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Ghanaian authorities allow sharp increase in utility prices

Signalling its commitment to reform, the Ghanaian utilities regulator has increased electricity and water prices by up to 42% and 135% respectively, but consumer group anger and inflation expectations may also rise.

The Public Utilities Regulatory Commission (PURC) approved significant increases in electricity and water tariffs, varied according to usage, coming into effect on 1 June. Electricity prices are unchanged for the lowest consumption category of residential users at 9.5 pesewa per kilowatt hour, but have increased by 42% from 12 to 17 pesewa per kilowatt hour for those consuming “between 51 and 300 units”, Ghana’s Joy FM reports. For those consuming between 301 and 600 units, the price is 21 pesewa per kilowatt hour, and for 600 and above it is 23 pesewa per kilowatt hour. Water utility prices have increased by 33% from 66 to 88 pesewa per cubic meter for consumers using 0-20 cubic meters per month, and by 32% for those consuming more than 20 cubic meters, who will now pay 120 pesewa per cubic meter instead of 81.6 pesewa. Prices for public institutions have increased from 110 to 150 pesewa per cubic meter.

Unlike petroleum products, the last time power and water utility prices were adjusted was November 2007. PURC chairperson Emmanuel Annan explained at yesterday’s press conference that the new price schedule is designed to assist the Ghana Water Company (GWCL) and Aqua Vitens Rand (AVRL), which is contracted to manage it, to meet key operational costs, such as water treatment, replacement of obsolete equipment, and system maintenance. Similarly, electricity price increases are justified as a measure to ensure the financial stability of service providers, including the Electricity Company of Ghana, the Ghana Grid Company (GRIDco), and the Volta River Authority (VRA), in charge of distribution, transmission, and generation respectively. The government has welcomed the PURC’s announcement, and committed to providing the “required financial support to provide the necessary infrastructure for the utilities to operate efficiently”.

The Shop Floor
Unsurprisingly, the move has offended some organised interests groups, particularly Ghanaian consumers who struggled with spiralling inflation between 2007 and mid-2009, and now face below-trend economic growth. Bernard Morna of the Committee for Joint Action (CJA) pressure group told Voice of America of his disappointment at the “reckless manner” in which the government has issued tax and tariff increases without, in his view, ensuring any commensurate benefit for Ghanaians. Looking forward, there is a lack of confidence in the ability of utility company management to introduce the improvements in service quality that would justify price hikes.

According to Morna, the CJA will now hold an emergency meeting to devise steps to counter the regulator. No specific options were mentioned in the VOA article, but demonstrations and/or other more aggressive industrial action is an obvious possibility, and all the more likely if utility price adjustments arrest the current disinflationary trend. Additionally, the new schedule does not meet with the average 154% energy price increase requested by VRA, GRIDco, and ECG management. There is still a 49-million-cedi (US$34 million) financing gap to be met by the public exchequer, Annan admits.

Outlook and Implications
Energy sector blues weigh heavily on Ghanaian economic efficiency. Producers, particularly in the industrial sector, are obliged to purchase independent power generators due to volatility in the quantity and quality of power supplied on the national grid, while quality of life for households is reduced for similar reasons, as well as limited access outside the urban centres. The state-owned operators facing rapidly expanding demand have been unable to meet operational maintenance costs due to political dictat, nor has the government been able to step into the breach, and private sector investment is thus discouraged. The indebtedness of the power sector has had wider implications for the financial sector. The recent price adjustment is therefore an important confidence-building measure.