This, the Africa Centre for Energy Policy (ACEP) has identified as a requisite key policy intervention to ensure continuous liquidity of the power and gas sector players.
In a statement, ACEP said, “The plan to institutionalize this mechanism has overly delayed. This is further obstructing the flow of cash from the Electricity Company of Ghana (ECG) to players in the value chain.”
“In times of this economic difficulty, a transparent system is required to ensure that revenues collected are not monopolized by the distribution companies,” It added.
The Finance Minister, Ken Ofori-Atta, during his statement to Parliament on the fiscal impact of coronavirus on the economy was surprisingly silent on the fiscal implications of the COVID-19 for gas supply and power generation.
However, the rate of debt accumulation resulting from gas and power supply could increase in 2020, ACEP noted.
In 2019 and before the advent of the coronavirus crisis, government’s debt to Independent Power Producers (IPPs) was over US$1 billion.
Gas supply for power production has largely been dependent on supply from the Offshore Cape Three Points (OCTP) partners. However, ACEP indicates that due to cashflow challenges in the power sector, OCTP gas has not been paid for in the last four months resulting in a debt accumulation of about US$192 million prior to Ghana’s first confirmed case of COVID-19.
Average supply from Jubilee and TEN between 22nd March and 2nd April 2020, were 22.6mmscfd and 38.2mmscfd respectively. The unending challenges with Jubilee’s gas production continue to affect export of gas to the Ghana National Gas Company.
In recent times, the offshore pipeline has been experiencing throughput challenges which require a pigging exercise to be conducted to remove blockages.
The challenges with Jubilee have required the OCTP partners to ramp up production to between 160.51mmscfd and 209.75mmscfd to meet critical demand by the power sector.
The OCTP gas has therefore become the backbone of domestic gas supply.
In 2019, the Ministry of Energy said it had begun instituting a Cash Waterfall Mechanism (CWM) to prevent the growth of the sector-wide indebtedness as the Ministry services legacy debts in the sector.
However, the process seems to have delayed, given that in July, 2017, Cabinet approved the implementation of CWM as a new revenue distribution system to address the increasing legacy debts in the energy sector.
Cash Waterfall Mechanism
A waterfall payment is a payment system that allows debtors pay higher-tiered creditors their full interest and principal first before lower-tiered creditors receive their own principal and interest payment.
Debtors usually structure this mechanism into tranches in order to prioritize and finance the loans with the highest debt obligations, principal and interest inclusive. The idea is that most expensive debts should be serviced first.
This mechanism is part of a wider strategy to ensure an equitable distribution of energy sector revenues to all stakeholders in the value chain as the ministry plans to put an end to the practice where some power producers are given priority over others in terms of financing.