Businesses say they worry about the competitiveness of their products and services after the upward adjustment in power and water prices, even though they appreciate the need for an increase to cover the rising cost of crude oil.
Power and water tariffs have been increased by 7% and 6.72% respectively, the Public Utilities Regulatory Commission (PURC) announced on Monday.
“The approved tariff is intended to support thermal-power producers to procure the needed cargoes of light crude oil that will enable them generate the required electricity through thermal means,” the utilities regulator said.
Only consumers in the ‘lifeline’ class – those who consume only up to 50 kilowatt-hours (kWh) per month — were spared any increase: the unit-charge remains GHp9.5 per kWh plus a service-charge of GH¢1.
Nana Owusu Afari, president of the Association of Ghana Industries (AGI), the main industrial lobby, said though the increase will be easier to accommodate — compared to a request by the utilities for a hike between 15-20% — it will add to their cost of production and hurt their competitiveness.
Already, locally-produced products find it hard to compete with cheaper imports, he said. “Anything that adds to the cost of production therefore makes us even less competitive.”
In July, the Central Bank said its survey of business confidence showed softening sentiments on growth. Its business confidence index dropped from 106.6 in April to 104.1 in June.
Firms surveyed were less optimistic about the level and intensity of their capital expenditures. They also expected lower levels of sales, profits and employment opportunities.
Nana Afari said he expected the utilities to use the additional tariffs collected not only to purchase crude, but to upgrade their equipment to enable better service-delivery.
In May, the PURC held off an attempt to raise tariffs according to its adjustment formula following protestations by the key interested parties, who bemoaned the consistently poor quality of services provided by the utilities.
Before its recent adjustment, the AGI and the Trades Union Congress (TUC) had asked the PURC to add a benchmark for service-efficiency in the pricing of tariffs. But the regulator said on Monday there has been some improvement in service-quality “which is, in some areas, significant”.
It said it is developing a quantitative quality-of-service index to be incorporated into the tariff-adjustment formula, but said this could only be introduced at the next ‘major review’ of tariffs.
The increase in water and power prices could also mar the inflation picture in the coming months, especially if it triggers a rise in expectations of future increases in economy-wide prices.
Consumer inflation registered 8.4% in July, a drop of 0.2 percentage points from the June rate, buoyed by stable food prices, a stable currency and a continuously-improving fiscal outlook. On a month-on-month basis, the index rose 0.63% last month.
The Central Bank’s rate-setting committee, which began meeting this week to assess inflationary expectations and the economy’s performance, will announce a decision tomorrow on the positioning of its policy rate.