New tariff regime is more business friendly than the previous – Manteaw

Chairman of the Coalition of Stakeholders in Electricity Concession and Arrangements (COSECA), Dr Steve Manteaw has said that the new tariffs announced by the Public Utilities and Regulatory Commission (PURC) favour businesses.

His comment is however contrary to the views of the Association of Ghana Industries (AGI) and the Ghana Hoteliers Association who have complained about a potential negative impact of the tariff increases on their members’ operations.

Dr Manteaw indicated in a statement that COSECA’s analysis shows that, “the new tariff regime is more business friendly than the previous.

“The approved tariffs is probably the best the Public Utility Regulatory Commission (PURC) could do under the circumstances, especially, if it were to ensure that the two major utilities are able to sustain their operations. COSECA says it is concerned about the potential effect of a 31.7% inflation rate, and a near 100% depreciation of the local currency, since the last major tariff review in 2018, on the ability of the utilities to sustain their operations, if nothing was done about the tariffs.”

The PURC has increased water tariff by 21% and electricity tariff by 27.15%.

The new tariffs start September 1.

The regulator announced this on Monday August 15.

COSECA said “For electricity for instance, at the time, inflation was around 7.14%. Today, inflation has hit 31.7%, according to recent data released by the Ghana Statistical Service. This means inflation has worsened by more than 200% since 2019. Again, the exchange rate of the Cedi to the dollar in 2019 was GHC5.20.

“Today, it is almost GHC10, representing a near 100% worsening of the value of the Cedi against the dollar. The Bank of Ghana policy rate in 2019 was 16%. Today, it’s around 22%. What this means is that, the cost of borrowing has gone up and so local companies that borrow to finance their production of key inputs for the utilities will reflect the high cost of borrowing in their pricing.

“The point to note here, is that, government’s poor management of the macro-economic indicators will always reflect badly on the utilities and will come back to hurt consumers in the form of higher tariffs.”

Below is their full statement…

COSECA WELCOMES NEW UTILITY TARIFFS – SAYS IT COULD HAVE BEEN WORSE

The Coalition of Stakeholders in Electricity Concession and Arrangements (COSECA) welcomes the recently announced revised tariffs for Electricity and Water, noting that, it could have been worse. The energy research and advocacy group says even though the Association of Ghana Industries (AGI) and the Ghana Hoteliers Association have complained about a potential negative impact of the tariff increases on their members’ operations, its analysis shows that, the new tariff regime is more business friendly than the previous.

The group says, the approved tariffs is probably the best the Public Utility Regulatory Commission (PURC) could do under the circumstances, especially, if it were to ensure that the two major utilities are able to sustain their operations. COSECA says it is concerned about the potential effect of a 31.7% inflation rate, and a near 100% depreciation of the local currency, since the last major tariff review in 2018, on the ability of the utilities to sustain their operations, if nothing was done about the tariffs.

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For electricity for instance, at the time, inflation was around 7.14%. Today, inflation has hit 31.7%, according to recent data released by the Ghana Statistical Service. This means inflation has worsened by more than 200% since 2019. Again, the exchange rate of the Cedi to the dollar in 2019 was GHC5.20. Today, it is almost GHC10, representing a near 100% worsening of the value of the Cedi against the dollar. The Bank of Ghana policy rate in 2019 was 16%. Today, it’s around 22%. What this means is that, the cost of borrowing has gone up and so local companies that borrow to finance their production of key inputs for the utilities will reflect the high cost of borrowing in their pricing. The point to note here, is that, government’s poor management of the macro-economic indicators will always reflect badly on the utilities and will come back to hurt consumers in the form of higher tariffs.

In a statement issued on 2nd June 2022 at a press conference, COSECA argued strongly for the restoration of the Distribution Service Charge-2 (DSC-2) which had been withheld from the ECG since 2018, and largely informed the company’s request for 148% upward adjustment of its tariff. Citing paragraph 6.5 of the PURC’s own publication of electricity tariffs published on 16th December, 2020, which states that, “The distribution service charges (DCS) provided in the third schedule are the rates applicable to the distribution of electricity by DISCO, from 1st January, 2021 as follows: a. DSC 1 is the rate for DISCos to recover the cost of distribution network operations. b. DCS2 is the rate for DISCos to recover distribution losses”, the group alleged fraud in depriving ECG this vital revenue stream that would have allowed it to operate efficiently without requiring as much as the 148% increase in tariff. COSECA followed up its statement with letters to the Ministry of Energy, and the PURC, threatening legal action if the DSC-2 was not restored to ECG. From the group’s calculations, the restoration of DSC-2 will automatically translate into a reduction in water tariffs, as electricity constitutes about 30% of the cost of producing water.

Our checks have revealed that, the DSC-2 has been restored as part the current major tariff review exercise, and this might have formed the basis for the reduction in ECG’s requested hikes in tariffs.   

While COSECA welcomes this development, it believes the newly announced tariffs for water and electricity could come down or go up during the quarterly automatic adjustments, if other concerns raised in its press statement of 2nd June 2022 are addressed.

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COSECA also notes with concern the non-residential customer classification of 0-300kwh. This classification affects Small & Medium Scale Enterprises (SME’s) such as hairdressing salons, barbering shops, beauty parlours, tailoring and dress making shops, welding, mechanic shops, vulcanizing and carpentry workshops. The current customer classification systems of ECG, NEDCo and ENCLAVE power per the above PURC categories cannot differentiate them from non-residential customers and potentially could see them pay very high tariffs which could drive them under the current economic conditions. This needs to be urgently addressed by both PURC on one hand and the power distribution companies on the other. COSECA has some solutions we are willing to bring to the table to help address this problem to ensure SME’s do not suffer unduly due to high tariffs. We are open to further discussions on this matter before the 1st September implementation of the new tariffs.

The additional measures COSECA wants implemented are: investments into efforts at reducing commercial losses, effective revenue collection initiatives, curtailment of political interferences in the affairs of the companies, especially in the procurement activities of ECG; improvement in government’s management of the macro-economic performance indicators, and taking the fight against illegal mining (Galamsey) and its consequential pollution of water bodies more seriously, as it has led to an increased cost of water treatment for GWCL.

In this regard, COSECA urges all Ghanaians to lend their support to efforts by the new board and management of ECG to reduce commercial losses by first auditing all ECG meters, replacing faulty ones and ensuring that all customers are captured in its customer database; and secondly, by installing pre-paid meters in areas where default is very high. We invite the new management to also take urgent steps to replace all sub-standard meters, procured and installed by politicians, without ECG’s supervision, in order to capture all of them in the company’s database. The ECG taskforce, created to check illegal connections and non-payment of bills, and to disconnect all types of consumers including government agencies should be made a standing force and fully resourced. We have no doubt that, these measures will lead to substantial reduction in commercial losses, and will benefit consumers by either holding prices at bay or ensuring a reduction in tariffs going forward. This, we consider paramount to achieving Goal 7 of the SDGs, which is to ensure access to affordable, reliable, sustainable, and modern energy for all Ghanaians.

COSECA is concerned that, the utility companies, especially the ECG and Ghana Water appear to be operating without proper coordination between them and contractors working in various locations. For instance, road contractors construct or repair roads that destroy pipelines, and electricity service lines which contribute to substantial distribution losses, especially as these go unreported for days.

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Furthermore, it is our contention that the current commercial and technical losses components, contributing to the high tariffs can, again, be drastically reduced with efficient management. To achieve this, PURC must ensure there is proper accountability, which is the basis for the determination of fair and equitable tariffs. There are too many estimations in the determination of tariffs, which must be avoided. 

COSECA wishes to reiterate its disappointment at PURC’s failure to monitor the utilisation of legacy hydro (i.e. power generation from Akosombo and Kpong) which has further imposed punitive generation tariffs on the consumer. We believe it is important for the PURC to check and monitor the portfolio of VRA’s generation mix between legacy hydro and thermal power generation, as both have implications for tariffs. In summary, we are intimating that, the PURC’s failure to monitor and measure what quantity of the power supplied is hydro or thermal allows VRA to determine what amount of their power is thermal – which cost more than hydro, without it being independently verified by PURC. In our estimation, the simple solution is for the PURC to ensure VRA is metered. This for several years has not been done, and we are curious to know from the PURC what the challenge is.

Another set of issues that needs resolving, has to do with the plethora of energy funds and schemes such as ESLA, Covid Levy, Government Stabilization payments to ECG, Auxiliary Services Charges to GenCos. We suspect that, these funds are not being well managed. We therefore call for urgent audit of the revenues from these funds and increased transparency and accountability in how they are managed, and who is responsible for their management? For example, how much has accrued from the COVID Levy since its inception? How much are we left to pay? Where is the money going to? And who has the responsibility to make that decision?

Finally, we challenge the management of the utility companies to prove to Ghanaians we can manage our own affairs. To this effect, we wish to see improved accountability by the utility companies through the PURC, publication of their KPI’s to enable the general public and CSOs monitor, advice, critique and praise their performance. Most essentially, the utility companies should have a coordinating unit/department that certifies all contractors whose work affect their various infrastructure. This will ensure distribution losses caused by various contractors are cut to the barest minimum through the coordinating unit. We also strongly suggest that utility companies introduce hotlines for reporting power and water theft i.e. illegal connections and a reward system to encourage people to report theft.

It is our conviction that, the diligent implementation of these measures, will win back the public confidence, which the utilities have lost over past few decades.

Dr. Steve Manteaw

Chairman

By Laud Nartey|3news.com|Ghana