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2018 Budget: Bawumia Hints At 25% Power Tariff Cut

Industries could heave a sigh of relief by January, following a revelation by Vice President Mahamudu Bawumia that power tariffs could be reduced by as much as 25 percent.

“We will actually be seeing some significant reduction in the cost of electricity for industrial production next year in Ghana, and that can be as much as 25%…And that should be a major catalyst for industrial production,” the Vice President said at the Global Business Forum on Africa in Dubai.

The announcement confirms an earlier statement by the Energy Minister, Boakye Agyarko, that “our next mandate after stabilising power supply is to begin the reduction of prices”.

The Vice President told the investor community in Dubai that the government of Ghana had shifted its focus from taxation – as in many other countries in Africa – to production, and is working hard to formalise the economy using technology as one of the pivotal points.

The reduction of the cost of power, he said, had become necessary in order to accelerate industrialisation of the Ghanaian economy.

“What we are doing is to basically understand what the linkages are among the various sectors in the macroeconomy. It is very important to set the macroeconomy right, so that there is stability that will drive industrialisation,” he said.

Following complaints by the Association of Ghana Industries that it was wrong for industry to subsidise domestic consumers of power, government has also said a new tariff policy is in the works “to reclassify consumer categories in order to protect lifeline and strategic industrial consumers”.

For the domestic consumer, the tariff in Ghana is between 19 and 28 cents, while it is 9 cents in La Cote d’Ivoire, 17 cents in Benin, 16 cents in Togo and 17 cents in Nigeria.

The gap is even wider on the commercial and industrial fronts, where Ghana’s businesses – which are already reeling under the weight of high interest rates – pay 32.6 cents per kWh as compared to 13 cents in La Cote d’Ivoire, 19 cents in Benin, 18 cents in Togo and 17 cents in Nigeria.

The price disparity, some have said, is due to the fact that Cote D’Ivoire, for example, produces cheaper power than Ghana. That country, on average, produces at 9 cents per kilowatt-hour, while Ghana produces at 14 cents per kilowatt-hour on average.

Compared to other West African countries, the cost of power in Ghana is estimated to be 50 percent higher; although Cote d’Ivoire, for example, relies on more thermal plants than Ghana.

“We are stack-packing [cars] for businesses in Ivory Coast, and there is an energy cost element in there. Going through their system, we realised that the energy cost was relatively cheaper than ours,” said Emmanuel Adu-Sarkodee of CDH Group, which is into banking, insurance, hotels and other businesses.

“We were a bit surprised because their mix is more thermal to hydro than Ghana’s mix. We have more hydro than them. Theirs is mostly thermal. So, we were wondering why that is the case. There was something more significant we found in there – the cost of gas to their thermal companies was much cheaper than the cost of gas to our thermal companies,” he said.

Indeed, for 2017 alone an estimated US$952million is required to purchase various forms of fuel, including natural gas, to run thermal plants based on a projected thermal generation of 9,937.48 GWh, according to the Ghana Grid Company.

About US$295million of the amount will be required by the VRA, and about US$657million will be required by Independent Power Producers.

As government works to clear the GH¢10billion debt that has plagued the energy sector, entities in the power sector, particularly the Volta River Authority and Electricity Company of Ghana, are expected to begin on a clean slate – which should result in some savings to consumers.