Energy sector arrears to hit US$ 12.5bn by 2023 – IMF

The country’s accumulated arrears in the energy sector are projected to reach US$ 12.5 billion by 2023, if the current fiscal risk from the sector remains unchecked.

This projection has been made by the International Monetary Fund (IMF) following conclusion of the 2019 Article IV Consultation with Ghana.

The Fund stated that in the absence of measures to address the sector’s financial problems, the accumulated cost to the government, including current arrears, could reach US$12.5 billion by 2023, driven by a power sector structural deficit and costly LNG contracts, which are set to become effective in 2020.

Moreover, the Fund stated that the termination of the concession to run southern Ghana’s electricity distribution network to private operator Power Distribution Service over fraud allegations is a setback to the crucial objective of reducing distribution losses.

Nevertheless, government has kickstarted a series of measures to move the energy sector towards financial health, which includes the recent increases in electricity tariffs, as well as the development a multi-year Energy Sector Recovery Program (ESRP) with assistance from the World Bank.

By late 2018, the energy sector arrears were about US$2.7 billion, of which US$800 million was owed to private fuel suppliers and independent power producers (IPPs).

For 2019, the authorities project the financing shortfall for the sector to be at least US$1 billion (1.5 percent of GDP), which they plan to partially finance off budget. Partial payment arrangements may be insufficient to stave off more aggressive approaches by IPPs to collect amounts due as have been threatened in recent months.

The Fund noted that the current energy sector financial problems are rooted in excess power capacity and gas supply, as dependable power generation capacity of about 4,600 MW exceeds peak demand load by 70 percent.

Under take-or-pay contracts with IPPs, Ghana pays about US$ 500 million annually for power generation capacity that it does not use.