ACEP’s Statement On Government's Covid-19 Electricity Subsidy Policy
The President of Ghana in his sixth national update on government’s efforts to fight COVID- 19 announced electricity subsidies for Ghanaians as one of the impact-mitigation measures of government. This policy is well intentioned to support Ghanaians, particularly the poor and vulnerable, who are faced with significant socioeconomic risks, resulting in part, from their reliance on daily wages and loss of economic livelihood. ACEP is of the considered view that not everybody captured in the subsidy needs it. Rather, the measure further endangers the sustainability of the power sector now and in post COVID-19.
The Power sector is reeling in debt, with no end in sight for debt accumulation. The current outstanding debt to Independent Power Producers (IPPs) stands in excess of US$1billion. Last week, Government had to intervene to pay for unpaid gas utilized for power generation to the tune of US$100 million to avert a calamitous action by the OCTP pertness to drawdown on World bank guarantees for the projects. This picture is gloomy enough, without exhausting all the challenges in the power sector, for careful consideration of actions that further worsen the financial sustainability of the sector.
The President announced a complete waiver of the electricity bill of lifeline1 consumers of electricity and 50 percent reduction in electricity bill for all other consumers using March 2020 bill as the benchmark. This reduction in electricity tariff will be effective for April, May and June. This means that the cost of electricity waived by the president for each lifeline consumer is GHS18.4 per month for three months (GHS55.2 for the period). On the other hand, all consumers above the lifeline consumption will benefit from tariff reduction equivalent to 50 percent of their consumption for March irrespective of how much they consumed. For example, a residential consumer who consumed GHS5,000 in March will enjoy GHS2500 reduction in his/her bill for April, May and June (a total of GHS7500 for the period). This is highly regressive and poorly redistributes national resources in favour of the rich.
The challenge Ghana has had with electricity subsidy for the vulnerable in society is poor targeting. A large proportion of households described by the president as “the poorest of the poor” do not benefit from lower lifeline tariffs because many of them live in compound houses. These people consume higher than the base unit of 50kwh a month, rendering the poor unable to enjoy the lifeline tariff. Rather, consumers who are able to procure separate meters and stay within the 50kw consumption band, typically not the poor, benefit from the lifeline tariff.