Ghana will invest $1 billion this year to refinance loans contracted by private power producers, as it seeks to cut costs and curb ballooning debt in its energy sector.
The West African nation and some of the contractors agreed on the plan during the renegotiation of power deals that began in November 2019, a finance ministry spokesman said in an emailed response to questions. The investment will be done through the Ghana Infrastructure Investment Fund using proceeds from last year’s Eurobond sale, the ministry said.
Electricity is needed to maintain law and order, security, and stability. From an economic point of view, the production of all goods and services and the development of economic infrastructure all depend on a reliable and sustainable supply of electrical energy. This is why two of the 12 independent power producers in the region have agreed to switch to gas, from heavy fuel oil, while another agreed to change its plant to a tolling structure. Together, those changes will save the government $5 billion in tariffs over the remaining life of the power contracts.
“Refinancing expensive debt on the books of the independent power producers will reduce the cost of power even further,” the spokesperson said. “In the coming months we can expect to see the money raised in last year’s Eurobond issuance being deployed to reduce the energy sector cost profile.”
Lenders usually charge a high-risk premium to borrowers from Ghana’s energy sector because of a legacy debt problem, caused primarily by the inability of the state-owned power distribution company to collect all the revenue for the energy it sells. The annual revenue loss is estimated at $580 million. The national gas company cannot cover its costs because it reduced prices to power producers by 18% since March 2018 in a bid to lower consumer tariffs.
“We are open to a more strategic cooperation that will result in a strong and resilient energy sector for the good of Ghana’s economy and development,” said Elikplim Apetorgbor, chief executive officer of a chamber bringing together producers responsible for close to half of the country’s peak energy demand.
Ghana’s current electrification rates are detrimental to economic growth and development, adequate energy is required in the production function, as a source of growth. Some empirical studies have also suggested that causality runs from economic growth to energy consumption and vice versa, this means that without adequate and reliable energy in the production function, growth and development become unattainable. Without power, technology cannot be adopted for production, as technology is power driven.
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Africa Special 2021, EuropeanLife Magazine