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$30milllion).
The loans were primarily used to purchase light crude oil and gas
to fuel thermal power plants in the wake of a shortage of gas
sources from Nigeria, through the West Africa Gas Pipeline
The generation company also owes the Ghana National Gas Company
(GNGC) US$ 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
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
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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