Energy sector crisis: Finance Minister warns of GH¢140bn shortfall by 2026

By Kizito CUDJOE

The Minister of Finance, Dr. Cassiel Ato Forson, has warned that persistent shortfalls in energy sector financing pose significant risks to the country’s fiscal stability, with projected deficits reaching unsustainable levels.

Presenting the ‘2025 Budget Statement’ in parliament on the theme ‘Resetting the Economy for the Ghana We Want’, Dr. Forson revealed that in 2024 alone the Ministry of Finance (MoF) provided GH¢20.8billion (US$1.6billion) in support to the energy sector.

These funds, he noted, could have been redirected to critical development projects such as job creation, roads, schools and hospitals if inefficiencies in the sector were addressed.

The challenge is expected to worsen. A recent analysis by the Energy Sector Recovery Programme (ESRP), he said, showed that the financing gap is projected to rise to approximately GH¢35billion (US$2.7billion) in 2025.

Over the 2023-2026 period, the cumulative shortfall is estimated at GH¢140billion                 (US$10.7billion) – an amount more than 20 times the budget allocation for goods and services across all Ministries, Departments and Agencies (MDAs) for 2025.

“The growing shortfall in the energy sector is not just a financial concern but a development constraint,” he said.

Additionally, he cautioned that if left unchecked it will severely limit government’s ability to fund essential public services and infrastructure.

Compounding the crisis, he noted that the country also faces significant legacy arrears owed to independent power producers (IPPs). By the end of 2024 those arrears had surged to          US$1.73billion, adding further pressure on public finances.

The energy sector has long struggled with inefficiencies ranging from distribution losses to delayed payments.

It is understood that without structural reforms the financial burden could strain the country’s economic recovery efforts, especially during this period of post-pandemic fiscal consolidation and ongoing debt restructuring negotiations.

He therefore recognised that addressing these issues will be critical in resetting the economy and ensuring sustainable growth.

To this end, he announced as part of the measures that the Electricity Company of Ghana (ECG) and Northern Electricity Company (NEDCo) will implement include metering and implementation of a private sector participation (PSP) strategy to improve collection efficiency.

Additionally, government will also “implement the Liquid Fuel-to-Gas Swap through an increase in N-Gas supply from the 60 million standard cubic feet per day (mmscfd) to 100 mmscfd to take advantage of cheaper gas prices”.

Furthermore, he said government will complete the independent power producers (IPP) capacity renegotiations to generate some savings through negotiated lower fixed capacity charges and variable operation and maintenance (O&M) charges.

The minister stated that in accordance with the agreement made with the International Monetary Fund (IMF) by the previous administration, government will implement several measures as part of the Economic Stabilisation and Recovery Programme (ESRP) to meet the structural benchmark of the IMF programme.

Meanwhile, he said the Public Utilities Regulatory Commission (PURC) will continue to implement quarterly tariff adjustments to account for changes in inflation, exchange rates and the generation mix.

Additionally, he announced that a major tariff adjustment is scheduled for the fourth quarter of 2025 to account for capacity charges, increased use of liquid fuel and additional capital expenditures.

“The weighted average cost of gas will be increased from the current US$7.836 per mmbtu to US$8.45 to reflect the increased prices of natural gas as well as changes in the supply mix – and the subsidy on weighted average cost of gas granted to some ceramic companies through the discounted industrial development tariff will be reversed,” the minister announced.

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