ECG: An albatross on national development, or can it contribute more resources?

Ghana’s largest power distributor, the Electricity Company of Ghana (ECG), which is supposed to be a key driver of the country’s economic growth, has become a liability rather than an asset, according to economic analysts.

According to data from the power distributor’s website, ECG was established as the Electricity Corporation of Ghana in 1967 by Government Decree (NLCD 125) and was subsequently incorporated under the Companies Code, 1963 (Act 179), as the Electricity Company of Ghana Limited (ECG) in February 1997.

However, the company is solely 100% owned by the Ghana government.

ECG serves over 80% of Ghanaians and purchases over 90% of the power produced in Ghana. ECG has a direct staff population of 6,500, and over 100,000 indirect employees made up of third-party Suppliers and Contractors.

Why should the public worry about the problems at the ECG?  Company officials and independent analysts both identify two major reasons: Firstly, its ability to provide more and secure power for domestic and industrial use. Secondly, it has a limited capacity to contribute to government revenue to help fund developmental programmes such as health and education.

The over 80% of Ghanaians, including direct and indirect workers whose livelihoods depend on ECG, all face the risk of seeing the country’s largest power company fall deeper into debt.

The ECG’s situation is getting dire by the day, according to officials familiar with the company’s operations. But this investigation has protected the identities of these officials for their own corporate security.  They said the power distributor is incurring more debt, which is affecting its capacity to supply electricity and is defeating business principles and the purpose for which ECG was established.

Urgent steps need to be taken to address the wobbling situation that threatens the sustainability of the power distributor, they said. The fate and state of ECG has a direct bearing on the nation’s economic health since electricity is a key factor in every developmental initiatives.

The electrical power distributor’s growing revenue losses have become an albatross on the national economy. Several officials are flagging the ECG’s porous financial situation as a ticking time bomb that could explode with disastrous consequences for Ghanaians.

Looking at Ghana’s biggest power supplier’s level of debt accumulation and the intervention required of the state, it is just a matter of time before Ghana is plunged into another energy crisis.

Data from the Ghana Statistical Service (GSS) shows that between 2017 and 2022, ECG’s losses increased from about Ghc 295 million to about Ghc 9.7 billion.

In 2024, ECG lost 32% of its purchased electricity, the highest in over two decades, leading to a substantial amount of revenue loss.

Official data from the Energy Sector Recovery Program (ESRP) estimates that power sector shortfalls between 2019 and 2023 alone were about US$8.25 billion. Certainly, this waste of public resources cannot persist.

Also, with Independent Power Producers (IPPs) debt mounting and gas suppliers and transporters demanding payment for their long-standing debt, the government is under intense pressure to use revenue meant for physical infrastructure development, like roads, hospitals, school buildings, and other social investments, to offset ECG’s avoidable debts.

According to sources within the Energy Ministry, some IPPs have already begun targeting payment guarantees to pay some of their outstanding debt.

Karpower, one of the IPPs, for example, has drawn down about US$112 million to settle the debt owed to them. On the gas side, drawdowns on Standard Chartered Bank Letters of Credit (LCs) by the Offshore Cape Three Point (OCTP) partners have an outstanding balance of about US$400 million to be settled by the government.

The current debt portfolio of ECG is revealing a concerning reality that threatens not just the existence of the company but the country’s developmental drive as well as the sustainability of its budget.

For many years now, customers of the power distribution company and the general public at large have been saddled with a huge financial burden (astronomical increases in tariffs, high taxes on petroleum products, among other indirect costs), all in an attempt to pay for ECG’s inefficiencies. The continuing accumulation of debts despite the rise in tariffs and taxes raises serious concerns about the sustainability of the largest electricity distributor.

Despite longstanding signs of inefficiency, political elites who call the shots have failed to take decisive action to fix the economic mess management of ECG has created in the past and keeps creating.

Investigations conducted by some journalists over some time show blatant acts of corruption and corrupt acts (awarding of shade contracts and Exchange rate manipulations) on the part of some officials of the state and staff of the utility company, mishandling of equipment and power theft (illegal connections) by some unscrupulous Ghanaians are the reasons ECG finds itself in a pit of debt.

According to a report by the Africa Centre for Energy Policy (ACEP), ECG’s under-recoveries between August 2023 and July 2024 amounted to approximately GHS 13.6 billion, with an average collection rate of only 43%.

Between 2018 and 2023, the electricity distribution company incurred a cumulative loss of GHS 23.4 billion (approximately $1.5 billion) due to various factors, including illegal connections. A significant portion of this loss was attributed to power theft and unpaid bills. According to ECG’s audited report.

In 2022, the then Energy Minister revealed that ECG was losing approximately $400 million annually to illegal connections.

The Ashanti Regional ECG office loses over 14% annual revenue due to illegal electricity connections. These illegal connections took various forms, including direct connections, meter bypassing, and unauthorized service connections.

Speaking in an interview with some residents in Danyame, Nhyiaeso, Adum, and Patasi, all suburbs in the Ashanti region as to why there is a high rate of illegal electricity connections in the region, many attributed it to high cost meter yet very difficult to get, astronomical tariff, and delays in billing.

For example, the Public Utilities Regulatory Commission (PURC) approved charges for Straight Service with Pole cost between Ghc2,120.00 and Ghc3,020.00, 2-Pole Extension goes for Ghc4,520.00 and Ghc6,720.00, while Separate Meter, which most of the residents interviewed claimed were in high demand but were very scares to get is parked between Ghc700.00 and Ghc1,300.00.

According to Kojo Antobam, a resident of Danyame, the high cost of meters, which are also not readily available in stock, coupled with high tariffs, fuels the incidents of illegal connections.

Households these days, no matter how rich or poor they cannot sleep in the dark. Hairdressers, toilers, hotels, hostels, cold stores, restaurants, clinics, and some institutions want their businesses to stay afloat, and so most owners cut corners by making illegal connections to beat down high electricity costs. He remarked.

“We have been witnessing astronomical increments in utility tariffs year in year out, with the excuse of paying debts of yet the debt keeps increasing. So, where does all the money paid in the past and we are still paying go?

For how long are we going to pay for debts we did not cause? We’re all aware that ECG is not being managed well, yet the people whom we vote for every four years are careless about the worsening situation of the very thing our lives and our existence as a nation depend on,” another resident from Patasi pointed out.

Policy Lead, Petroleum & Conventional Energy at ACEP, Mr. Kodzo Yaotse, is of the view that ECG’s predicament can only be solved if the power distribution’s value chain is cleaned.

According to him, the power distribution’s revenue performance is abysmal. Even more egregious is that ECG fails to account for the limited revenue it collects properly.

“ECG’s debt crisis is a result of its opaque procurement practices. Let’s highlight two prime examples of first, its introduction of the ECG PowerApp, a licensed payment system provider which was awarded under sole sourcing,” he noted.

Mr. Yaotse further revealed that ECG outsourced the development and maintenance of its payment system App to a company called Hubtel LTD, and according to a contract received from ECG, the total cost for the design and development of the platform is about GHS171.8 million. Between November 2022 and December 2023, the cumulative service charge was over GHS100 million.

In addition, Hubtel will be paid 0.95% of all revenues collected as service charges. At the time of contract execution, GHS75 million had been paid to Hubtel on the framework cost. This information in the contract contradicts information Hubtel has communicated on its proceeds from the agreement.

Meanwhile, on March 28th, 2024, just eight days after the contract was executed, Hubtel published the cost of developing the payment system at US$25 million (GHS315 million), of which US$12 million (GHS151 million) was paid ahead.

This new PowerApp has been managed by Hubtel, replacing the “ECG Power” app, which had operated before December 2022. The contract gives Hubtel control over all revenues collected until such a time as it is disbursed to ECG. The contract also creates a Fund designed to receive an undetermined portion of revenues collected before the balance is disbursed to ECG.

However, the data available shows revenue performance under Hubtel’s operated App has been worse over the period because, on evidence, the switch of the Apps was procurement-driven rather than an efficiency measure.

This retention of unspecified amounts from all revenues collected undermines the requirements of the cash waterfall mechanism and efforts under the IMF program to bring visibility to ECG’s total revenues.

Our investigations uncovered a directive given to ECG by the Utilities regulatory body, Public Utilities Regulatory Commission (PURC), to operate a single account to ensure visibility of total collection and onward transmission to the value chain participants was not complied with.  The PURC wrote to the then President of Ghana to impress on the power distribution company to heed the directive, but nothing was done in that regard.

Rather, ECG operated 61 accounts through 16 banks and would not make the details of those accounts visible to auditors.

Again, our source revealed that exchange rate manipulations were another major challenge of ECG accounting for the huge debt the company incurred year out. In many instances, the exchange rate reported by ECG to the cash waterfall committee was significantly higher than the interbank exchange rate. This exchange rate manipulation created a net exchange loss of about GHS 6.5 billion in 2022 (from GHS 609 million in 2021) and about GHS 7 billion in 2023.

This level of manipulation undermines the ability of ECG to pay the value chain and redirect public resources away from legitimate expenditure programmes.

In an interview with this reporter, ACEP’s Policy Lead, Petroleum & Conventional Energy, called for an immediate audit of the Hubtel contract to verify all the payments to the company to establish if there was value for money and to clarify discrepancies in cash values reported by Hubtel.

The official said this would help the management of resources at ECG so that Ghana’s largest power distribution company can contribute more to domestic resource mobilisation. (DRM) for national development projects.

By: Franklin ASARE-DONKOH

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