Power sector growth hinged on curbing West African government electricity debts
While electricity producers in West Africa battle challenges ranging from gas supply, weak transmission lines, lack of market reflective tariff and dilapidated electricity generation infrastructure, enormous debts by national and sub-national governments add to their troubles.
The Ghanaian government is indebted to power producers as well as the Electricity Company of Ghana (ECG) over $758million. The amount comprises $556million owed by Volta River Authority (VRA) to its lenders and a legacy debt of $1.84million owed to ECG by the government.
Nigeria’s Federal Government Ministries and Departments owe electricity producers about $350million. This amount comprises accumulated debts before the 2013 privatisation exercises and debts that have begun to pile after the privatisation efforts.
Poor attitude
In June, a group of workers from ECG had initiated a protest against the power company’s planned privatisation due to the anxiety of losing their employment. There were fears that among other things huge debts owed the company are impeding operations.
Ghana’s president recently addressed a number of ECG employees over fears of losing jobs after the implementation of the new Millennium Compact (an initiative of the US Millennium Challenge Corporation aimed at injecting fresh resources into the power sector over five years) in Kumasi.
“I wish to assure organised labour once again, as President of the Republic [of Ghana], that there would be no lay-offs or retrenchments as a result of the implementation of this compact; I assure you of that.”
In May this year, Nigeria’s electricity distribution companies served disconnection notices to defaulting ministries, agencies and departments of the Federal government, residential, industrial, and commercial customers who are indebted to them.
The debt, the DISCOs say was crippling their capacity to meet their obligations to the generation and transmission companies, pay staff and operating cost, acquire gas for turbines and repair broken power distribution infrastructure and threatening to bring down the entire electricity value chain.
“Since November 2013, PHED has supplied 4 billion kilowatt hours to customers. Sadly only 55 percent of this power has been paid for. More than N36 billion has been lost due to non-payments,” stated Jay McCoskey, chief executive of Port Harcourt Distribution Company in a notice published in the media.
“This is money needed to pay for gas supply, power generation and transmission to make electricity available to our customers. Only if all electricity supplied is paid for will the power sector survive,” said McCoskey.
The response from the Nigeria’s government to these debts have ranged from ignoring the problem at best and having military personnel beat up officials of the power company when they try to carry out disconnection of their services.
“The practice of the Nigerian military beating up our distribution staff is totally unacceptable and it has to stop. We are calling on the president who himself is a retired general and was a top military officer to please call his boys to order,” said Sunday Oduntan executive director, research and advocacy of Association of Nigerian Electricity Distributors (ANED).
“This has to do with the recent acts of the Nigerian military in the Artillery Brigade in Ogun State. On March 6, 2016, one Major Musa led other soldiers from the Alamala Barracks in Abeokuta to a sub-station and beat up, Mr. Salau, the man on duty,” he said.
However Babatunde Fashola, minister of Power. Works and Housing has promised the distribution companies that government was making arrangements for the payment of the debts. This comes after series of negotiations with government representatives on the matter.
There are positive a sign on the horizon in Ghana too as the country’s finance minister, Seth Terkper, has stated that monies owed by government to power producers will be paid over the next five years.
Terkper stated this at a recent press conference held in Accra, where he said that government has reached an agreement with local banks to restructure the debts of the State Owned Enterprises (SOEs) towards power producers.
He explained that the key features of the agreement include upfront payment of approximately $6.3 million, which will be funded by new collections from the energy sector levies.
Ensuring liquidity in West Africa’s power sector
Settling these debts will go a long way to relieve current operational challenges in the sector. Nigeria’s six power generation companies received less than 30 percent of their April invoices as debt of $500m challenges daily operations and ability to procure maintenance assets for their equipment. Ghana is so squeezed that it is contemplating firing workers.
Analysts say the electricity sector is highly capital intensive enterprise and by the nature of its structure any interruption in the value chain brings along with serious consequences.
“The electricity market is still at its infancy stage and it requires a lot of nurturing and tending. The solution does not necessarily lie in the interventions by government but the fundamentals have to be right,” said Kalu Ukoha, associate director, Power and Utilities, Ernst & Young, Nigeria.
Electricity sector in West Africa is highly regulated and even when the government privatises it – it still keeps a tab on the operations of the power producers and distributors. In Nigeria for example, the Federal government still owns over 30 percent of the assets of the power distribution companies.
With over 600 million people in Sub-Saharan Africa without power, it is crucial that critical attention is paid to these fundamentals, prominent of which is ensuring a market reflective tariff for the sector.
“Although electricity distribution companies has been hit by all-time low collections as a result of low load allocations and general disaffection of customers occasioned by poor service, but even if they are to achieve an impossible 100 percent collection and commit all collections to payment of their energy bill to the generation company without making reservation for operational cost, it will still not be enough to pay fully for energy received because the cost of energy generation has not been reflected in their tariff,” said Chris Nwani, energy lawyer in Nigeria.
Most of West Africa’s energy is sourced from gas-fired plants and getting gas is always a recurring problem. Gas prices have been increased in Nigeria but the assumptions on which the tariff was based remain constant. Investors are also wary on account of legal hiccups by activists who operate on the philosophy that power should be subsidised by the governments.
ISAAC ANYAOGU