Energy sector debt is a major contributor to Ghana’s unsustainable debt situation – World Bank Country Director

The World Bank (WB) Country Director to Ghana, Pierre Frank Laporte has disclosed that Ghana’s energy sector debt is a key contributor to the country’s debt woes.

The country director indicated that his outfit had identified certain factors that were driving the country’s debt situations.

According to him, the world bank has identified the energy sector as one of the factors of Ghana’s debt distress .

Mr. Laporte explained that the shortfall in the sector is marked by the tariff systems and management issues coupled with expensive power purchases by the state in addition to the transmission losses, were the major problems in the energy sector driving Ghana’s debts.

He said the misalliance between the production cost of the Independent Power Producers (IPPs) vis-à-vis how much consumers paid led to an upsurge of debts since the Government could not make financial commitments to them (IPPs).

Mr Laporte also said the Power Purchasing Agreements (PPAs) the Government had signed were expensive. In addition to the exorbitant power purchases the country was paying for energy it does not use due to the “take or pay contracts.”

“In the case of Ghana, those contracts that have been signed as PPAs are just expensive and the kind of PPAs signed are take or pay. You pay although you do not use it. The fact is that in the past few years, Ghana entered into an agreement at the wrong rate and the wrong price, and it has impacted the debt situation.”

“Government should pursue some reforms in the areas of tariff adjustments, addressing the transmission losses through improved infrastructure and restructuring the power purchasing agreements consistent with the energy demands of the country to reduce a significant portion of the debts.

“Progress has been made thus far via the recent increment and subsequent approval in tariff by the Public Utility Regulatory Commission (PURC), saying much could be achieved if the intended reforms in the energy sector were implemented,” Mr. Laporte expressed optimism.

Fitch Ranks says the country had initially reached out to the IPPs to restructure their debts in view of the External and Domestic Debt Restructuring but the companies objected to the proposal.

He advised the Government to take advantage of the West African Power Pool to provide cheap electricity for its people and industry.

According to the Fitch Ranks, the energy sector is the biggest driver of the national debt as the West African Country currently owes independent power producers to the tune of $ 1.58 billion.

The country director made these comments in an interview monitored by the Ghana Report.

Ghana’s debt situation and the IMF Report

The March 2023 Bank of Ghana’s Economic and Financial Data report showed that Ghana’s Total Debt Stock ending November 2022 stood at ¢575 billion, representing 93.5% of GDP.

However, based on the Gross Debt Levels projection, that could be going up by about 5% for 2023.

The International Monetary Fund (IMF) is projecting that Ghana’s Debt to GDP Ratio will increase further to 98.7% by the end of 2023.

This was captured in its Fiscal Outlook Report released at the Annual IMF/World Bank Spring Meetings in April 2023 in Washington DC USA.

The IMF in the report also forecast the Debt-to-GDP Ratio to reduce marginally to reach 92.8% in 2024.