Utility companies will struggle to mobilise US$1.18bn – ACEP
The African Center for Energy Policy (ACEP) has cast doubts on the ability of power generating companies to raise an estimated US$1.18 billion in 2016 to purchase fuel for thermal plants to generate electricity.
Advertisement
After accumulating debts that are already threatening the balance sheets of their creditors, the Executive Director of ACEP, Dr Mohammed Amin Adam, said the public utility companies would, this year, struggle to get new lenders for such deals and that could have dire consequences on power generation.
Already, Dr Adam said the balance sheets of these utilities "are pretty bad" and that puts them at a disadvantage in terms of negotiations for funds.
Directly linked to that, he said was the conservative nature of the Energy Commission's 2016 estimates, which pegged total generation at 16,798-16,900 gigawatt hours (GWh), of which thermal plants are expected to contribute over 70 per cent.
The situation could be worsened by the unreliable and inadequate nature of gas supplies from Atuabo Plant and the expected increment in prices of light crude oil (LCO), diesel, gas and heavy fuel oil (HFO, which requires that the authority spends more to import those fuels for the 14 thermal plants.
"VRA already has liquidity challenges and unless they are given the required tariffs that will enable them to raise enough money to pay, they will definitely accumulate debt on their purchase of fuels. Frankly, VRA's balance sheet is shaky and that is already a worry," the ACEP Executive Director told the Graphic Business on June 20.
Securitising power sector debts
Dr Adam's concerns over the ability of the state-owned companies to raise the estimated US$1.18 billion to purchase light crude oil (LCO), diesel, gas and heavy fuel oil (HFO) come on the back of discussions over how to settle their indebtedness to banks in the country.
VRA, which owns and operates about nine of the 14 thermal plants in the country, is indebted to its creditors for loans taken that have not been repaid yet.
Other Trending Stories
Its debts, together with that of sister state utility companies such as the Electricity Company of Ghana (ECG) and the Ghana Grid Company Limited (GRIDCo) amounts to over GH¢1.2 billion, which the government and the companies have been struggling to pay.
Recent discussions on moves to securities the debts into long term bond have been sketchy but the Graphic Business has learnt that government is hoping to reach a deal with the creditors on the way forward before the close of the year.
"We are working on something with the banks and when the details are clear, we will communicate it," the Chief Director of the Ministry of Finance, Mr Major Mahama Tara, told the Graphic Business in Accra.
While that admitting that such an arrangement was laudable, the ACEP Executive Director said it could not be relied on as the last resort to the debt challenges in the power sector.
"VRA may not get the needed liquidity either because the tariffs may not be adequate relative to their production costs or ECG is not able to pay them the power ECG is buying or the IPPs, which get their fuel from VRA are not able to pay because ECG is owning them. So, these are the conditions that affect the liquidity of VRA," Dr Adam said.
"On the event that these factors are on the downside of VRA's operations, then I don't see VRA able to get the money to buy its LCO and gas for its plants," he added.
Beyond its indebtedness to the banks, VRA also owns the Atuabo Gas, the West African Gas Company and Nigeria Gas Company Limited for earlier gas supplies.
This means that the ability to those gas companies to continue supplying VRA would be dependent on the authority's ability to pay off those debts, he said, pointing to instances where the WAPCo and N-Gas had previously cut supplies to Ghana, citing debt challenges.
"So, all these things will certainly affect the projections Energy Commission is making and I think that you cannot make those projections without taking into consideration the factors that take us into the realms of uncertainty," he said.
Aftermath of 2016
With the 2016 elections just about four months away, Dr Adam said evidence suggest that government would stretch to find fuel for the companies to operate in a bit for it to feel good in the eyes of the electrostatic.
The challenge, however, is what happens after the elections, he said, pointing to earlier instances, where the authority was stretched financially in election years only to be left to its fate after the elections.
Beyond having a toll on the operations of VRA, dr Adam said such a posturing from the government was inimical to the industrialisation drive of the country.
Advertisement
"I think that if government wants to ensure that Ghana's industrialisation drive is not disturbed and if we want to ensure that we achieve our targets for economic growth, then government would have to start preparing how it will support VRA to procure this amount of fuel, given the uncertainty surrounding its ability to finance the purchases," he said.
In the Energy Commission's Energy Outlook report, the commission estimated that 16,798-16,900GWh of power was needed to enable the economy to grow between four per cent and 4.5 per cent.