A joint team from the Ministries of Finance and Energy has commenced the process for the implementation of the Cash Waterfall Mechanism (CWM), which is a new revenue distribution system for the power sector.
Accordingly, the two ministries are developing guidelines to ensure the effective implementation of the CWM. The objectives of these guidelines include developing an equitable mechanism for allocating and paying collected revenue to all utility service providers and fuel suppliers.
The CWM is to ensure that all active players in the power sector value chain benefit proportionately from revenues collected by the Electricity Company of Ghana (ECG) and the Volta River Authority (VRA) from its deregulated market, including foreign sales in a transparent manner.
This is expected to put an end to the present situation where some power producers are given priority when it comes to payment and, given the inability of the ECG to meet its revenue collect
This move forms part of the government’s efforts to strengthen the power sector and make it more viable.
The Minister of Finance, Mr Ken Ofori-Atta, delivering the 2018 budget said the government had realised that just paying off the debts in the sector would not guarantee success and had, therefore, introduced the CWM to complement funding solution to ensure that the indebted entities did not lapse into the same debt-ridden trap in the future.
Additionally, he said the government would implement a robust regime to monitor the activities of State-Owned Enterprises’ (SOEs) post-restructuring to ensure transparency and effective accountability, as well as avoid moral hazards.
He also pointed out that consultations were currently ongoing with the various stakeholder institutions to amend portions of the Energy Sector Levies Act (ESLA) to allow a more effective mechanism for collecting, utilisation and reporting on the levies.
Performance of ESLA
Mr Ofori-Atta noted that almost two years into its implementation, the ESLA had contributed significantly to paying down VRA’s and TOR’s debt due banks and trade creditors in the amount of GH¢1,861.17 million as of September 2017.
This figure comprised of GH¢1,508.69 million and GH¢352.48 million paid to VRA’s and TOR’s creditor banks and trade creditors respectively.
Additionally, GH¢484.29 million has been transferred to partially settle foreign exchange under-recoveries owed the Bulk Oil Distribution Companies, support the Strategic Stock Reserve programme of government and subsidise premix and residual fuel oil.
In 2017, a total of ¢934.09 million was transferred to partially settle the debts of energy sector SOEs. These include an amount of GH¢165.43 million in respect of the debt recovery of TOR, GH¢47.0 million for the payment of downstream foreign exchange under-recoveries and GH¢721.66 million for the payment of power utility debts.
In addition, GH¢701.83 million and GH¢18.26 million were transferred to the Road Fund and Energy Fund respectively to support road maintenance and the activities of the Energy Commission.
Prior to passing the Energy Sector Levies Act, 2015, (Act 899) (ESLA), Energy Sector SOEs, including Tema Oil Refinery (TOR), Volta River Authority (VRA), Ghana Grid Company (GRIDCo) and Electricity Company of Ghana (ECG), struggled to effectively manage their legacy debts. Investments in the sector were also not effectively structured and coordinated.
These challenges constrained the annual National Budget as the government had to regularly provide financial support to keep the SOEs running. The debt overhang also increased the exposure of these institutions to credit and liquidity risks, and impacted significantly on the balance sheets of their counterpart creditor banks.
To address these challenges, the ESLA was passed in December 2015, with full implementation beginning in 2016. The ESLA was enacted to consolidate existing energy sector levies, ensure prudent utilisation of proceeds generated from the levies, impose a Price Stabilisation and Recoveries Levy (PSRL) and facilitate investments in the sector.
Energy bond issuance
The finance minister also pointed out that the proceeds from the energy bond issuance had helped reduce Non-Performing Loans within the banking sector and strengthened the balance sheets of the SOEs in the energy sector.
“To date, the stock of energy sector debt has been almost halved and ESLA Plc will continue to issue bonds to completely pay off the legacy debts,” he stated.
The Ministry of Finance this year sponsored the establishment of the ESLA Plc as a Special Purpose Vehicle (SPV). The SPV established a bond programme to issue cedi-denominated medium to long-term amortising bonds on the back of ESLA receivables to repay legacy debt to the tune of up to GH¢10,000 million.
The first tranche of bonds issued under this programme comprised a seven-year (GH¢2,408.60 million) and a 10-year (GH¢2,375.35 million) bond with coupons of 19.0 per cent and 19.5 per cent respectively, for a total of GH¢4,783.97 million. — GB