The Finance Minister has declared “a state of emergency” in the energy sector, which he said is facing serious challenges.
The challenges, Ken Ofori-Atta stated, could pose grave financial risks to the entire economy.
“At the heart of these challenges are the obnoxious take-or-pay contracts signed by the NDC, which obligate us to pay for capacity we do not need,” Mr Ofori-Atta indicated Monday while presenting the mid-year budget review to Parliament.
The country, he said, is currently paying over ¢2.5 billion annually for some 2,300MW in installed capacity which the country does not consume.
“Currently, according to the Energy Commission, our installed capacity of 5,083 MW is almost double our peak demand of around 2,700 MW. Notably, 2,300 MW of the installed capacity has been contracted on a take-or-pay basis. This means that we are contractually obliged to throw away money for this excess capacity which we do not consume…
Similarly, for gas, Ghana has contracted for around 750 mmscf per day by 2023. This is even after this government terminated two other LNG contracts in 2017,” he explained. The Current demand is around 250 mmscf per day, and this is projected to rise to between 450 and 550 mmscf per day by 2023.
“About 640 mmscf of the contracted gas supply is on a take-or-pay basis, meaning we have to pay whether we use it or not. From 2020, if nothing is done, we will be facing annual excess gas capacity charges of between $550 and $850 million every year.
“Mr. Speaker, we cannot allow this situation to continue. There is no doubt that the situation in the energy sector is shocking the economy. We are in a state of emergency and must, therefore, respond with urgency and boldness.
“We shall from August 1st 2019, with the support of Parliament, make take-or-pay contracts a beast of the past,” he lamented.
Thankfully, we have a plan to deal with this, he announced. He announced at least 15 new measures to address the energy sector challenges which include increasing the Energy Sector Levy (ESLA) from 17% to 21%.
The NPP while in opposition described the levy introduced in 2015 as ‘nuisance tax’.
That levy was introduced to pay off huge debts in the energy sector known as legacy debts as it dates back to 20 years. The Minister revealed almost 6billion cedis has been raised to pay off approximately 60% of the energy sector legacy debts.
The increase in the levy is expected to result in a 90p increase per gallon of petrol and diesel, the mid-year budget revealed.
”Government proposes to increase the Energy Sector Levies by ¢0.02 per litre for petrol and diesel and ¢0.08 per kg for LPG,” Ken Ofori-Atta said.