Currently, only 20% of the power Electricity Company of Ghana (ECG) purchases from Independent Power Producers is paid for through the Cash Waterfall Mechanism (CWM) (IPPs).

The unpaid balance of the remaining 80% keeps growing, going from US$996 million in September 2022 to US$1.2 billion in October.

By allocating the profits from electricity sales proportionately among the relevant energy sector participants involved in the value chain of the electricity supply, the CWM aims to pay off debt associated with the power sector.

After initially proving to be relatively cost-effective in controlling the sector’s debt in the past, the mechanism, according to the Chamber of Independent Power Producers, Distributors and Bulk Consumers (CIPDiB), is increasingly becoming unavailing, as it is unable to pay for 80 percent of the power IPPs sell to the ECG.

“The Cash Waterfall Mechanism pays only 20 percent of our delivered energy invoices,” laments the Chamber’s Chief Executive Officer, Elikplim Apetorgbor.

The remaining 80 percent, he noted, keeps adding to the arrears which stood at US$1.2billion at October ending.

He explained that the ECG’s inability to effectively collect revenue from consumers inevitably renders the CWM unsuccessful; hence the need for more enduring solutions to address the sector’s huge indebtedness.

The ECG, the country’s main power utility, buys electricity from IPPs and others, and distributes it to consumers in southern parts of the country.

However, due to weak revenue collection, the ECG is in some cases unable to pay for as much as 80 percent of the power it buys from generation companies like IPPs and state-owned Volta River Authority, leading to a build-up in arrears.

For instance, its annual losses – technical and system – are about 30 percent of its revenue: far above the regulator’s allowable loss margin of 23 percent.

As a result, the company loses around GH¢3.2billion yearly, according to Minister of Energy, Dr. Matthew Opoku Prempeh.

“The Cash Waterfall Mechanism was meant to provide a transparent and fair formula in the disbursement of any revenue that ECG rakes in. It will interest you to know that we lost the transparency objective. The last time the Cash Waterfall Mechanism Committee shared a report with us was in the first quarter of 2021,” Mr. Apetorgbor said.

ECG thinks otherwise

The ECG, when contacted concerning the claims by IPPs, denied that the CWM currently pays for 20 percent of the power it buys from generation firms.

Its Managing Director, Samuel Dubik Mahama, told the B&FT that about 73 percent of what his company buys from the IPPs was being paid for and not 20 percent.

Broken promise

Sensing that the CWM alone would not be enough in curbing power sector-related debt, the government through the 2022 budget announced a novel fund, dubbed Delta Fund, to clear outstanding payments to IPPs.

However, a year on the Chamber, which is the official mouthpiece for the IPPs, said nothing has since been heard concerning the said fund.

“We have been promised Delta Fund to pay up the outstanding. To date, no company has received any payment from such Delta Fund, if it exists,” Mr. Apetorgbor stated.

Impact of arrears on loan commitments

According to the Chamber’s CEO, some IPPs have defaulted on their loan commitments as they struggle to receive reasonable payments for the power they sell to ECG.

Explaining further, Mr. Apetorgbor said: “The danger is that most of us are in loan repayment default”.

This, coupled with rapid depreciation of the cedi and inflation, he bemoaned, is adversely affecting their operations.