The Public Utilities Regulatory Commission (PURC) has stated that it will consider inflation and exchange rates when determining utility tariff increases.
The PURC explained that service providers import some of the equipment and logistics they use in providing the service, so the engage rate must be considered in the price adjustment decision.
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Speaking to the media after a stakeholder engagement on the proposals by the Electricity Company of Ghana (ECG) and the Ghana Water Company Limited (GWCL) to increase tariffs, on Wednesday May 11, Head of Communications at the PURC, Ali Simon Jarana said “There are a lot of factors that go into tariff determination. One is the interest of the consumer that is provided for by the Act that established PURC; the second is the interest of the investor community; third, we have regulatory benchmarks that the utilities must also meet. We are also looking at some micro economic indicators i.e inflation, we are looking at exchange rate, exchange rate because of their equipment, they import them. GWCL for instance, they import chlorine to treat the water, NEDCo will import Copper, steel.”
It is recalled that the Minority members in Parliament blamed the challenges of the ECG on what they believed was the poor management of the economy by the Akufo-Addo administration.
Member of Parliament for Yapei Kusawgu, said the exchange rate issues in Ghana negatively affected the operations of the ECG.
Speaking on the News @ 10 on TV3 in relation to the proposal by the ECG to the PURC for upward tariff adjustment, Mr Jinapor said “Why are they going back to 2019 and 2020? We cannot adjust prices for those years and go back again.
“Moreover, ECG’s losses has increased from 22 per cent to 30 per cent. these inefficiencies cannot be passed onto consumers . The other thing that is leading to this proposed increase is the exchange rate , the fall of the cedi is due to the bad management of the economy. the ordinary Ghanaian must not suffer.”
On this same issue, the Executive Director of the Africa Centre for Energy Policy (ACEP), Benjamin Boakye said that he does not see how electricity charges will not be increased.
He cited the negative impact of the Cedi depreciation against the major trading currency especially the dollar as one of the reasons for the tariffs to be increased.
Speaking on the TV3’s News 360, Mr Boakye said ” First of all, these are proposals and as is always done, when there is a major tariff announcement, the utilities will make proposals and PURC will examine the proposals to do further engagements with stakeholders and determine what the optimal tariffs would be. From where we sit we do nit see why the tariff would not go up.
“If you look at the last tariff adjustments and you discount that by just the depreciation of the Cedi, most of the payments are made in dollars, that alone, the existing tariff has got about 32 per cent value.
“That of course, would require that we recover the lost value. Beyond that, the under recoveries of ECG for 2021 was almost 50 per cent of their entre revenue requirement, which means that we need to find ways to recover how much they need to actually survive.”
He added “We needed government to pay ¢1.25 billion dollars just in 2021 to be able to offset the underrecoveries in the space. If you combine that in 2020 under recoveries we are talking of ¢14billion of interventions from the government. That money was far more than we spent on education, infrastructure , in road infrastructure, agriculture infrastructure. we cannot continue to get that support from government when ECG needs to improve its efficiency given the right tariff for them to be able to reduce their reliance on government.”
The management of the ECG has made a proposal to the PURC to increase electricity tariffs by up to 148 per cent covering 2019 to 2022.
The state power distributor also proposed an average increase of 7.6% in tariff over the next four years to cover Distribution Service Charges (DSC).
The attributed the high increase in the Distribution Service Charges
“The result of ECG’s tariff proposal for the next five years shows an approximately 148% increase on the current DSC1 in 2022 and an average increase of 7.6% year on year from 2023 to 2026.
“The high increase in the DSC1 for year 2022 could be attributed to the gap that has developed over the years between the actual cost recovery tariff and the PURC approved tariffs as well as the cost of completed projects”.
“Similarly, ECG’s proposed DSC2 shows a higher increase of 28.4% in first year (2022) while that of the subsequent years’ increases by an average of 2% from 2022 to 2026”, it added.
The management of ECG also indicated that its financial sustainability is important as it impacts on the entire energy sector.
“The financial sustainability of the Electricity Company of Ghana is important as it impacts on the entire energy sector. With the huge investment needs facing the distribution industry over the next five years, it is expected that the proposed tariff increases would inevitably be approved to sustain efficient and reliable electricity service.”
“Over the next five years, the DSC will need to increase consistently (average of 7.6%) to cover distribution cost. It is expected that the approved BGC would correspond with the commercial terms of PPAs (Power Plant Agreements)”, it added.
