What do we mean by paying economic power tariff?

BY: Edward Agyemang-Duah

The Minister of Power, has replayed the "I- Tune" version of my 2001 riff asking Ghanaians to pay more for power because our reliance on the Akosombo dam was well and truly over. “Akosombo Nkanea Asa” has been put more bluntly as “Ghanaians must brace themselves and pay more for power,”

 

How much more? Was not disclosed by my brother Dr Kwabena Donkor.

However, I am more than pleased to offer my services as his spokesman on this matter as long as I don’t have to hurry off to any foreign land. This unsolicited act of charity is contingent on my brother saving his job by ensuring that we are bound for a dumsor-free “buronya” and the whole of 2016 and beyond. 

The lesson from the longest dumsor in Ghana’s history is that the alternatives to grid electricity and pipe-borne wholesome water is simply too expensive and of very poor quality. My 2001 ‘insensitive’ observation, “if you think electricity is expensive, try “ky3ner3” (candle) has come home to roost with a bruising sting in 2015.  

The GH¢1.00 cost of a single candle stick is 2.25 times the current cost of a unit of electricity to our homes. For that cost, we can power a fridge, a television, two fans, 10 CFL bulbs, and a whole sound system for, thus,  even if the tariff for electricity to our homes go up by 100 per cent, it would still be cheaper than the price of a single candle stick and offer much better value and quality

 Likewise water, where GWCL can deliver 1000 litres to our homes for about GH¢2.00; a sum that will buy only 10 sachets of sachet water at 20 pesewas a sachet. If, like me, you prefer bottled water, your two-cedi investment will deliver a mere two and half litre bottles.

 

Prices for power

Before the “pay more” side starts jumping from the decks of the Karpower barge, they should also take in the results of another finding. At approximately 10 cents/kWh, what we pay for electricity now is equivalent to what the more affluent America pays. Our current tariff is about the same as France, Netherlands, Poland and Austria; and lower than pre-increase South Africa, Finland and Canada.

If the PURC approves a 100 percent increase, we will be paying twice as much for power in our homes as the better off consumers in our development partner economies.

True, we are better off than most of our neighbours in Africa, both in West Africa and the wider continent. On average, residential electricity in Africa is among the most expensive in the world. The average tariff on the continent is over 12 cents/KWh; but well over 20 cents/KWh in Burkina Faso, Togo, Cote d’Ivoire, Cape Verde, Uganda, Madagascar, Mali, and Chad.

 Comparison

To compare it against other world regions, Africa’s residential electricity price averages between 50 and 150 per cent higher than the eight cents/kWh in Latin-America, Eastern Europe, and East Asia, and up to 400 per cent higher than average residential tariffs in South Asia.

So while a 100 percent increase will get our tariffs to the African average, it is nothing for government and the PURC to gloat about for the simple reason that unlike most of our neighbours, others who are far richer are doing far better and that Ghana still enjoys the reduced blessings of a substantial proportion of our power still being produced from our drought –hit hydro resources.

The message is that we can and must do better to keep our power costs to the optimum level to achieve economic tariffs. To do so, we must:

1) Look at the costs of generating, transmitting and distributing power in Ghana;

2) The efficiencies of the whole power supply and delivery chain; and,

3) The mechanisms for delivering power in Ghana.

Volta River Authority (VRA), our largest power producer, is currently paid about 14.5 pesewa for every kWh of power it generates.  And yet, by the time that power gets to our homes, we are asked to pay nearly 43 pesewa per kWh, over three times what VRA is paid. Who in their right mind, would ever believe that GRIDCO wheeling power and ECG/NED distributing it to our homes would add another 200 percent to VRA’s tariff?

The answer lies with the manner in which we have disorganised our power sector without achieving any tangible benefits to improve the people’s well-being but rather made many of our governors very rich and comfortable at our overall expense. GRIDCO is essentially doing no more than it did when it was a department of VRA. ECG has ceased to be a distribution company to all intents and purposes.

The rationality and coherence, as well as the economies of scale that VRA achieved by being in charge of all Ghana’s generation and transmission has been brutally severed with ECG being forced to sign many generating agreements with independent power producers at greatly increased tariff charges than are paid for the VRA’s own thermal plants.

So is it that the tariff we pay to ECG is no longer just for what VRA generates and GRIDCO transmits to our homes?  It now includes paying the charges of generators such as Asogli and an assortment of IPPs, including the ubiquitous Karpower barge(s) which are still ‘lost’ on the high seas.

It is because ECG has to prioritise payments in dollars and cents to the more expensive IPPs that it is unable to pay VRA & GRIDCO for the power they produce and transmit, which ironically constitute the largest proportion of our demand; which failure in turn piles up debts for VRA which is then unable to pay for the gas it procures from Ghana Gas and Nigeria Gas (NGas) to feed our thermal plants.

Also adding to the cost we have to pay for is the preponderance of chiefs and “Onukpas” in our ever-increasing power institutions: VRA, BUI, TAQA (TICO), GRIDCO, ECG, NEDCO, ENCLAVE POWER and a host of IPPs. Ghana has more power instructions to manage its 2000MW peak load than South Africa’s ESKOM which manages a near 60000MW peak demand.

 Proposals

So what do I propose we should accept as an economic tariff that PURC must set? That will be the substance of the third and final of the essays, But before I get there, I want us to ponder on the fact that we complain incessantly about the cost of power but spend so enthusiastically and with gay abandon on our mobile phone?

Did you know that the tariff we pay for one KWh of power delivered to our home, only buys us an average of five minutes of airtime on a mobile phone? And yet just about every Ghanaian living everywhere has a mobile phone.

 The answer may lie in the ownership type and the quality of service provided. The mobile telephony service is now fully private while power is still a monopoly service largely owned by the public sector.

We Ghanaians have an entitlement mentality that believes that everything that comes from government must be free or at best, at a cost that we deem affordable according to our measure. Otherwise, why does organised labour complain about power tariffs but is eerily quiet on the tariffs of the more competitive mobile telephony sector?

 

The writer is Chief Policy Analyst Ghana Institute for Public Policy Options (GIPPO) Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

Twitter @eyetarzan