Ghana: Update (18 Jul 2016): Volta River Authority Engulfed In Debt. Does This Pose A Risk To The Financial Sector?


Ghana's state-owned power generation company, the Volta River Authority (VRA), is indebted to 13 local banks and foreign financial institutions1 to the tune of about US$ 1.1billion as at July, 2016. This is hampering operations of the company contributing to power rationing in the country popularly known as "dumsor".


Indebted to Banks

Of the 29 universal banks in Ghana, the VRA owes 13 of them, with Ecobank (Ghana's biggest bank) being the largest creditor, being owed US$ 103 million, followed by Unibank (US$85 million), Standard Chartered (US$81million) and Zenith bank (US$30milllion). The loans were primarily used to purchase light crude oil and gas to fuel thermal power plants in the wake of a shortage of gas sources from Nigeria, through the West Africa Gas Pipeline (WAGP).

Other Debts

The generation company also owes the Ghana National Gas Company (GNGC) US$ 350 million. N-Gas, the company mandated to supply gas through the WAGP and jointly owned by Shell, Chevron and the Nigerian government, is also reportedly owed an amount of US$ 180 million. These debts have been mounting since August 2014 until January 2016, bringing total VRA debt to a reported US$ 1.5 billion and as such, supplies of gas have been halted, adding to the dumsor woes in Ghana.

It is not just the VRA which has been bedeviled by debt: the Electricity Company of Ghana (ECG), Ghana's electricity transmission company is challenged by financial woes amounting to US$934million, which has made the process of its privatisation a daunting prospect for investors.

Energy Sector Levies

One of the ways in which the government is seeking to make the energy sector more viable is through the introduction of the Energy Sector Levies Act (Act 899) in December 2015. The Act has not been without controversy as it seeks to harmonise major energy sector levies and taxes. The government is expected to generate about GHC 400 million (US$ 101 mn) this year of which half of the revenue will be used to defray VRA debts and the other half to restructure the energy sector. The new levies have led to an increase in petroleum prices about 5% which the Africa Centre for Energy Policy (ACEP) appealed to government to withdraw but to no avail.

Central Bank Warning

The latest Financial Stability Report of the central bank reiterated that banks' non-performing loans (NPL) ratio increased to 14.7% at year-end 2015, from 11% at year- end 2014. The regulator expressed consternation that excessive exposure of banks to the energy sector could be precarious and advised banks to tread cautiously with that sector in order to strengthen their balance sheets.


Ongoing difficulties in the energy sector including the financial delinquency of key actors is a significant source of risk for Ghana's banks and the broader economy alike. Dumsor is already returning and a greater intensity of power outages will only drive up the cost of doing business and erode business confidence (which had inched upwards earlier in the year).
Following Kwabena Donkor's resignation in December of last year, Finance Minister Seth Terkper also holds the Power Ministry brief.

While the absence of a substantive minister is a noteworthy gap, the present situation does create room for an appropriate emphasis on public finance management in energy sector policy development. Other figures to watch on policy include Energy Commission Executive Secretary Michael Opam, Deputy Minister, Power John Jinapor and Public Utilities Regulatory Commission boss Samuel Sarpong are also important influencers.

Under the existing plans, efforts are being made to remove illegal power connections, address technical/infrastructural crises through emergency measures and to dedicate funds raised via the energy sector levy to meeting VRA debt obligations. There is also a discussion around restructuring VRA loans. Assuming those discussions are successful and the collection and utilization of levy revenues are efficient, the power generation company and its creditors will benefit.



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