Drowning in Debt

Ghana: Why is power company NEDCo cutting electricity supply to water treatment plants?

By Kent Mensah

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Posted on June 29, 2023 14:08

Ghana’s vintage enthusiasts give new life to Western clothing waste © A pair of shoes hang over power lines at the Kantamanto market in Accra, Ghana, November 30, 2022. REUTERS/Francis Kokoroko
A pair of shoes hang over power lines at the Kantamanto market in Accra, Ghana, November 30, 2022. REUTERS/Francis Kokoroko

Two utility companies, The Northern Electricity Distribution Company and the Electricity Company of Ghana, are at loggerheads over a debt that threatens a water crisis in the north of the country. 

The Northern Electricity Distribution Company (NEDCo) last week cut power to two major water treatment plants belonging to the state-owned Ghana Water Company Limited (GWCL) over a $4.8m debt. 

Close to two million inhabitants of Tamale, the capital of the Northern Region and Abesim in the Bono Region were denied access to potable water for domestic use when NEDCo disconnected power to the two critical plants as part of a revenue mobilisation exercise. 

 “It’s not right,” the managing director of GWCL, Clifford Braimah, tells The Africa Report. Braimah said NEDCo is embarking on as a “PR gimmick” because the electricity distributor “knows that the government owes all of us”.

“That conflict is unnecessary,” Braimah says. “We can easily resolve this without the media hype. If we all want to go after our debtors this way, then there will be a state of confusion.” 

No Choice

A spokesperson for NEDCo Maxwell Kotoka said although water is an essential commodity, his outfit was left with no choice than to compel the water company to pay as they are incapacitated by debt.  

Since the beginning of the year, NEDCo has been pursuing customers who have defaulted in paying their bills, including state-owned enterprises (SOEs), government agencies and ministries. Electricity consumers owed NEDCo, a subsidiary of the Volta River Authority (VRA), over $111m (GH¢1.2bn) as of January 2023. 

NEDCo said it spends $11.1m every month to light up its operational areas. However, only $7.8m returns to the distributor monthly due to power theft, poor management and non-payment by consumers. 

“The water company has paid $227,217 out of the $3.6m debt at its Tamale plant and has pledged to clear the arrears in the coming weeks,” Kotoka tells The Africa Report. “We have therefore restored the power to the plant.” 

NEDCo has been ruthless in its revenue mobilisation drive. Last month, it was on a collision course with St Anne’s Hospital in Damongo over a debt of more than $370,000. The task force disconnected electricity to the community health facility, leading to the death of two babies who were on blood transfusion equipment. 

The two main power distributors in Ghana – NEDCo and the Electricity Company of Ghana (ECG) – operating in the northern and southern sectors, respectively, are under pressure to pay long-standing debts owed to power producers, who are threatening to cut electricity supply to the national grid by June 30. 

The government owes independent power producers (IPP) over $1bn following contracts signed by the previous John Mahama administration during the power crisis in 2014-2015. Ghana has an installed power capacity of about 5,000 megawatts and dependable capacity of about 4,700MW, with the all-time high peak demand of 2,700MW.

The World Bank has said the power purchasing agreements (PPA) with the power generators are too expensive and must be reviewed since the country is paying for excess capacity. 

“The fact is, in the last few years, Ghana entered into some PPAs that were wrong. These types, in our view, were at the wrong rate and at the wrong prices and today the country paying duly for it. Ghana is being billed for many of these wrong PPAs,” the director of the World Bank responsible for Ghana, Sierra Leone and Liberia, Pierre Frank Laporte, told Accra-based Joy FM

Threat by power producers 

Since 2021, Finance Minister Ken Ofori-Atta has had difficulty in paying energy sector debts because Ghana, a major exporter of gold and cocoa, is facing its worst financial and economic crisis in decades. Once touted as investors’ favourite, the West African country has secured a $3bn IMF relief programme to return to macroeconomic stability.  

Some independent power generators are “now at a point where they are unable to persuade their creditors, contractors and other key stakeholders to further defer payments owed to them and to continue operations”, independent power producers wrote in a letter addressed to Ofori-Atta. 

If the IPPs don’t receive the requested interim payment requested by 30 June, the members of the IPP chamber won’t be able to guarantee the continued generation of electricity, the letter stated.  

A research and policy analyst at the Institute of Energy Security (IES), Adam Yakubu, tells The Africa Report that the situation is dire and since the government is the biggest debtor to the electricity providers, it must honour its side of the bargain. 

“The threat is real,” Yakubu says. “If the IPPs decide to shut down their plants, up to 70% of power generated in this country will be gone and that will affect both small and big industries and the economy will eventually suffer. We can’t afford a power crisis at the time we’re trying to get our economy back in shape.” 

Experts say the government must consider privatising the operations of water and electricity firms because that will boost their revenue generation and make them more efficient. However, GWCL boss Braimah said that will be a dangerous move.  

“Privatisation is not an option,” he says. “You cannot risk the lives of Ghanaians by handing over water production to a foreign company. It’s a national security issue.” 

Braimah added that GWCL’s present debt situation is not as a result of inefficiency, but is “due to the fact that we are spending four times more in buying chemicals to purify water as a result of pollution and destruction of water bodies by illegal mining.”  

“We have a legacy debt that we are seeing to. We also have to maintain our current infrastructure which has been in use for over 50 years. Most of the plants are very old and consume more power. If we put all these costs together and say we are going to recover them today, then we are going to break the back of the consumer,” Braimah adds.  

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