Think tank, Institute of Energy and Climate Change Policy (IECP) has said government’s move to privatise the Electricity Company of Ghana (ECG) is long overdue.
According to the think tank, private sector is essential for the growth of Ghana’s economy hence allowing private participation in the affairs of ECG is in the right direction.
“A vibrant private sector is essential for Ghana’s economic growth. Thus, the participation of private industries in the energy sector could serve as an engine of economic growth and propel Ghana to high economic freedom which is one of the aims of the MCC [Millennium Challenge Corporation],” a statement signed by Executive Director of the IECP, Dr. Mutaka A Alolo, stated.
Government in its bid to reform ECG is leasing part of the company to the private sector under a concessionary arrangement within a period of 25 years dubbed “ECG Financial and Operational Turnaround Project.”
[contextly_sidebar id=”SEq4YLozCmHSlipBPh1OljMb5ZeRkaGh”]President John Mahama has clarified that the move is to open the doors for more private companies to invest in the power sector to enhance efficiency.
“Private sector participation in power distribution is not a new thing…Everywhere in the world, private sector participation in many areas hitherto monopolized by government is being encouraged. This is leading to increased investment from the financial sector and the capital market and it is introducing efficiency in those sectors. Power is not different,” he added.
But workers of ECG have criticised the move complaining about possible job loses.
ECG privatisation move laudable
But IECP has lauded the project. It however added that a complete privatisation would have been better.
“The objectives of the concession agreement under the MCC are laudable. However, IECP is of the view that complete privatisation of the sector would be a better alternative. Investment in the electricity distribution sector is capital intensive and therefore, return on investment is paramount to the private investor.”
The Energy Institute also explained that the concessionary arrangement will enable ECG to minimise loss and improve efficiency.
“This project is also supposed to ensure that ECG recovers its cost with significant investment in maintenance and expansion. Under this project, the governance and management of ECG is expected to be strengthened with the introduction of acceptable private sector participation in addition to significant infrastructural and foundation investments designed to amalgamate losses and increase the quality of service.”
Below is the full statement from the IECP:
The Institute of Energy and Climate Change Policy (IECP) note with great concern moves by the government as part of the Millennium Challenge Compact (MCC), to undergo certain projects including the ECG and NEDCo Financial and Operational Turnaround Projects.
While government’s agreement to involve the private sector under the ECG Financial and Operational Turnaround Project with a concession for 25 years is laudable, proper ex-ante and ex-post analysis is paramount.
This type of analysis is to ensure accountability while taking into consideration pre and post-privatization effects to inform the modalities and the transition process from a public entity to private entity. By so doing, future outcomes could be anticipated not only regarding service improvements but possible unforeseen challenges.
A vibrant private sector is essential for Ghana’s economic growth. Thus, the participation of private industries in the energy sector could serve as an engine of economic growth and propel Ghana to high economic freedom which is one of the aims of the MCC.
Under the ECG Financial and Operational Turnaround project, implicit subsidies as a result of losses, under-pricing and under-billing are expected to be reduced. This is projected to enable ECG operate efficiently without the regular demand of government financial support by way of restructuring it to operate on sound commercial principles.
This project is also supposed to ensure that ECG recovers its cost with significant investment in maintenance and expansion. Under this project, the governance and management of ECG is expected to be strengthened with the introduction of acceptable private sector participation in addition to significant infrastructural and foundation investments designed to amalgamate losses and increase the quality of service.
The objectives of the concession agreement under the MCC are laudable. However, IECP is of the view that complete privatisation of the sector would be a better alternative. Investment in the electricity distribution sector is capital intensive and therefore, return on investment is paramount to the private investor.
Ultimately, the selected private firm that is mandated to take charge of ECG would strive to achieve significant returns on investment during the 25-year term. Hence, significant tariffs could be imposed bringing untold hardships on consumers.
To this end, IECP calls for a complete electricity sector reform that will enhance private participation in both generation and distribution with less government interference except for the purposes of strict regulation. Given out ECG without complete sector reform would lead to inefficient private sector management.
Different private investors should be involved to distribute electricity across the country to enhance competition, efficiency and to also attract more independent power producers. Additionally, this will help reduce commercial and technical losses in power supply as well as transformation of the sector to meet local demand and ensure reliability of supply. Excessive owing by government would also be eliminated when electricity distribution is operated by private investors.
……Signed………
Dr. Mutaka A Alolo
Executive Director
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By: Godwin A. Allotey/citifmonline.com/Ghana
Follow @AlloteyGodwin