Tariff Reduction: How is it impacting on the economy?

I believe one of the most refreshing and exciting news that Ghanaians especially electricity consumers, heard in the month of March this year was the reduction in electricity tariffs.

There was excitement all over the country and I must confess I was personally excited when I received a release from Public Utilities Regulatory Commission (PURC) announcing reduction in tariffs to that effect.

Even though we were anticipating some reduction in tariffs as promised by President Akufo-Addo, frankly speaking, the reduction was way beyond the expectations of Ghanaians.

Non-residential consumers had 30% reduction while Bulk Load Consumers enjoyed 25%, with residential consumers and mining firms experiencing 17% and 10% reduction respectively.

As if a heavy load had been taken off the heads of Ghanaians, the reduction was greeted with excitement by Ghanaians, since it was the first time ever such a significant reduction had taken place.

It is an established fact that until the Akufo-Addo’s administration took over, electricity tariff was like a heated iron coiled around the neck of consumers. And as long as we could not do away with it, we had to endure it until a rescuer came.

What was the most annoying was the fact that in spite of what many described as ‘killer’ tariffs, consumers could not even enjoy regular supply of electricity and we suffered heat in the night, due to unavailability of power to keep our air conditioners and fans on.

At a point, we became used to the power crisis, to the extent that as humorous as Ghanaians are, we made jokes with it and coined a new local parlance terminology ‘dumsor’, out of the situation.

You could hear someone telling a friend that “dum-so” or “Mahama” has visited my hood (i.e. neighborhood). That means there was no light.

Aside the ‘dumsor’ creating discomfort for residential consumers, the negative effects of power crisis, which started in 2012, and began, easing during the last quarter of 2016, was very huge. The situation led to the collapse of some businesses and many employees were thrown out of jobs.

According to research findings by the Institute of Statistical and Economic Research (ISSER) of the University of Ghana, the country lost about GH¢3 billion as a result of the power crisis.

The findings which covered between 2012 and 2015 revealed the negative impact of the power crisis on small and medium scale enterprises (SMEs) in particular.

It was established that 885 SMEs lost GH¢250 million, while 55 folded up with its attendant job losses.

Interestingly, the situation has changed and the electricity supply has been stabilized and tariffs reduced: The question then is: What will be the impact of the tariff reduction and stability in power supply to the economy? Will it increase business activity and bring economic growth? Will the owners of the businesses that collapsed be motivated to make capital injection to revive them? Are we going to witness expansion in businesses because business owners will be making savings? And what will residential consumers who were paying ‘killer’ tariffs and complained bitterly achieve from the reduction?

Electricity, as we all know, is the backbone of every economy, and so it is with the Ghanaian economy. From the ISSER research, we became aware of how the power crisis affected businesses, leading to some collapsing.

Having stabilized power and succeeded in reducing tariffs, it is obvious the government of the day would expect that the situation would translate into economic growth, including increase in business activities and expansion of existing businesses.

One may argue that stability in electricity supply, coupled with tariffs reduction alone, cannot do the trick since there are other factors such as interest rates, import duties and exchange rates, which, in one way or the other, should be favourable to businesses before they can expand. This is an undeniable fact.

However, we can all attest to the fact that government has, at the moment, created the condition for businesses to grow, even though there are still more to be done. As we speak, with the exception of the exchange rate, almost all the other factors that should trigger economic growth are showing positive signs.

It is, therefore, not surprising that last year, the International Monetary Fund (IMF) acknowledged the country’s 8.4 per cent growth of the economy, and praised government for it.

There is the possibility that new companies are coming up, because of the favourable business environment while the existing ones may be expanding because of savings they are making from electricity.

Let us assume that company ‘A’ was paying GH¢1 million for electricity consumption on a monthly basis prior to the reduction, now that same company would be paying GH¢700,000 because of the 30% reduction for industries and will be making a savings of GH¢300,000. Again, assuming a five-star hotel which employs about 80 people was GH¢20,000 for electricity consumption on monthly basis, now, the same hotel would be paying GH¢14,000 and would be making a savings of GH¢6,000. Again, assuming a restaurant operator was paying GH¢2,000 for electricity on a monthly basis, with the tariff reduction, that same operator would be paying GH¢1,400.

Now, let us move the discussion away from assumption to what is the reality on the grounds: In my research, I obtained bills from an array of businesses including restaurants, hotels, food processing companies and manufacturing companies, and, for instance, Hotel Marjorie ‘Y’ at Community 6, Tema, which used to pay GH¢43,258.76 as electricity bill in January 2018, paid GH¢32,756.62 in April, after the tariff reduction announcement in March, and the full implementation being effective in April. By this, the hotel saved GH¢10,502.14.

In the next month, the same industry paid an electricity bill of GH¢30,979.32, resulting in a drop of GH¢1,777.

Then, Imperial Peking Chinese Restaurant, which also paid GH¢21,748.35 and GH¢20,593.62 in January and February respectively, paid GH¢15,434.04 and GH¢14,147.73 in May and June respectively, culminating in a drop in their electricity bills of GH¢6,445.89 between the February and June bills and a drop of GH¢1,284.31 between May and June bills.

Trust Link Company Limited, a cold store in Tema, which paid GH¢105,815.60 in March, paid GH¢79,502.52 after the reduction. The company made a savings of approximately GH¢26,313.

Also, COB-A Industries, producers of Standard Water, paid GH¢30,796.22 and GH¢29,125.59 as electricity bills for February and March. However, the same company paid GH¢22,849.34 in June, representing a reduction of GH¢6,276.34.

So you see for yourself how the reduction has brought relief to businesses? Some residential consumers I spoke to also alluded to the fact that they are now spending less on electricity.

It will interest you to note that those who, hitherto, bought GH¢50 prepaid credit and could last for only one week, also confirmed that the same amount of credit now takes them to more than two weeks. Mr. Emmanuel Chapman, a resident of Ashaiman, for example, said GH¢50 credit which used to last for two weeks, now takes him more than 30 days.

Chairman of the Ghana National Taylors and Dress Makers Association (GNTDA) for Upper West Akyem, Patrick Asamoah, revealed that before the reduction, his electricity bill used to be between GH¢80 and GH¢60, but explained that he now pays about GH¢20.

Meanwhile, President of Hairdressers and Barbers Association in Denkyembour District in the Eastern Region, Madam Dora Darkoa, commended government for the stability in power supply in the country.

Madam Darkoa, who expressed serious concerns about how the power crisis affected their businesses, revealed that the association has recruited about 200 girls who are interested in hair dressing to train them for free because of the stability in power supply. What good news! In fact, consumers should be in anticipation for further relief, because the Energy Minister, Boakye Agyarko, who took the bull by the horn by renegotiating all the Power Purchasing Agreements signed by the previous administration, leading to the tariffs reduction by the Mami Dufie-Ofori led Public Utilities Regulatory (PURC), gave indications recently, after laying the ECG concession in Parliament, that the cost of electricity would witness a further drop if the concession is operationalized.

The Finance Minister, Ken Ofori-Atta, did not surprise me when he said the tariff reduction would lead to a revenue shortfall of GH¢1.8 billon annually. That is a lot of money to turn things around. With the savings businesses are making from the tariff reduction, my appeal to them is to invest the excess funds in expanding those businesses so that new people can be employed, in order to reduce the level of unemployment in the country.

If that is not done, that would mean that the President’s objective for the tariff reduction would be defeated. The reduction must lead to increased activity, which is the only way the objective for the reduction would be realized. I cannot conclude this article without touching on power theft, popularly known as illegal connection, an issue which the ECG must seriously tackle. Recently, the ECG office in Tema brought to our attention that about twenty companies were using electricity illegally.

It is my expectation that ECG would collaborate with the police to arrest and prosecute these nation wreckers to serve as deterrent to others.

By Michael Creg Afful
(Energy Journalist)
Email: [email protected]