The energy sector crisis

By Korsi  DZOKOTO

Ghana’s energy sector, once seen as a pillar of economic growth, is now in critical condition due to years of mismanagement, inefficiency, and poor financial oversight. The International Monetary Fund (IMF) has urged the Ghanaian government to overhaul the governance framework within the sector to address persistent issues, including irregular electricity supply.

Finance Minister Dr. Mohammed Amin Adam has revealed that the sector faces a staggering US$1.9 billion financing gap and currently estimated to be in the region of US$2.5 billion, equivalent of over GH¢35 billion underscoring the scale of the crisis.

This article looks into the deteriorating financial health of key institutions, including the Electricity Company of Ghana (ECG), Northern Electricity Distribution Company (NEDCo), and the Petroleum Commission, and explores the urgent reforms needed to prevent total collapse.

The Electricity Company of Ghana (ECG): Deepening Financial Crisis

At the core of Ghana’s energy distribution network, the Electricity Company of Ghana (ECG) is facing a catastrophic financial crisis. In 2022, ECG reported an alarming loss of GH¢10.2 billion, a 433.5% increase from the GH¢1.9 billion loss in 2021. This steep financial decline highlights severe inefficiencies, mismanagement, and an absence of accountability within the organization.

ECG’s failure to collect sufficient revenue from consumers is a primary contributor to its dire financial situation. Technical and commercial losses—stemming from outdated infrastructure, energy theft, and inefficiencies in operations—are further compounding the company’s challenges. Additionally, political interference in key appointments and delays in tariff adjustments have worsened ECG’s financial viability, putting Ghana’s entire power supply chain at risk.

This rapid deterioration in financial performance is not only a symptom of poor management but also indicative of the broader failure to implement effective reforms. ECG’s growing financial instability threatens not only the company itself but the wider economy, as electricity is crucial to industrial output and economic growth.

Northern Electricity Distribution Company (NEDCo): A Struggling Institution

NEDCo, responsible for providing electricity to the northern regions of Ghana, is also grappling with significant financial losses. By the end of 2023, NEDCo had recorded a GH¢547.9 million loss, a 19% increase over the previous year’s GH¢460.4 million deficit. Though NEDCo’s losses are smaller than ECG’s, its continued financial decline underscores long-standing inefficiencies.

NEDCo’s service area—characterized by low economic activity and scattered settlements—makes revenue collection challenging. However, the company’s failure to address internal weaknesses, such as poor infrastructure and outdated technology, has exacerbated its financial woes. The ongoing losses not only jeopardize NEDCo’s sustainability but also put electricity access in northern Ghana at risk.

The Petroleum Commission: Oversight Failures in Oil and Gas

The Petroleum Commission, responsible for regulating Ghana’s oil and gas sector, has also reported troubling financial performance. In 2022, the Commission posted a deficit of GH¢34.5 million, a 47.8% decline from 2021. This deficit raises concerns about the Commission’s capacity to effectively oversee the oil and gas industry, a critical revenue generator for the nation.

The financial challenges at the Petroleum Commission suggest governance and oversight failures in a sector that is pivotal to Ghana’s long-term economic prospects. Without stronger financial management and strategic oversight, the oil and gas industry could miss significant opportunities to drive economic growth and stability.

Broader Failures in the Energy Sector

The financial struggles at ECG, NEDCo, and the Petroleum Commission are symptomatic of deeper issues within Ghana’s energy sector. Widespread mismanagement, political interference, and a lack of robust financial controls have allowed inefficiencies to persist unchecked, resulting in massive financial losses.

Other state-owned entities in the energy sector, such as the Valco Trust Fund and Ghana Cylinder Manufacturing Company Limited, are also posting significant deficits. The Valco Trust Fund reported a GH¢7.5 million deficit in 2022, while Ghana Cylinder Manufacturing recorded a GH¢1.2 million loss. These failures, though on a smaller scale, reflect the systemic problems that have plagued the sector for years.

A Path to Recovery: Urgent Reforms

The impending collapse of Ghana’s energy sector demands urgent and decisive action. The following reforms are critical to addressing the crisis and restoring the sector’s financial health:

1. Strengthening Financial Oversight: Implement stricter financial controls and conduct regular audits across all major energy institutions. Transparent reporting and accountability must be enforced to prevent further mismanagement.
2. Enhancing Revenue Collection: Both ECG and NEDCo must modernize their revenue collection systems to reduce losses. Investments in smart metering technology and stronger enforcement measures to combat illegal connections are essential.
3. Tariff Adjustments: Energy tariffs must reflect the actual cost of production and distribution. Delayed or politically influenced tariff decisions have undermined the financial sustainability of key institutions.
4. Infrastructure Modernization: Significant investments in upgrading and maintaining energy infrastructure are needed to reduce technical losses and improve operational efficiency. Without modernization, the sector will continue to haemorrhage funds.
5. Depoliticizing Management: The appointment of executives and board members should be based on merit and professional qualifications, not political affiliations. Depoliticizing leadership roles will help reduce inefficiencies and improve overall governance within the sector.

Conclusion

Ghana’s energy sector stands at a critical crossroads. The mismanagement, inefficiencies, and ballooning financial losses within key institutions such as ECG, NEDCo, and the Petroleum Commission threaten to cripple the sector entirely. The country faces the stark reality of further economic decline if immediate reforms are not implemented, with unreliable power supply and the collapse of essential institutions on the horizon.

As Ghana approaches the December 2024 elections, the mismanagement of the energy sector, alongside the broader economy, has become a symbol of the failures of the current New Patriotic Party (NPP) government. The energy crisis, coupled with widespread economic mismanagement, presents a significant challenge for the NPP, which has struggled to steer the nation away from fiscal instability.

The incoming administration must act decisively. Urgent reforms are needed to restore financial discipline, enhance operational efficiency, and depoliticize management structures across the energy sector. Only through such comprehensive measures can Ghana’s energy sector be salvaged and set on a path to sustainability, ensuring reliable power supply, industrial growth, and the overall well-being of its citizens. The stakes could not be higher, and the choices made in the coming months will shape the future of Ghana’s energy and economic landscape.

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