Deregulation in Electricity Tariffs Comes of Age

Fellows at the Institute of Statistical Social and Economic Research (ISSER) have called for the deregulation of Ghana's energy sector to allow the private sector to engage in electricity production and distribution as well as pricing.

This, according to them should be in the form of the deregulation in the petroleum downstream sector where Oil Marketing Companies (OMCs) set their own prices below a maximum indicative price.

Deregulation in the pricing of electricity is the reduction or elimination of government power in pricing of electricity to create more competition within the industry.

Dr. Robert Osei, Research Fellow and Dr. Felix Asante, Head of Economics Division and Prof. Ernest Aryeetey, Director of ISSER concurred with the suggestion at the launch of ISSER's review of the state of the Ghanaian economy report, 2006 and the mid-year review of the economy this year in Accra yesterday.

"We need to adjust tariffs but we don't need to adjust tariffs just for the sake of adjusting tariffs. If we are adjusting tariffs, we should make sure that those providing the services are efficient so we don't pay for an inefficient service," Dr. Robert Osei told The Business Chronicle after his presentation on the mid-year performance of the economy.

He said deregulation especially in the tariffs of electricity would break the monopoly of the Electricity Company of Ghana which has created inefficiencies because there is no competition. He reminded this reporter that electricity is the life stream of any economy and where monopoly exists, they can do what ever they like.

Dr. Felix Asante on his part said with deregulation in the pricing of electricity, more Independent Power Producers (IPPs) would be encouraged to invest heavily into the energy sector.

He said customers should not pay for an inefficient service. "We should make sure ECG is efficient".

He asked whether gas from Nigeria through the West African Gas Pipeline which was originally meant for Volta River Authority's Aboadze Thermal Plant would be enough to feed the numerous IPPs that are would be in Ghana to generate power.

In his presentation of the overview of the economy in 2006, Prof. Ernest Aryeetey, Director of ISSER said Ghana appears ready to move onto a higher growth path, with economic output in 2006 rising by 6.2% after the 5.8% rate recorded in 2004 and 2005, as well as improvements in Ghana's international ratings, significant external support and positive external sector developments.

He said inflation has been contained despite the negative impact of high oil prices and the partial deregulation of petroleum product prices and per capita GDP growth has also risen from 2.1% in 2005 to 2.8% in 2006, assuming population growth of 2.2%.

However he said the second half of 2006 was characterized by unstable electricity supply, culminating in an officially acknowledged energy crisis by the end of the year. He said with the deepening political stability and the expectation of continuing sound economic management, growth is on an upward trend while inflation could drop into single digits by end-2007 on condition that macroeconomic conditions remain stable.

Prof. Aryeetey said the business environment was getting better, and although corruption was a lingering problem, it was slightly less severe than in many other African countries. "Taxes are not overly burdensome but time-consuming bureaucratic hurdles and red tape persists," the ISSER Report stated.

Prof. Aryeetey noted that the World Bank's 2006 Doing Business Report found that it took 81 days to start a business in Ghana, still comparatively high, but an improvement on the 2003 figure of 129 days.

Fiscal policy objectives for 2007 include better revenue mobilization, containing the fiscal deficit and inflation, and reducing the overall budget deficit from 7.6% to 3.2% of GDP. If well managed, the redenomination of the cedi will improve the safety and reduce the cost of doing business. However, there must be sufficient public education in order to reap the full benefits in 2007 and beyond.

Ghana's real GDP growth of 6.2% in 2006 which was the sixth consecutive year of positive growth was largely driven by the industry and services sectors.

Agriculture remained the largest contributor to GDP, with a 39.3% share in 2006 (after 39.5% in 2005). The share of services was 32.9% and industry 27.8%.

The 5.7% growth rate of agriculture was better than the 2005 rate of 4.1 % but short of the 2006 target of 6.2%.

The shortfall was due to the slowdown in growth rates of cocoa production and marketing (from 12.2% to 8.7%), and forestry and logging (from 5.6% to 2.6%). Cocoa nevertheless remained the main contributor to agricultural growth in 2006.

Compared to the agriculture and services sectors, industry had the highest growth rate of 7.3% (or 0.9 percentage points higher than the targeted 6.4%).

The significance of electricity and water in this development has to be given special attention. The surge of growth in the sector was due to the considerable and very fast rise in spending on electricity and water through individual or smaller power generation systems as well as other facilities due to the energy crisis. But ISSER said such growth was unlikely to have much of a transforming influence on the economy in the short term.

Services sector growth was 6.5%, better than the 5.5% target and the 2005 level of 5.4%. This was driven largely by the transport, storage and communication the wholesale and retail trade and financial and insurance sub-sectors.

The report was launched by Prof. CNB Tagoe, Vice Chancellor of University of Ghana

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