Powering the future: Why concessions, not the sale of ECG, hold the key to energy reform

By Samiu Kwadwo NUAMAH (Dr) & George Alex Kojo MONNEY

Ghana’s power sector faces severe financial and operational challenges. As of 2023, the country’s installed generation capacity stood at approximately 5,194 MW, with a dependable capacity of 4,756 MW.

Thermal sources accounted for about 68% of the generation mix, while hydro sources contributed the remaining 32% (Energy Commission of Ghana, 2023).

A major issue undermining the sector’s financial sustainability is system losses. Technical and commercial losses increased from 24% in 2014 to over 30% by 2021, with recent estimates suggesting they now exceed 32% (The Ghana Report, 2023). These inefficiencies, coupled with tariffs set below cost-recovery levels, have worsened the sector’s financial strain.

Despite initiatives such as grid expansion and efficient metering systems, these challenges persist. Discussions on liberalizing the entire power value chain generation, transmission, distribution, and retail—have gained momentum. While private participation has been introduced in the generation segment through Independent Power Producers (IPPs), the transmission, distribution, and retail aspects remain vertically integrated.

The failed Power Distribution Services (PDS) concession underscores both the potential and challenges of private-sector involvement. During its brief operation, PDS demonstrated revenue generation improvements, which highlight the benefits of privatization.

Building on these lessons, the current Minister of Energy has proposed evaluating the viability of privatizing key national assets. However, rather than an outright sale of the Electricity Company of Ghana (ECG), we advocate for a more strategic approach.

The case against selling ECG

The outright sale of ECG, as proposed by some government officials, is not the optimal solution to address the sector’s inefficiencies. Selling ECG risks triggering public backlash, raising concerns over the loss of sovereignty in managing critical national utilities. It also limits the government’s ability to protect long-term national interests.

The case for concessions

Instead of divesting ECG, we propose unbundling its functions and introducing concessions within the retail sector. This approach allows ECG to remain a public entity focused on power distribution, while private operators manage retail operations to enhance efficiency and revenue collection.

Benefits of concessions

1. Improved Efficiency: Countries such as Côte d’Ivoire and Senegal have used concession models to successfully reduce system losses and improve revenue collection (World Bank, 2022).
2. Attracting Private Investment: Concessions draw private capital for infrastructure upgrades, modern metering systems, and loss reduction efforts without burdening the national budget (International Finance Corporation, 2023).
3. Maintaining National Control: Concessions retain government ownership of core infrastructure, ensuring strategic national assets remain under public oversight while benefiting from private-sector efficiencies (Energy Policy Journal, 2023).
4. Enhanced Accountability: Concession agreements set strict performance benchmarks for private operators, ensuring measurable improvements in service delivery and revenue generation (Global Energy Review, 2022).
5. Global Best Practices: Studies show that concession-based models result in higher electricity access rates compared to full privatization or state-owned monopolies (World Bank, 2023).

Recommendations

1. Unbundle ECG’s Distribution and Retail Functions: ECG should focus solely on distribution, while retail operations are liberalized through competitive concession agreements.
2. Adopt Transparent Concession Models: Operators should be selected via competitive bidding processes, with clearly defined performance indicators and enforcement mechanisms for non-compliance.
3. Strengthen Regulatory Oversight: Bolster the capacity of the Energy Commission and the Public Utilities Regulatory Commission (PURC) to ensure compliance with national objectives and concession agreements.
4. Merge ECG and NEDCo: Integrate ECG and NEDCo into a single national distribution company to enhance operational efficiency and oversight.
5. Engage Stakeholders and the Public: Launch a public awareness campaign to address concerns about privatization and emphasize the benefits of improved efficiency and service delivery through concessions.

Conclusion

Privatization through concessions, rather than the outright sale of ECG, offers a balanced solution to Ghana’s power sector challenges. This model ensures government control over strategic assets while leveraging private-sector efficiency and investment.

By unbundling ECG’s distribution and retail functions and implementing transparent concession agreements, Ghana can achieve a more efficient and financially sustainable power sector, aligned with its long-term development goals.

This approach represents a pragmatic pathway to modernizing Ghana’s power sector while safeguarding national interests and public trust

References

1. Energy Commission of Ghana (2023). Annual Energy Outlook for Ghana. Accra: Energy Commission.
2. Energy Policy Journal (2023). Private Sector Participation in Developing Economies. Elsevie
3. Global Energy Review (2022). Impact of Concessions in the Power Sector. International Energy Agency.
4. IFC (2023). Concession Agreements in Developing Economies. International Finance Corporation.
5. The Ghana Report (2023). Energy Sector Reforms: Challenges and Opportunities. Accra.
6. World Bank (2022). Concessions in Africa: Lessons Learned. Washington, DC: World Bank.

Contact details 

Dr NUAMAH is the Executive director (AIES)

( 233509999959)

 

George is the Senior Fellow – (Industrial and Energy Research)

( 233024 9814563)

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