply..

The point is that the power outages are making life unbearable for the people and something needs to be done.

 May households have lost  Appliance like refridagerators, pressing irons, microwave ovens, airconditioners and more as a result of these outages.

The cost of production of many industries is shooting into the skies and many working could lose their jobs as a result tons of food in cold storage has also gotten bad as a result.

Simply put, power outages are destroying many aspects of the lives of the people of Ghana.

The Insight urges the authorities to do something real quickly about the problem and stop giving excuses.

We do not pay officials huge salaries to give us excuses for their failure.

We pay them to solve our problems including the power  outages.

Please find a solution to the problem now 

Is 2013 Tsvangirai’s Last Chance

Morgan Tsvangarai

Could 2013 Be Morgan Tsvangirai's lucky year? Can President Robert Mugabe's long-time rival, who has led the Movement for Democratic Change party since 1999, be third time lucky and unseat the veteran leader after failing to win two presidential elections in 2002 and 2008?

What will happen if the 61-year-old Tsvangirai loses again? These are niggling questions as 2013 opens, with "elections" being the buzzword for a year that will see Zimbabwe inevitably going to the polls after four years of a coalition government. Tsvangirai has been increasingly foreboding about 2013 and during rallies at the close of 2012 he made his feelings - and fears - known.

"We have one chance left - 2013 - to prove that this party is ready to govern," he told supporters in November, and then added in Shona, the main language of the country, that if the MDC failed again "some of us will go back to the villages to herd cattle".

At a rally in the country's third city of Gweru in early December, Tsvangirai told supporters that if the party lost it would be "difficult" and that he would resign as party leader. He, however, retracted this statement, telling the Daily News newspaper that it was a "joke".

"I'm a messenger of hope and cannot be a carrier of bad news," he was quoted as saying. " ... I cannot be discouraging my own supporters or threatening them. We will win the next elections."

Politicians, commentators and analysts are agreed that because of the elections, 2013 will be a crucial year. The elections are expected in the mid-year after the conclusion of the constitution-making process, and the institution of necessary reforms.

The government has set aside $50m for the constitutional referendum and the elections. The Zimbabwe Electoral Commission says it is ready for the two processes and will need about $300m.

"The most important thing about 2013 is that there will be elections," says Professor Welshman Ncube, leader of the smaller MDC splinter party, now called MDC- Green because of the party's livery. "The election will define where the country goes, and it has to be an election that is regarded by Zimbabweans, Africans and the international community as legitimate, free and fair, and reflects the will of the people ... We owe it to ourselves and future generations that we have credible polls regardless of who wins them."

While the MDC-Green leader believes that 2013 is a year that Zimbabwe will see a "rebirth", the vice-chairman of the main MDC party (now called MDC-T), Morgan Komichi, says 2013 will be a "watershed" year, almost like the country's independence year, 1980.

"We are all fed up with this Inclusive Government as it has not produced any results because of the competing interests," he told New African.

"We want the people to elect a party that will be people-oriented and institute programmes and policies on its own," Komichi said, adding: "The elections should be issues-based and parties must desist from violence."

Zanu-PF held its annual conference in Gweru between December 4 and 9, and overwhelmingly confirmed President Robert Mugabe as the party's candidate for 2013. He will be 89 years old by then.

Zanu-PF also resolved, inter alia, "redirect all structures of the party to earnestly and immediately prepare for a resounding victory in the forthcoming elections ... "

The party has adopted the slogan, "bbora mugedhi" (in Shona) or "Ibbola Egedhini' (in Ndebele) for the elections. In English. it means "[footjball in the net". This is in response to the stance adopted by some Zanu-PF members in the 2008 elections who deliberately caused the party candidate, Mugabe, to lose by playing the' "ball into the woods".

Professor Lovemore Madhuku, a political commentator and University of Zimbabwe law lecturer, is one of those who are not quite so enthusiastic about the 2013 elections. "It will be more of the same," he says.

"In the coming elections," he argues, "if Zanu-PF wins, there is nothing new that will come up as the same people will be ruling the country as they have done for over 30 years. IfMDC-T wins it will not change anything much either. There is a need for a third force but that is not possible now. Maybe in 2014 or 2015," he said.

Leaders of the smaller parties in the country, Zapu and Mavambo Kusile Dawn have ruled out joining forces with MDC-1 to try and unseat Mugabe, as has Ncube who split with Tsvangirai in 2005.

According to Madhuku, 2012 was a "disastrous" year for Zimbabwe as a country. "It was a year when there was no development and the Inclusive Government wasted time and lied to the people," he said.

"At  the beginning of the year, they promised that there would be a new constitution but there has been none. The parties wasted time trying to score political points against each other rather than making developments," Madhuku added, attributing this to the "dysfunctionality" of coalition governments. "These experiments of coalition governments do not work," he explained.

Madhuku, who has been linked to a political career possibly in MDC-T, may be so unsparing of mainstream politicians, but he is not wrong. In 2012, a new constitution was expected, which it was hoped would pave the way for crucial electoral reforms. But that did not materialise although last year saw some key milestones such as the final draft of the constitution and the Second All Stakeholders Conference in late October. However, the MDC-T is not dissatisfied with 2012. Komichi said the party was happy with the progress of the constitution-making process, although it had faced numerous constraints. He was also happy with what MDC-T had done on the ground, ahead of elections next year.

"We have been doing serious work on the ground as we have been setting structures and doing training programmes on organising, elections, information dissemination, and conflict management, Komichi revealed. "All our programmes were to empower our cadres to be highly trained. The party is ready for elections as long as there are necessary reforms in the media and the constitution."

But opinion polls published in the middle of 2012 pointed to the MDC-T's declining support. Komichi acknowledges this fact. "We are a party that listens," he says. "We have responded positively and we have done a lot. We are not going to argue with the findings: it might be a blessing in disguise. Where people say we are not doing enough we improve. These polls actually help us."

For his part, Ncube, the leader ofMDC- Green, thinks 2012 was a "good year" for the party. "We spent time in the villages and cities across the country interacting and mobilising support, and as a result the party witnessed phenomenal growth," he claimed, disclosing that as many as 120,000 joined the party in 2012.

It was the year that the party rebranded to its "Green" livery, which are the colours of its regalia and symbols, and even bicycles that the party has been distributing to Ncube's supporters. "It all went exceedingly well," he said, "despite some challenges from those who want to destroy our party and those who wanted to challenge our leadership in the courts even though the old leadership had been removed at the congress in 2011."

The former leader of MDC-Green, Deputy Prime Minister Professor Arthur Mutambara spent a good part of 2012 contesting the leadership of Prof Ncube in the courts. Ncube said he was happy 2012 saw the proclamation of a human rights law and the licensing of two new radio stations in Zimbabwe. He wants the licensing of an independent TV station to be implemented soon. Ncube, who is also the industry and commerce minister, said Zimbabwe had "not done so well" on the election roadmap, leading to foreign investors adopting a "wait and see" attitude, uncertain about

Zimbabwe's elections and future. However, in November, the country scored a major coup when it held the inaugural Zimbabwe Diamond Conference, which brought together stakeholders from across the globe, including Gillian Milovanovic, the outgoing head of the Kimberly Process and Certification Scheme (KPCS) who comes from the US. The US, Canada, and other Western countries, had opposed the sale o fZimbabwe diamonds, alleging they were "blood- diamonds". However, the country has been certified as fully-compliant with the KPCS procedures and is now free to sell its diamonds, after years of constraints and the monitoring of sales .•