Power sector faces $1.8 billion debt burden to Independent Power Producers by end 2024

The Chamber of Independent Power Generators has issued a warning regarding Ghana’s power sector, forecasting a staggering debt of approximately $1.8 billion owed to Independent Power Producers (IPPs) by the close of 2024.

This unsettling projection stems from the recent decision by the Public Utilities Regulatory Commission (PURC) to slash electricity tariffs by 6.56%, exacerbating an already precarious financial landscape.

Citing escalating variable costs such as fuel prices, maintenance expenses, and idle capacity charges, the Chamber underscores the sector’s vulnerability to financial strain.

The current market conditions, marked by a notable uptick in natural gas prices and the persistent depreciation of the Ghanaian cedi, compound the challenges faced by power producers.

While tariff reductions may ostensibly benefit consumers, the Chamber contends that they have failed to align with corresponding reductions in production costs. Automatic upward adjustments in generation tariffs have become a necessary measure to offset the mounting variable costs and other unforeseen financial burdens.

Furthermore, systemic inefficiencies, including high transmission and distribution losses, continue to exacerbate the sector’s financial woes. This sentiment by the Chamber echoes past experiences, notably the tariff revisions of 2018, which precipitated significant financial hardships for the Electricity Company of Ghana (ECG).

Since then, the ECG has struggled to bridge the gaping chasm between revenue generation and operational expenses, perpetuating a cycle of financial instability and operational inefficiency.

Central to the sector’s predicament lies the precarious balance between revenue streams and operational outlays. Despite ECG’s steadfast commitment to a fixed monthly payment of $43 million to IPPs, the reality remains stark as a staggering 70% of monthly obligations to IPPs remain outstanding.

With tariff reductions looming large, the Chamber warns that government appeals for renegotiation with IPPs may falter, impacting the sector’s financial viability and heightening the risk of default on future obligations

Source:norvanreports