Dr. Yao Graham, Coordinator of Third World Network – Africa, says the damage done to public finances by the drawn-out saga of the Tema Oil Refinery (TOR) indebtedness provides lessons which must be heeded in government policy on subsidised power to Ghana’s aluminium smelter, VALCO. He explained that on close examination the two main arguments used to justify the subsidies to VALCO - the development of an integrated aluminium industry and ensuring supplies to downstream industries do not stand up. Speaking to the B&FT, Dr. Graham recalled the huge energy subsidies that VALCO had enjoyed since it was bought by the previous administration, and the negative impact of those subsidies on the finances of the VRA and government. In the July 2006 Supplementary Budget, the government acknowledged the damage that the subsidy to VALCO was doing to VRA’s finances when it voted between GH¢27.4million and GH¢32million to compensate VRA “for the difference in costs of generation and the sale of power to VALCO.” In fact, some of the debts owed to VRA by VALCO were still outstanding when the NDC came to power. This point about the burden on the VRA which was also raised in a recent interview with the B&FT by Mr. Kweku Awotwi, Chief Executive of VRA, when he stated VRA’s position on supplying power to VALCO. He pointed out a few important outcomes of operating VALCO at the current time. First, the Authority has to cut back on exports of power to Togo and Benin, and will lose between US$10-$15 million per pot line of VALCO operation. Second, the VRA is being forced to operate its high-cost diesel-powered plants during peak periods at a cost of 30 US cents/kWh – several multiples of the tariffs being received from VALCO. He also stated that supporting VALCO’s current power needs reduces the amount of reserve capacity available to the system, required to provide back-up capacity and maintain system reliability anytime there is a contingency – whether for unexpected power outages or for scheduled maintenance. “The needs of the aluminium fabrication sector have often been put forward as the primary economic benefit from keeping VALCO open with subsidised power.” Dr. Graham agrees that the sub-sector is an important source of jobs, incomes and taxes, but points out that it uses only half of the output of one pot line, that is; one eighth of VALCO’s total installed capacity. “As it is, half of VALCO’s current production is exported with the foreign buyers enjoying a subsidy from the Ghana government! This situation is untenable and will get worse should VALCO increase its production. We should not allow lobbying to take over sensible public discussion of these matters.” Dr. Graham wondered if anyone has done the sums to establish whether direct government support to downstream firms like Aluworks would not be cheaper than the current scenario which includes subsidies to foreign buyers of VALCO aluminium. He noted that when VALCO was shut the downstream industries were producing using imported aluminium, with the cost of freight, credit and taxes being the additional costs when compared to buying metal from VALCO. “It would be surprising if this additional cost is more than the cost of energy subsidies to VALCO, and we must remember that the reliable availability of energy is as important for the aluminium fabricators as it is for everyone else.” He said even though VALCO is a wholly state-owned enterprise (SOE), acquired in unclear circumstances at significant cost some years ago, very little is publicly known about the terms of the purchase, its technical state and potential and the financial results of its operations since acquisition. “Given the extraordinary privileges being enjoyed by VALCO in respect of electricity and public finances, the public is entitled to answers to these questions. We are aware that it is an old plant, so we need to know about its efficiency. We need to know what informed government to buy the smelter at that time. Was there a proper due diligence? What kind of evaluation was done at that time? These are important issues.” Source: B&FT/Ghana