ECG On Verge Of Bankruptcy

– Poses significant threat to energy sector, economy

By Daniel NONOR, Accra

THE Public Utilities Regulatory Commission (PURC) has warned that the worsening financial condition of the Electricity Company of Ghana (ECG), places the power distributor on the verge of bankruptcy.

In a detailed letter addressed to the Minister of Energy and copied to the President, the Commission indicated that ECG’s prolonged financial struggles posed a significant threat to the sustainability of the entire energy sector.

The letter, signed by PURC’s Executive Secretary, Dr Ishmael Ackah  referred ECG’s repeated calls for assistance, including requests for capital expenditure to replace prepaid meters and help in mitigating foreign exchange losses among others.

The Commission noted that despite several initiatives, including tariff increases, ECG’s financial instability continues to worsen, placing the entire country’s energy security at risk.

The PURC further revealed that ECG’s revenues have been insufficient to meet its obligations to suppliers, especially the West African Gas Pipeline Company (WAPCo).

It noted that for instance, in June and July 2024, ECG declared GHS 884.2 million and GH₵857 million in revenue, respectively. However, this was not enough to cover WAPCo’s monthly bill of $47 million. The situation worsened in August 2024, when ECG’s revenue fell to less than GHS 800 million, representing just 42% of the revenue the Commission had expected ECG to collect and pay to sector players.

“The Tier B companies, including Ghana Gas, VRA, GRIDCo, ECG, Bui Power, and even the regulators, are struggling to gather enough resources to pay staff and administrative costs. This underscores the need for deeper introspection and structural changes beyond mere tariff adjustments,” the letter stated.

The PURC expressed deep concern over the potential impact on the broader energy sector, warning that ECG’s financial instability could lead to a national security threat due to its strategic role in power distribution.

 “The financial instability of ECG threatens the sustainability of the entire energy sector and could become a national security issue if not addressed promptly.” The regulator noted

To help salvage the situation, the PURC suggested turnaround strategies adopted by some other African countries   that faced similar challenges with their utility companies.

The PURC referenced the approach taken by Kenya, Tanzania, and Uganda to chart a path toward financial sustainability in their energy sectors.

In Kenya, for instance, the Power and Lighting Company listed approximately 50% of its equity on the stock exchange, raising non-tariff funding for critical investments.

Tanzania adopted a different approach, with the government converting a loan of 2.4 trillion Tanzanian shillings into equity for the Tanzania Electric Supply Company Limited (Tanesco). Since 2022, Tanesco has consistently declared profits, with technical and non-technical losses reduced to around 9% by June 2024.

“These examples provide valuable insights for addressing ECG’s financial struggles,” the PURC noted.

However, the Commission emphasised that any interventions must be paired with strict performance indicators to ensure success. The PURC suggested a focus on “drastic reductions in technical and commercial losses, enhanced fiscal discipline, and a clear directive for ECG to avoid engaging in non-core activities.”

The Commission stressed that ECG’s power purchase agreements and the exchange rate regime also required a closer look, adding, “An exchange rate regime that lessens the burden on consumers will be crucial for any long-term recovery plan.”

Furthermore, the PURC called for a wide-ranging examination of ECG’s operational structure. It recommended that the Ministry of Energy collaborate with other key stakeholders, including the Ministry of Finance, the Ministry of Public Enterprises, and the State Interests and Governance Authority (SIGA), to investigate the root causes of ECG’s financial difficulties.

“Such an exercise should aim to chart a path for transforming the company and safeguarding the energy sector. The issues at ECG require transparency on key matters such as revenue collection, major contracts, technical and commercial losses, and the impact of non-core activities and structural challenges, such as fuel payments.”

The PURC also called for independent economic and technical audits of ECG, noting that these reviews would help assess the company’s true financial and technical position. The audits, it said, are necessary to ensure the accuracy of ECG’s reported financial health and to develop practical solutions.

The PURC expressed concerns about ECG’s transparency on key financial issues, particularly regarding revenue collection and called for full disclosure on matters such as the company’s collection rates, major contracts, and its monthly obligations. “There needs to be a transparent assessment of ECG’s revenue collection versus its Cash Waterfall Mechanism (CWM) declarations. This will provide a clearer picture of ECG’s commitments, including payments for meters, Hubtel, and loans,” the regulator noted.