In 2017, the then newly elected Nana Akufo-Addo administration announced a rare, and most welcome cut in electricity tariffs, seemingly making nonsense of the assertions of critics that this was a politically motivated move rather than a financially viable one, and it would thus come back to bite it. Most Ghanaians simply disregarded such ominous warnings, welcoming the advent of a new, electricity consumer friendly era. The tariff cut brought with it improved household economics and the promise of enhanced international cost competitiveness for local industry.
Since then however, the harsh realities of Ghana’s economic circumstances have set in, forcing several electricity tariff increases which cumulatively have raised the cost of power significantly in cedi terms.
The incumbent President John Dramani Mahama administration has not fared better since assuming office in January. Its announcement of a 14% increase in electricity tariffs, effective from May, has generated subdued protests from households and businesses who realize the dire straits Ghana’s energy sector is in but lament that their own circumstances are just as difficult.
The International Monetary Fund and the World Bank have pushed for immediate tariff increases so as to maintain Ghana’s ongoing return to fiscal stability which is being won at a high cost to the citizenry.
The causes of Ghana’s continuous need to increase electricity tariffs result from several factors – inefficiencies in the energy generation, transmission and distribution chains as well as the revenue collection and sharing processes; alarming sheer malfeasance in the activities of management and staff of the Electricity Company of Ghana; the continued depreciation of the cedi against the United States dollar; and the relatively high cost of the diesel oil that the country’s power plants rely on for a large chunk of their feedstock.
Unfortunately, there are no quick fixes and indeed the price of imported diesel is completely out of Ghana’s control. But Ghana is in a position to further reduce its dependence on diesel for electricity generation, by seeking out and exploiting more of its gas resources. This is not only imperative for reducing the cost of power generation; it is also crucial for curbing climate change and its dire effects on the environment and the weather.
Already, the construction of the Atuabo gas processing facility has had a pivotal effect on Ghana’s economy, almost immediately turning the hitherto perennial merchandise trade deficit into a sustained surplus since the last quarter of 2016. The Chinese loan used to construct it has been paid on schedule without fuss, out of the huge financial gains it subsequently generated. The Sankofa Gyaname gas fields have had a complementary effect with similar financial viability. Now Ghana Gas has signed up to develop another gas processing plant, using private sector financing rather than a sovereign loan.
All this shows the financial viability of domestic gas production and processing for relatively cheap and clean electricity generation. The priority challenge therefore is to expand the gas resource and the capacity for processing it and delivering it to the IPPs.
Fortunately, President Mahama has assured that this is a priority strategy of his administration. Indeed it is a fix that should be prioritized by policy makers, the upstream oil and gas exploration and production industry, natural gas processors – particularly Ghana Gas – and the IPPs who can use that gas to deliver the cheaper, cleaner energy that Ghanaians need.
