Ghana’s future competitiveness: The power sector and US’ model

The United States is pushing for a proper management of Ghana’s power sector because it is a key catalyst to ensure economic growth.

According to a US diplomat at the Embassy in Accra, Ghana’s competitiveness relies on a stronger and a more reliable power sector.

“We all know that lack of reliable power is a key constraint to Ghana’s economic growth,” said Ms C. Patricia Alsup, Charge d’Affaires at the US Embassy, September 20, 2013 at a media round-table session on the $7 billion Power Africa Initiative.

According to Alsup, reliable power is “so central in all economic activities” and “Ghana’s current and future competitiveness hinges on ensuring that this sector is properly managed and attractive to those much willing to make capital investments.”

Ghana’s global competitive strength fell drastically in the 2013 edition of the Global Competitiveness Report (GCR) Index published September 4, 2013 by the World Economic Forum (WEF).

With a score of 3.69, Ghana lost 11 spots to place 114th in the latest index from the 103rd it ranked in the 2012 edition. This was due to the weak nature of the country’s macroeconomic indicators.

Ms Alsup told reporters that the US government has been working with Ghana on what she says a Partnership for Growth (PfG) roadmap to unlock private sector investment in the power sector.

“Some of these activities include improving Ghana’s ability to harness its offshore gas supply and to make the electricity off-taker more credit worthy,” Ms Alsup mentioned.

Ms Alsup admitted that “these are big and difficult undertakings” but quickly added “power is so central”.

She explained that the Power Africa initiative which was announced by President Barack Obama June 30, 2013 in South Africa is to increase the megawatts of electricity supply.

ECG restructuring

The Millennium Challenge Corporation (MCC) which is a key stakeholder in the Power Africa initiative has already called for serious restructuring of the Electricity Company of Ghana (ECG) both at management and operational levels.

The US agency wants some reforms that will make the ECG more attractive for private sector investments.

Before leaving office, the former MCC Ghana Director, Katerina Ntep, in July 2013 said the reforms expected at ECG is partly to be blamed for the delay in approving the second MCC Compact for Ghana.

“Right now, if you try to privatise ECG, who will buy it? Not even SSNIT will purchase,” Ntep said at her last encounter with the Ghanaian press.

Arrears owed ECG is killing the company, she stated.

For instance, the Ghana government has GH¢420.99 million of utility arrears in the power sector to clear as at the end of 2012.

According to a report by the Ministry of Finance and Economic Planning (MoFEP), obtained by ghanabusinessnews.com in July 2013, the government owes the three key state agencies in the power supply chain – the Volta River Authority (VRA), the ECG and the Northern Electricity Distribution Company (NEDCo).

The government’s indebtedness to VRA, ECG and NEDCo was GH¢239.89 million, GH¢107.73 million and GH¢73.37 million respectively as at the end of 2012, indicates the report which was completed May 2013.

“The first order of business is to strengthen ECG as an enterprise and then in the future you consider the option to float shares on the Ghana Stock Exchange for purchase then it [ECG] will be much more accountable to Ghanaians,” Ntep outlined.

The MCC observes that ECG’s power distribution system is weak as it makes more losses despite ECG’s plan to invest $190 million on average per year for 2012-15 to upgrade and expand its distribution networks, according to a recent World Bank report.

Indeed the World Bank report titled “Energizing Economic Growth in Ghana: Making the power and petroleum sectors rise to the challenge” indicated that the ECG expects to make a loss of $60 million in 2013.

According to the report, ECG cannot raise the necessary funds, because it is currently struggling financially adding “ECG realized a small loss in 2011 and a significantly higher loss in 2012 ($44 million), and it estimates an even higher loss 2013 ($60 million)”.

The power challenges

Challenges in Ghana’s power sector are said to be a drag on the country’s economy.

The International Monetary Fund (IMF) in April 2013 warned that if Ghana fails solve its energy crisis it could curtail the country’s economic growth currently led by the service sector which mainly depends on reliable power supply.

“Energy sector problems could curtail growth,” the IMF said April 12, 2013 in a statement.

Even though it seems the power blackouts seem to be over, the IMF has cut Ghana’s projected growth to 7% for 2013.

“As energy problems have now subsided, the mission expects full-year growth of about 7%, compared with 8% in 2012,” the IMF said in a statement September 18, 2013.

Looking into the future

According to Mr Andrew M. Herscowitz, Coordinator for the Power Africa initiative, Ghana seems to be well positioned and is on track already in terms of reforms in the energy sector with specific items that need to be achieved.

He said there are some 170 items that “our colleagues [MCC and USAID] have identified and are working with the government of Ghana, and agreeing upon these areas in order to achieve the market conditions that will create the opportunities for growth in the energy sector”.

Mr Herscowitz was optimistic that Power Africa will help achieve those reforms such as undertaking feasibility studies to pave the way for US investments.

Ghana’s power output currently stands at 2311 megawatts and the country plans to add 534 MW by the end of 2013. By 2016, Ghana expects to generate a power capacity to 5,958.5MW, according to the Energy Ministry.

“In your own country the President has set the goal to achieve about 5,000 MW of power production in the next few years. So we are working with the government to help achieve your goal,” Mr Herscowitz said.

The Energy Ministry is said to be reviewing the enabling environment to attract prospective developers to the power sub-sector.

Ghana’s power sub-sector requires an investment of $4.2 billion, according to an analysis report conducted by the Energy Ministry in October 2011.

By Ekow Quandzie

Email: [email protected]