Continuing Power Sector Protect Consumers Ghana Economics Essay

In 1998 after an unprecedented power crisis due to over trust on Hydro-electric power, the Ghanese authorities initiated a policy displacement towards sector reform, which included pulling new investors for edifice of new coevals workss as a manner to extenuate the hazards associated with over trust on hydro power. Over a decennary subsequently the state is still gripped by power outages underlined by load-shedding, and deficiency of investing has led to an deadlock in policy determinations. Since so no new in private financed large-scale works has been commissioned. The purpose of this paper is to look at a manner forward for Ghana under these fortunes.

After over a decennary of sector reform the general construction of Ghana ‘s power sector remains the same. Since its origin, the sector has been saddled with one crisis after another underlined by seasonal load-shedding and power outages. Ghana ‘s deficiency of a consistent execution of its power sector reform policy has undermined its growing potency.[ 1 ]Power sector reform continues to be a deadlock in a state whose economic growing would otherwise be unhampered.[ 2 ]Ghana needs a comprehensive and good structured reform policy execution program, with features that take into history its separating properties as a underdeveloped state[ 3 ]. The current model is besides unequal to prolong future energy demands. Amidst increasing fuel monetary values which underlies the cost of energy, the purpose of this paper is to analysis the reform policies, ascertain the extent of the failures, and look into ways the Ghana power policy can be spearheaded unto the following phase of industry reform in order to protect the terminal users of energy, i.e. the consumers.

Key Players in the Sector

Presently, Ghana ‘s electricity coevals capacity is comprised of two hydroelectric installations, viz. ; the Akosombo and Kpong dikes and the Takoradi Thermal Facility ( TTF ) ( consisting two hydro workss, fired by light rough oil at Aboadze ) . The electricity industry is dominated by the Volta River Authority ( VRA ) , a State-owned public-service corporation responsible for the coevals and transmittal of electricity ( “ VRA operates the largest coevals installation in Ghana, the Akosombo hydroelectric works ”[ 4 ]) , the Electricity Company of Ghana ( ECG ) , besides a State owned entity responsible for the distribution of electricity for consumers in the Southern portion of Ghana, and eventually the Northern Electricity Department ( NED ) a subordinate of VRA, which performs indistinguishable maps as ECG but is responsible for Northern based consumers. The TTF was partly funded by ( alongside VRA ) Consumer Michigan Services ( CMS ) a foreign private company, after fiscal issues at place the company sold its portion to TAQA ( the Abu Dhabi National Energy Company ) . The Public Utilities Regulatory Commission ( PURC ) an independent bureau, harmonizing to the jurisprudence set uping it is tasked with calculating and puting electricity duties, educating the populace about the electricity service and efficient ingestion and monitoring criterions of service for the public benefit.[ 5 ]The PURC ‘s work is complimented by the Electricity Commission ( EC ) which is tasked with publishing licences to private and public entities in the electricity sector. It is besides charged with roll uping and analyzing energy informations and lending to the development of energy policy.

Structure of Ghana ‘s Power Sector

Structure of Ghana ‘s Power Sector.jpg

Figure 1[ 6 ]

Policy Reform

During the period between1993 to 1995 Ghana witnessed a major drouth which intensified the states need for variegation of its coevals sector, its heavy trust on hydro-power as a capacity short state left it peculiarly vulnerable at seasons of small or no rainfall.[ 7 ]Sector reform policies in Ghana ‘s electricity industry commenced in 1994, concrete stairss taken at execution could non get until subsequently in 1998, due to the demand to beginning for support.[ 8 ]

The Government of Ghana ( GOG ) approached the World Bank ( WB ) for support in 1994 with the purpose of financing a new coevals installation in thermic power.[ 9 ]As a requirement for financing the undertaking, the GOG was to hold to adhere to certain structural conditions which included[ 10 ]:

“ the development of a suited power sector regulative model with the necessary

regulative authorization over duties and other related affairs ;

gap of the power coevals market to independent power manufacturers from the

private sector

keeping the duty doing procedure on a sound proficient footing, so as to accomplish

fiscal public presentation standards and retrieve incremental costs

bettering the internal efficiency of commercial operations in ECG, by ECG prosecuting a contractor on the footing of a performance-based direction contract to revamp charge, aggregation and client dealingss ( underway )

prosecuting a adviser to urge a strategy of service for both public-service corporations, including

affairs such as staff deployment, wage degrees, inducement strategies, countenance

and any other such affairs likely to impact the motive and efficiency of the

public-service corporations ‘ forces. ”[ 11 ]

The policy reforms agreed to as stipulation for the loan were obscure at best, they did non present any specific footings, nor did the reform docket include stairss at accomplishing the consequences of a diverse, unfastened and efficient power sector. It was hence a surprise to the World Bank when the GOG replied with a comprehensive sector reform model which was more elaborate than the World Bank had stipulated.[ 12 ]In a set of proposals titled, ‘Ghana Power Sector Development Policy, 1994 ‘ the GOG interpreted its portion of the deal into a elaborate program of onslaught, this included:

The development of future power coevals, affecting a program to develop more hydro capableness along the Volta River- this was to be achieved through Build Operate Transfer ( BOT ) schemes with Independent Power Producers ( IPP )

Extra coevals capacity to be built in the signifier of a thermoelectric works to congratulate the hydro systems ( TTF )

Coordination of coevals and transmittal operations, through transparent regulations on burden dispatching

Model for greater private sector engagement in the distribution religious order, private sector engagement in presenting parts of ECG operations. Transmission was to be unbundled to organize a separate grid company leting non-discriminatory 3rd party entree ( TPA ) . As a consequence, the NED would be unbundled from VRA.

A comprehensive pricing model, including regulated duties

And eventually, a regulative organic structure designated to guarantee competition in the sector, presenting licences, modulating monetary values and supervising public presentation understandings.[ 13 ]

Issues with Policy Reform

The PURC and the EC were established as a consequence through Acts 538 and 541.[ 14 ]One major IPP undertaking was commissioned and started operations in 2000. Through State and private partnership, the Takoradi International Company ( TICO ) was established to pull off the TTF[ 15 ]( TAQA owns 90 % and VRA 10 % ) .[ 16 ]Besides these stairss, and the separation of NED from VRA ( though both are still strongly tied and both State entities ) , no other countries of reform have been implemented and thenceforth, no new independent power undertakings have been completed. The strong ties between VRA, ECG and NED continue undermine any inducement for TPA.[ 17 ]

Lack of Adequate Legal Environment

The starting point for any successful liberalization procedure is the handiness of equal legal model. The basic legal model is to find the extent of liberalization envisioned by the authorities[ 18 ], without this basic construction, extent and procedure of liberalization would be ill-defined. Ghana ‘s policy journey has experienced such a confusing way, alternatively of a elaborate basic legal model underlying a procedure of sector reform and a statement of jurisprudence which underwrites the basic maps of cardinal industry participants, it started off, with Torahs set uping two regulative organic structures, PURC,[ 19 ]and the EC[ 20 ]. Both these Torahs set out the basic maps of the regulative governments PURC as the duty regulator and EC as the licensor and market proctor. A comprehensive system of tariffication and industry monitoring was prescribed, but without a auxiliary general jurisprudence to endorse up the powers of these two organic structures, and a model of the extent of market liberalization, the two regulative Torahs seemed arbitrary at best[ 21 ], an component which could sabotage their future maps.

In Argentina for case, the Electricity Law ( 24,065 ) in April 1992, together with Decree 634/91 of April 1991 “ constituted the legal model for the transmutation of the sector. ”[ 22 ]The jurisprudence non merely provided for the basic maps of the regulative authorization, but besides stipulated the procedure of reform which involved, the unbundling and denationalization of the bing province owned companies ; the constitution of a sweeping energy market ; “ the creative activity of a sector specific regulator ; and the definition of the powers of the Secretary of Energy in the new system. ”[ 23 ]Similarly, the Chilean procedure of reform resembles that of Argentina, a clear set of basic Torahs steering the procedure of liberalization. The GOG ‘s determination to get down market reform with the Torahs qualifying the maps of the regulative authorization therefore seemed convoluted. A major ground for this can be attributed to the reluctance of the VRA in welcoming brushing market reforms.[ 24 ]In 2001, a freshly elected authorities withdrew the reform programs of the old disposal because it saw a turning gulf with reform and the demands on the land.[ 25 ]As a last minute attempt to rectify this, in 2003 the Cabinet approved a five twelvemonth program for sector reform, with a Secretariat formed to pull off execution.[ 26 ]A more lawfully adhering basic model jurisprudence, nevertheless, has still non been enacted.

Though a hurt to the procedure of sector reform, from grounds it seems the skipping of a critical hurdle has non been a major hurt to the advancement nor the maps of PURC or the EC. Since origin, PURC has been successful in go throughing through a series of duty additions numbering over 300 % since 1998.[ 27 ]These are particularly of import for a capacity short state which aims to promote investing in coevals, and a measure towards cost-reflective monetary values would turn out a strong index for private investing.

Ineffective Unbundling

From the oncoming it seemed that the ends of the VRA and the GOG conflicted[ 28 ]. The policy way taken in its initial study to the WB envisaged an efficaciously unbundled VRA with separate coevals, transmittal and distribution entities as a procedure for opening up the market. Since so, nevertheless, though there are separate entities commanding the distribution maps, viz. , ECG and NED ( functional unbundling of distribution ) , the transmittal of electricity is still basically under the scope of VRA, though a late amended ‘Volta River Development Act of 1961 ‘[ 29 ], has paved the manner for the creative activity of GRIDCo a separate transmittal unit, which is basically geared towards being efficaciously unbundled from VRA ( GRIDCo started runing in August 2008 under the protections of VRA but is set to be to the full unbundled from VRA in early 2010 ) . The links between the four entities are basically still really far from effectual unbundling, there is still really heavy State control. Harmonizing to a study by the Energy Sector Management Assistance Program of the WB, of all the states in Africa that had promised sweeping alterations in the signifier of unbundling, none have successfully implemented their programs, many in fact have retreated from the over statements. Harmonizing to the study, many authoritiess are hesitating to to the full privatise their chief public-service corporations, “ believing national public-service corporations continue to play a critical developmental function. And dependability of supply is by and large seen as more of import than competition. ”[ 30 ]

Hybrid System of Generators

Harmonizing to Sally Hunt, the specifying characteristic of the initial phase of industry reform, is that the “ independent generator ‘s [ merely ] sell to the bing public-service corporations, which still have a complete monopoly over all clients. ”[ 31 ]However, it can be argued that the current phase of power sector reform in Ghana does non even run into the initial standards stipulated by Hunt. The industry does non hold a diverseness of IPP ‘s, and the State controlled VRA is the exclusive manufacturer and marketer of power. The lone instance for a successful IPP that can be made is TICO but even TICO is a partnership of public and private involvements ( VRA and TAQA ) and does non efficaciously do it as an independent undertaking vis a vis the State. Furthermore, all the proposed hereafter undertakings are State and private partnership programs.[ 32 ]Harmonizing to Malgas, “ the mutualism of public and private generators… introduces a figure of challenges, which if non managed efficaciously, impairs the sustainability [ and viability ] of the power sector, ”[ 33 ]one challenge of which is that it introduces an unsure investing clime.

DISCUSS THE FAILURS OF ECG ( SEE PG. 14 Elect reform in dev and transitioning states )

CASE STUDY: TAKORADI PHASE 1 AND PHASE II

The Takoradi Thermal Facility ( TTF ) has been the lone semi-privately financed undertaking since the debut of sector reform. The undertaking was portion of a wider sector program as was envisioned in the GOG ‘s WB proposals. A thermic generator was to be built to supplement the already bing hydro capablenesss, a sound determination sing the over-reliance on the likeliness of rainfall. The purpose was to build a 330 Megawatts ( MW ) combined-cycle coevals capacity, dwelling two burning light petroleum oil fired turbine generators, 110MW each, “ a heat recovery boiler, a steam turbine generator to bring forth an extra 110 MW of coevals and the associated transmittal and sub-station substructure. ”[ 34 ]The WB financed the undertaking on the status that the following investing in coevals would affect private capital.[ 35 ]Thenceforth, the 330MW undertaking became Takoradi I ( afterlife, TI ) and was publically funded, and a proposed enlargement to take topographic point at a ulterior phase dwelling another 330MW combined rhythm gas works[ 36 ], Takoradi II ( afterlife, TII ) is to be a in private financed undertaking. TI was to the full completed in 1999 under the joint venture TICO. TII is yet to be completed and merely merely late commenced building after a stall in private support.[ 37 ]

Lesson ‘s from TI and TII

The determination by the GOG to construct extra capacity in the signifier of an alternate to hydro-power was sound. It was by no means a good calculated response to the demand to diversify, nevertheless, the immediate demand to construct capacity may hold cost the GOG with respects to its relationship with the private stakeholders ( the authorities may hold been excessively despairing ) . For case in an attempt to raise financess for TII the authorities entered into dialogues with CSM.[ 38 ]Alternatively of puting up a competitory command procedure, the GOG entered into a negotiated trade with CSM, the ground given was that a competitory command procedure was dearly-won and clip consuming[ 39 ]. A competitory command procedure has several advantages:

It is crystalline and allows for public argument[ 40 ], and is politically advantageous

The presence of competition in the command procedure puts the authorities in the driver ‘s place

It enables decreased costs in production by the choosing of the most efficient bidder

Therefore, the deficiency of an international competitory command ( ICB ) procedure may hold reduced the undertaking ‘s grosss to the GOG and increased the cost of electricity coevals, a cost which is finally borne by the consumers. This goes counter to the purpose of sector reform, which is to happen ways to forestall additions in costs through private engagement. Without cognizing much about the CSM trade, the mean Ghanese is diffident as to whether there were any hyperbolic costs on the portion of CSM, nevertheless, the authorities being in the place to happen alternate generators as a affair of urgency may hold overlooked this as a secondary affair, and the possibility of a better option would ne’er be known. Harmonizing to Malgas, Ghana ‘s IPP experience can be compared to that of most of Sub-saharan African provinces, where there are more positive results for the investor than for the state itself.[ 41 ]Possibly a critical facet of this tendency is the deficiency of competitory command in the procedure of procuring undertaking funding, with the consequence of seting the authoritiess at a disadvantage when negociating the power purchase understanding ( PPA ) .

Furthermore, as a effect of the late reaching of a sector statute law to modulate the understanding procedure ( both the EC and PURC became operational in 1998, at that point understandings on the TTF had already been concluded[ 42 ]) the EC and PURC had small or no influence as to the operation of the TTF, nor the hereafter development of TII. This was a sedate inadvertence on the portion of the GOG. It besides adds another hurt to the possible loss the GOG may hold made by hotfooting into the undertaking.

LACK OF INVESTMENT

The design of the TTF was to integrate at a ulterior phase through private funding TII. The building of TII was severely delayed due to failed dialogues between the authorities and the possible stakeholders. As discussed above, if there is grounds to demo that the experience of IPP ‘s puts investors at more of an advantage than the State they operate in,[ 43 ]so what is to explicate the limited investing in Ghana ‘s power sector? Figure 2 shows the tendencies in private sector investing across parts, with Africa being the lowest in 1997.

Private Sector Investment by Region.jpg

Figure 2 ( World Bank Group )

The success of any power sector reform is reliant upon vivacious private sector investing. But in Ghana private sector investing in power undertakings have been limited and where undertakings are funded, the private entities are non operational independent of the authorities.

Factors Encouraging Investing

There are several factors which are presently in topographic point set to promote private investing.

Ghana presently ranks, 87th out of 181 states in the 2010 ‘World Bank Doing Business Report ‘[ 44 ]

In 1994 the GOG passed The ‘Ghana Investment Promotion Centre Act ‘ ( GIPC ) , 1994.[ 45 ]The jurisprudence governs investing in most of the sectors including the energy sector. Harmonizing to the US Department of State ‘s ‘2009 Investment Climate Statement, ‘ the GIPC has simplified processs and decreased holds for foreign investors.[ 46 ]

Ghana remains politically a low hazard state if compared with its other African opposite numbers. It has transitioned through several peaceable elections and continues to be viewed as an investor friendly state and continues to be the receiver of foreign direct investing ( FDI ) .[ 47 ]

There have been several economic reforms including, the remotion of monetary value controls, take downing of gross revenues, excise and corporate revenue enhancement rates, the riddance of controls on involvement rates and the abolishment of import licensing.[ 48 ]

Specific to the energy sector, the constitution of the PURC and EC has been seen as positive. The PURC ‘s uninterrupted attempt to raise duties in the industry towards a cost brooding place is a positive index for investors.

The GOG in 2007 released a comprehensive energy policy usher to incentivize private sector investing. This was supplemented by a rationalised electricity pricing expression where monetary values will be determined by market forces.[ 49 ]( Note, nevertheless, that these have yet to be implemented )

Factors Discouraging Investing

Current factors that may be impacting the deficiency of investing include:

In 2007, the GOG embarked on a procedure to re-denominating the Ghana cedi, this was ab initio viewed as a positive measure as the cedi made it hard to carry on day-to-day concern. However, in a recent statement the current Finance Minister, Kwabena Duffuor, said that the Ghana cedi since, has experienced a important depreciation in its value, this he said decreased investor assurance.[ 50 ]Investors want to be certain that when they send their net incomes to their place state, the value of it is non significantly affected but with such a volatile emerging market like Ghana, this can non be guaranteed.[ 51 ]

Although the PURC duty additions were viewed as a measure towards the right way, current charges that are being passed to the end-user are still viewed as inadequate to prolong the public-service corporations. Government subsidies continue to be highly high.

It is of the writer ‘s position that the deficiency of a coherent system of legal regulations stipulating the demand for sector reform and extent of reform besides creates an unsure environment for investors.

The mutualism of public and private IPP ‘s in the state is besides a hindrance for investors who might desire to come in as independent of the authorities, it may nevertheless, be the instance that the GOG is non willing to widen the IPP ‘s beyond that under the control of the State, but this is yet once more ill-defined.

The inefficaciously unbundled State public-service corporation creates issues for TPA entree on the transmittal and distribution side.

THE EFFECT OF HIGH COST OF POWER ON THE CONSUMER

Financing required for substructure will be a challenge if pricing policies are non reformed to guarantee that power public-service corporations are financially compensated. For any underdeveloped state or transitioning economic system, the reform of electricity sector is farther complicated by the presence of high degrees of poorness. On one manus the end for reform in these economic systems is to increase the usage of power ( albeit in a sustainable mode ) and connect most of the public to the electricity grid, entree to power is viewed as a critical characteristic in supervising developmental advancement. On the other manus, increasing entree to electricity involves investings in the coevals sector, as most of these states are capacity short, due to the high cost of such undertakings, there is ever the demand to reflect these costs and go through them through to the consumer, but when duties are increased the hapless are unable to afford the high charges.[ 52 ]

The Issue With Tariffs

Ghana ‘s experience with duties since the debut of the PURC has been positive but several external factors, such as the devaluation of the cedi and the volatility of the fuel markets have undermined the attempts of PURC. One of the aims of the reform docket was to accomplish complete cost recovery by 2004,