On the Recent Utility Price Increments in Ghana

The Ghana Water Company loses nearly half of the water it produces. Its official target for what it calls Non-Revenue Water (NRW) is 46.3 percent. Strangely enough, PURC, the regulator allows for NRW of 45 percent. What this means is that the regulator, a protector of public interests permits Ghana Water Company to lose nearly half of the treated water which ultimately is paid for by the consumer. Does this make sense? Why should the consumer pay for losses which occur through no fault of theirs? Why subsidize this inefficiency? How many times haven’t we seen major burst pipes spewing out tons of treated water into free flowing streams across the country?

With regard to electricity, ECG reported losses of US$16 million and US$26 million respectively for 2011 and 2012 against a profit of US$4 million in 2010, but do you know that a 10% reduction in system losses could earn the ECG something in the region of US$85 million which is more than enough to restore the company to full profitability in the medium term (World Bank Report, 2013)? One may ask: where will the ECG get funds from in the absence of tariff adjustments? Clearly, once all accrued debts owed by government and other institutional clients are settled, my proposal is for ECG to be divested on the Ghana stock exchange and allowed to pursue external funding sources to pursue its capital investment programmes. Furthermore, it is high time we decouple the operational costs of the service providers from their investment costs. Only the short run marginal costs ought to be used in pricing end user tariffs and setting the regulatory benchmark if operators behaved as price-takers rather than as price-setters, which is what currently pertains in Ghana’s pseudo-oligopolistic market.

Tariff increments are only part of the solution and need to be reviewed in line with the underlying supply and demand fundamentals – inflation, exchange rates, general living conditions, etc and made according to the agreed Automatic Adjustment Formula. It’s been over 20 years since Ghana started implementing energy sector reforms, but we are nowhere near resolving the cyclical issues of pricing, subsidies and the provision of incentives to operators for capital investments. There are wider systemic issues that need to be resolved as matter of urgency. Let’s resolve to implement the numerous energy and water sector policies and plans premised on an overall fit for purpose regulatory framework that does not only inure to benefit of operators as suppliers of these utilities but guarantees better consumer welfare and greater security of supply.

Links for further reading

  1. http://www.ghanatuc.org/wp-content/uploads/2012/02/TUC_POSITION_UTILITY_TARIFF.pdf
  2. http://www.worldbank.org/en/news/press-release/2013/07/02/energizing-economic-growth-in-ghana
  3. http://documents.worldbank.org/curated/en/2013/06/18027411/energizing-economic-growth-ghana-making-power-petroleum-sectors-rise-challenge
  4. http://www.ghanabusinessnews.com/2009/06/11/purc-to-get-tough-on-utility-service-providers/
  5. http://www.purc.com.gh/purc/

About the Author

Theo Acheampong
Theo is an economist and social media enthusiast who provides regular commentary on socioeconomic and political developments in Ghana and Africa at large. Theo is passionate about leadership, entrepreneurship and the role of innovative technologies in solving Africa's developmental challenges.