World Bank tells Ghana to stop ‘hidden’ subsidies to Valco

The World Bank has told the Ghana government to stop the hidden subsidies it gives to the Volta Aluminum Company (Valco) because the company is not financially sound.

According to the World Bank, if the government chooses to provide any subsidy to Valco, it should make this explicit and fund it transparently from the national budget.

Assessing Ghana’s energy sector, the World Bank in a report launched July 2, 2013, indicated that since taking over in 2005, the Ghana government has sustained Valco by providing it electricity at a subsidized rate, even at times when the country was undergoing power cuts.

“At the full cost of electricity, Valco is not viable,” said the the report titled “Energizing Economic Growth in Ghana: Making the Power and Petroleum sectors rise to the challenge”. The report also highlights the centrality of fixing the problems in the power sector as a path to ensuring that Ghana’s economic growth ambitions are not stymied by lack of electricity.

The report revealed that Valco’s subsidized power costs the sector around $150 million per year as the company still remains operational despite power shortages and its high economic cost for Ghana.

The World Bank noted that Valco’s subsidy which it describes as ‘hidden’, “degrades the Volta River Authority’s financial condition”.

“Notwithstanding its low tariff”, the report added “Valco has failed to pay VRA and the Ghana Grid Company (GRIDCo) in full, and the Government has not honoured its commitment to VRA to make up the revenue shortfall caused by Valco’s subsidized tariff.”

As a result of Valco’s failure to pay its cost, the World Bank states that VRA and ultimately all power consumers in Ghana are bearing the subsidy’s onerous burden.

Electricity consumers should not be forced to bear the burden of Valco’s subsidy, the World Bank stated.

In the World Bank’s view, Valco should pay the same tariff for electricity as other large users.

By Ekow Quandzie