• Monday , 18 December 2017

Fixing The Energy Sector

As the elections approached late last year, I spoke to three power sector experts about what it would take for any government to end “dumsor”. It was part of a series of interviews I did working with Ghana Oil and Gas in Ghana (GOGIG) and the energy sector CSO, KITE Ghana. I spoke to Theo Sackey of the latest independent power producer, CEN Power, Smart Yeboah, retired from many years at ECG and Benjamin Boakye of the CSO, Africa Centre for Energy Policy (ACEP). Looking back, I cannot help but think that the single most important threat to the achievement of the new government’s plans to transform Ghana, is dumsor.

In fact one of the rare things that our politicians agree upon is that without a constant supply of energy, there can be no economic development. Everyone desperately needs a permanent solution to dumsor; meaning we don’t want frequent power cuts whether planned or unplanned.

Dumsor has been discussed from every possible angle by policy makers and it seems to me that we have agreed as a country to do some specific things to solve the problem once and for all. So what are we waiting for? The new government has its job cut of for them. I hope they just do.

So what is it that we have agreed to do that we must just do?

1. Continue with the commercialization and the strengthening of the Electricity Company of Ghana (ECG), 

As the last and weakest link in the power chain, ECG must be strengthened financially, commercially and operationally. It needs to be able to replace its assets and refurbish and expand them, in order to meet current and future demand. In this business, modernization is key.

2. Address the financial insolvency within the sector. 

Everybody seems to owe everybody. Some call it the “debt triangle”. In the lead up to the recent elections, political party manifestos indicated that they would “deal with” the debt, although they did not quite say how. Currently, to pay for the accumulated sector debt, consumers are levied through petroleum products – the energy sector levy. We need to know more about the current debt settlement arrangement. More transparency explaining what is being settled at each point in time through the levy, and when the matter is most likely to be fully settled, would help. As for the debt, we know how it has come about – if a commodity costs seven cedis to make and you sell it for four, there is a deficit. Now governments may choose to do that, but the deficit has to be funded. The difference has to be paid for somehow.

3. Guarantee regular fuel supply for the power plants.

Fuel shortage is the other critical problem that the sector has had to confront; how to make sure that the country has available, adequate and cost-competitive sources of fuel for the power plants as we add on more plants. If not, plants will sit idle even as the country continues to pay for the cost of the investments, exacerbating the debt problem. These days, we appear more hopeful than usual about solving the fuel problem as a result of the coming on stream shortly of the Sankofa field.

Now a bit of history to help us understand how we got here because as they say, if you don’t know your history, you are bound to repeat your mistakes.

We started with power that was quite affordable. Hydropower. Akosombo was a major investment. With funding from the public sector (Government of Ghana and the multilateral World Bank), the Volta River Authority (VRA) was created to build it and operate it and the customer base grew to include the neighboring countries of Togo, Benin and Ivory Coast. We charged these countries much more than the cost of Akosombo generated power, so they were in effect subsidizing everybody. It was not really that critical at that point in time to have tariffs that reflected the actual costs because of cross subsidization. Our neighbors were paying and they were paying for us.

But it was not sustainable. 

Domestic demand was growing at a rapid pace and there was the need to add to the stock of power generating plants.

The first of these new plants was the thermal power plant built at Aboadze, near Takoradi. Initially major investments in the power generating sector were funded by the public sector and supported by Development Finance Institutions. However overtime, things changed. The Development Finance Institutions indicated that they did not have enough resources to continue funding such projects, especially given the gaping deficits in social infrastructure. The decision was made to channel their resources towards areas such as health and education and leave investment in the power sector to private investors. Meanwhile government resources were also drying up. There was the need for a paradigm shift.

Enter the Power Sector Reforms. Thus began the necessary but painful process of making sure that consumers absorb the full cost of power. To many industry players, government is now charging the right price for power and this must continue. If we do not continue this, and start playing politics, the problem will rear its ugly head once again. Over the last 15 to 20 years, a lot has been done to address the sector’s problems. The industry itself has undergone some restructuring. The reforms have not been easy, requiring institutional reforms that always take their toll. They have taken a while to show promise but I daresay that the country is beginning to see the benefits.

However if we take our eyes off the ball, if we do not focus now on making sure that ECG is financially credible and properly structured, all that work will be in vain. We had the 1981, 1982 and 1983 crisis, when Akosombo dried up and there was nothing. We had the 1997 and 1998 crisis, when Akosombo again dried up and we were late with the Takoradi Thermal plant. We had the 2006 and 2007 crisis when the then available thermal generation was simply not enough.  And then, we have had the Mother of all Crises, the 2012 – 2015 crisis, when the West African Gas Pipeline was damaged, Akosombo supply reduced and available supply from thermal plants inadequate. That was when Dumsor was officially and popularly christened.  Dumsor, however, is not a new thing; we have had it all along. Thankfully, we now seem to be on the cusp of resolving it and to do so, government must keep its eye on the ball.

We know what needs to be done and are doing it. Let us stick with it. Let us not start all over again diagnosing an illness for which we have already agreed effective treatment.

Too often we waste time thinking about alternative solutions and different options and analyzing and analyzing till analysis paralysis sets in; and nothing gets done. When we decide on something, we should stick with it and do it.

I cannot overemphasize how critical it is to get ECG right because at the end of the day, all the costs go to them. ECG receives the generation and transmission costs, because they are the last in the chain. From there it is sent back up through the chain. So if the private sector investor, who has installed a power producing plant cannot see that money coming back, they will not invest; you then have the power shortages that we have. When you get into that kind of situation, it becomes a political problem. When the politician’s act, they then do it in an emergency mode, often putting the country in a tight corner.

But we should be hopeful. The power sector reforms are paying off and the position of ECG in the market, is the one main reform waiting to be accomplished. Once that is done and this country starts “going places”, investors will show interest.

I cannot end this piece without commenting on the Petroleum Connection to all of this.

Understandably Ghanaians expect the discovery and production of oil and gas to translate into better electricity supply. After all, oil and gas are the fuel for the thermal power plants; oil and gas are required primarily to serve as energy sources to power plants. If there is no energy to convert into electricity, power plants will sit idle. Producing from our own hydrocarbon resources brings many benefits. Beyond the revenues that we get from selling our crude, we have gas that is also being utilized to generate electricity. Without our own gas we would have about a couple hundred megawatts of plant power lying idle today since those plants are unable to operate on anything else. We have depended on Nigeria to supply us with gas for these plants and the cry has been that Nigeria is failing us. In truth Nigeria is not really failing us. If we cannot pay it for gas supplies, why should they continue to supply us?  The same thing will happen with our own gas.  If we consume it and do not pay for it, it will also fail us.

This is another reason for restructuring ECG and the other power sector entities to make sure that they are able to live up to their responsibilities to collect the tariffs and also pay the power generators so that the cycle is strengthened. ECG has to be made strong. An important component of it is the fuel component.

As I’ve indicated right from the start, we also got into much of this mess because we did not have the fuel. The West African Gas Pipeline Project was conceived as one of the projects that would provide the fuel from the sub region to fuel our development. It did not happen as planned. The project though is still a good one. We have the infrastructure in place and we can make good use of it maybe in the next 5 to 10years.

By having our own oil and gas, especially our own gas, we have that component that can support the hydro plants to make sure we have reliable electricity. And of course once you include a strong ECG collecting the money and paying back, you then have a sustainable sector and that will then fuel the nation’s development. At the end of the day, this is what it is all about. It is all about development. It is all about feeding your industries, making sure that residential customers are properly served and making sure that commercial activities continue undisturbed. If government interferes with ECG then it means that we are back to the same old problem. That has always been the challenge.

As a nation we should all take the blame because during the years that we were subsidizing electricity, the value was coming to us and everybody was happy because we were paying lower that the actual price whilst the utility companies were suffering.

As Theo Sackey put it, “The ABC of the sector must take hold. Everything we do has to be based on A- analysis. We need to figure out what the situation is through well-grounded analyses and to seek efficient solutions. And then we need to be B – bold; that is the B part of it. Our energy infrastructure has been put in place by bold decisions. Akosombo was a bold decision, West African Gas Pipeline was a bold decision, getting ECG to be where it is was a bold decision because it is something that was vigorously and is still being vigorously fought against. Finally we need the C part – Consistency and Clarity”.

We need to stay the course and we  need to also be aware that we are just not doing this for doing sake, we are doing this for the future; we are doing this to make sure that the sector is sustainable.

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