IMF and USA set to ruin Ghana – a rejoinder
In his recent blog post, which appeared as an opinion piece in the Daily Graphic, Craig Murray appears to put all of the blame for the dysfunction in Ghana’s electricity sector on the IMF and the US.
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He writes that the break-up of VRA was counterproductive, and that he is not happy with the push by the IMF and the US for ECG to be privatized. Although there is some merit in his arguments, I think that his piece should be subjected to further scrutiny.
I agree with Murray that breaking up VRA is part of the problem with the electricity sector in Ghana. As I wrote in my recent opinion piece, which also appeared in the Daily Graphic, it has led to a disjointed sector that is becoming increasingly expensive and difficult to manage. Normally, entities merge in search of efficiency. A country like Ghana, with meager resources, should do whatever it can to look for cost savings wherever it can find them. By duplicating management teams and other systems as a result of the break-up, the country is instead incurring additional costs, and likely paying more for a lower quality of service.
Murray’s assertion that VRA and ECG have been managed in exemplary fashion is, however, rather questionable. There is widespread agreement that mismanagement within those two state-owned companies, which has periodically led to heavy financial losses, is partly responsible for the current electricity crisis in the country. Given those historical realities on the ground in Ghana, it is unclear upon what basis Murray makes his judgment. Generally, if an organization performs poorly, the leadership is held responsible. So, Ghana’s electricity sector problems are largely internally-generated, and cannot be blamed squarely on the IMF and the US, as Murray does.
Whether privatization leads to higher prices for goods and services or not has always been a hotly debated question around the world. Murray writes that privatization of utility companies in the UK has not yielded promised better services and cheaper prices, so he fears that privatizing ECG would result in higher prices and misery for the largely poor Ghanaian population.
That cannot necessarily be taken as a forgone conclusion. I have, over a long period of time, carefully studied how the largely privatized electric utility industry in the US manages to deliver electricity reliably to US consumers at an average price of 10 to 12 cents a kilowatt-hour. In Pennsylvania, where I live, the rates are generally much lower, and can at times be as low as six cents a kilowatt-hour in some parts of the state.
According to a recent article in The Economist, most firms in Nigeria are forced to generate their own power at a cost ranging from 35 to 50 cents a kilowatt-hour. As we all know, Ghanaian households and businesses currently do the same thing. Given that much of that electricity is generated using diesel and gasoline, which are relatively dirty fuels, and that the proliferation of generators within population centers produce significant levels of noise pollution, the ultimate costs are likely much greater than the numbers mentioned in the article.
The reason why US consumers enjoy a higher quality of service, at such relatively low prices, is that the country’s electricity sector is appropriately structured, and is operated efficiently. I have no doubt in my mind that if Ghana’s leaders manage to get the right industry structure in place, and all stakeholders play their part, Ghanaian citizens could, in the long run, enjoy peace of mind when it comes to electricity supply, similar to what pertains in the US.
State ownership should not automatically lead to bad management. Around the world, examples abound of state-owned institutions that are very well managed, and private entities that are badly run, and vice versa. I attended public schools at various levels in Ghana from the mid-1960s to early 1980s. For me, those were the good old days. Most people who had any experiences with the educational system in Ghana during that period would agree, that a reasonably good education could be obtained almost anywhere in the country then. Sadly, the picture is completely different today.
Education and healthcare are generally considered to be the ultimate public goods. However, in Ghana nowadays, those goods are increasingly being privatized (unfortunately, in my opinion), and many Ghanaians are happy to patronize the institutions that provide the services. They do so because they believe that they will get better value for their money there. So, privatization is not necessarily a bad thing.
Indisputably, operational performances at ECG and VRA have not been good enough in recent times. I have argued in favor of a vertically-integrated, investor-owned model, which, I think, would introduce much-needed market discipline and efficiency improvements. However, if there is a reluctance to privatize ECG and VRA, then the people in charge will need to considerably raise their game to improve performance. The stakes are very high for the country, so the next path should be chosen very carefully.
The author is the manager of retail power marketing at UGI Energy Services, LLC, a diversified energy services firm in Pennsylvania, USA. He was previously a financial analyst at UGI. Prior to UGI, he worked as a senior electrical engineer at Caterpillar, Inc. in the US. He holds a master’s degree in electrical engineering from Purdue University in Indiana, USA, and an MBA from Dartmouth College in New Hampshire, USA.