This African Country Produces More Electricity Than It Needs & It’s A USD 450 Mn Problem

There is an African country that produces so much electricity that it’s become a problem.

For many African countries including large economies like Nigeria and South Africa, problems with electricity are most often linked with under-generation and under-supply.

But in Ghana, there is an “over-electricity” problem costing the government millions of dollars every year.

Yes, Ghana’s electricity generation capacity is almost twice the country’s peak demand needs. And the situation is forcing Ghana’s electricity utility company to pay independent producers up to USD 450 Mn every year for electricity that it doesn’t need or use.

It does sound crazy but it’s how things are currently — Ghana has too much power and gas that it’s become a bad thing for government finances.

By paying for electricity that the country neither needs nor uses, the liabilities of Ghana’s power sector are only adding up and this has become the biggest debt threat to a nation that went through its 16th bailout programme with the International Monetary Fund (IMF) barely 7 months ago.

Ghana’s Finance Minister, Ken Ofori-Atta, who will present the 2020 budget next week, has warned that the sector’s “unsustainable” liabilities may amount to USD 12.5 Bn — about a fifth of GDP — by 2023 from about USD 2.5 Bn in January.

A combination of factors including the liabilities for excess supplies, infrequent customer payments, under-recovery of costs, and unpaid lighting bills from even government agencies and ministries are to be blamed for Ghana’s “too-much-energy” paradox.

In July, Ofor-Atta said that excess gas supplies could add as much as USD 850 Mn per year to the liabilities from 2020. And that’s because delivery deals from additional supplies are due to start even though producers including Tullow Oil and a venture between Eni and Vitol already deliver sufficient volumes from local fields.

According to the minister, the energy sector’s shortfall for 2019 is expected to be USD 1.3 Bn. Although the direct responsibility for shouldering all of this is not the government’s, the power utility is often needed to make up the losses.

As per the IMF’s projections, the debt stock will reach 63 percent of GDP at the end of December, from 51 percent in January, though not all of that is due to the energy contracts. There’s been some contribution from a banking sector bailout.

The power losses contributed to the GHC 5.2 Bn (USD 940.5 Mn) that was added to Ghana’s debt stock in July to prevent the government from breaching its budget-deficit ceiling.

Talks began a month after with independent power producers to rejig the agreements, though the industry is fiercely against the move to change the current arrangements.

Discussions have stalled since then and the minister, who had earlier projected talks to take three months, is now unsure how long it would be before conclusions are reached — an indication that, going into 2020, Ghana may continue to pay so much money for something it doesn’t need.

Featured Image Courtesy: WorldBankGroup