Dollarisation escalating energy sector woes

The practice of pegging fees and tariffs in dollars by power producers and state agencies in the energy sector is compounding the sector’s debt situation, Energy Minister Dr. Matthew Opoku Prempeh has lamented.

Power producers and other players in the energy sector, including input suppliers, typically charge in dollars; but the practice, according to the minister, is escalating energy sector-related debt – which is projected to reach US$12.5billion by end of this year if not addressed. The practice has persisted despite the Bank of Ghana’s Foreign Exchange Act, Act 2006, prohibiting pricing in foreign currencies.

“This charging in dollars, against the Bank of Ghana Act 2006, is something that we have to rethink because it’s escalating the sector’s woes. In fact, the Public Utilities Regulatory Commission’s rate is virtually in dollars. Meanwhile, nobody buys or uses dollars to buy electricity; so, you realise that every year some of them even go back to the Electricity Company of Ghana (ECG) for forex losses,” Dr. Opoku Prempeh said.

The minister’s concerns come on the back of revelations that state-owned ECG, the country’s main electricity utility, owes Bui Power Authority – a power generation firm -some US$614million for power bought in dollars, in addition to the over-US$1billion it owed Independent Power Producers at end of last December.

This came to the fore during the Public Accounts Committee (PAC) of Parliament hearing on the 2020 Report of the Auditor-General on the public accounts of public boards, corporations and other institutions.

Dr. Opoku Prempeh, who is the Member of Parliament for Manhyia South, however said the practice is not only a violation of Bank of Ghana laws but is also contributing to rising energy sector debt – particularly the ECG’s inability to pay for the power it buys from producers in dollars.

“The Bank of Ghana has written to all those institutions saying that in Ghana goods and services are chargeable in local currency, unless you go for a special permit or something from the Bank of Ghana – which none of them has, so it is something that we must escalate because it skews a lot of things out of the way.

“We have to be serious about this dollar-denomination constantly escalating situations we put our energy sector into,” the minister noted.

Correcting the situation

He indicated that his office is taking steps to engage the Ministry of Finance and Bank of Ghana to check the situation, which he described as a ‘system-breaker’.

“We are taking steps to get buy-in from the Ministry of Finance to re-denominate all dollar-denominated fees into cedis. I think with support from the Committee [PAC], this will be a huge burden-lifter for debts in the system. It is really a breaker of the system, because as soon as something happens to the currency we are dead,” he advocated.

Meanwhile, Chairman of the PAC, James Klutse Avedzi, cautioned both public and private institutions to desist from transacting in dollars as it is against the law.

“We have to start from government before we come after the private people. Most of the government institutions are charging in dollars. They should stop that. Our currency is the cedi, why are we charging dollars? ECG sells the power in cedis, but now has go chasing dollars to pay you,” he fumed.

ECG’s indebtedness to Bui Power Authority

As at the end of 2022, ECG’s debt to the Authority hit US$614million from US$386million in 2019.

Chief Executive Officer of Bui Power Authority, Samuel Kofi Dzamesi, told the Committee that even though his outfit commits to producing more power to supply ECG, the latter has failed to keep up with consistent payment of receivables; a situation that he said remains a major challenge to the Authority’s operation.

“Every year, we at Bui Power are doing our best to generate more power; but we are not getting the receivables from ECG, and it is a very big problem for us.

“Even last year, we generated more power than any other year since Bui Power was commissioned. We generated 1,540 gigawatts and our profit margin for last year should be hitting around US$70million – and yet we are not getting anything. We are rich, but we do not have money in our pockets,” he added.