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The business of energy…No more justification for government intervention

Coat of Arms of the Republic of GhanaI write in relation to a news report that was carried by myjoyonline.com on Tuesday September 3, 2013 with the caption “Finance Minister justifies suspension of hikes on petroleum products”.

In that report it was stated, `Finance Minister, Seth Terkper, has justified the government’s decision to suspend a planned hike in prices of some petroleum products. Although a civil society group, African Centre for Energy Policy (ACEP), has admonished government to stop meddling in utility provider-consumer affairs, the Minister has insisted thatgovernment intervention is necessary’.

What I find most baffling is that there are (and have been) many news articles that cite the current Minister of Finance, Seth Terkper, as stating that government must remove fuel subsidies; and yet a few days ago the same Finance Minister apparently justifies the suspension of hikes on petroleum products. It may be argued that in one instance Mr. Terkper speaks his personal opinion on the matter, and in the other instance he is expected to play “his role” and do his job of defending government’s position on the matter. However, isn’t it the responsibility of persons in such positions of authority to ensure they use that authority vested in them to promote and implement the ideals that they believe in, especially when those ideals are truly in the nation’s interest?

It is often said that “Insanity is doing the same thing over and over again, and expecting different results”. Various governments under various regimes in Ghana have always held the belief that “government intervention is necessary” when it comes to the issue of energy (fuel and utilities especially electricity) and pricing. Whereas in one breath this statement is valid, it does not hold true all the time and in all circumstances.

The management of fuel and electricity price-increases in Ghana has often been done with political expediency while painting a picture of social consideration for the people. Over the years, governments in Ghana have
over and over again “managed” the price of fuel and electricity “in the interest of the people” — but such interventions have proven over and over again not to be in the interest of the country and the economy as a whole in the long-run!

“Energy (oil, gas and electricity) is a serious business for serious-minded people, and it needs to be looked at as such!”
Explicit yet inherent in this statement is that anything concerning energy (oil, gas and electricity) is a business. It is a business of investments, costs, prices, finance, trading and financial markets, economics, management, legal issues (contracts), balance of payments (budget deficits) and hard practical business decisions — which inmost cases should be devoid of politics! Unfortunately, this is a lesson that governments in Ghana (and most African countries) have not learnt and understood, or lack the willpower to see it through to its fruitful end.

It seems like an annual ritual, whereby government (in recent years through the Public Utilities Regulatory Commission) has as a matter of “necessity” intervened in the matter of electricity investments, input supply and logistics as well as pricing (especially in the area of tariff increases). This has resulted in our reaching the point where Volta River Authority has asked the PURC to increase its tariff by 137.5 percent; GRIDCO has asked for an upward adjustment of 39.36 percent; and ECG has asked for a 166 percent increase in electricity tariff across the board. A statement signed by Mr. Kofi Asamoah, General Secretary of TUC, last month historically (and ironically) reports that in 2010 the ECG made a marginal profit of about US$4-million -¬partly as a result of the (automatic) upward tariff adjustment. However, in 2011 and 2012 the company made fosses of US$16million and US$26milion respectively, partly because of failure to automatically adjust tariffs. Hence, a clear indication that when the government “necessarily intervenes” in the “business” of energy in the short-run for political expediency, the country or the economy of Ghana suffers (generally in the long-run).

Over and over, the government again has as a matter of “necessity” intervened in the matter of petroleum products; especially in input supply and logistics as well as pricing. This has resulted in a situation where a debate is currently raging over whether government should retain the subsidies which have been growing with the increasing demand (and cost of production) for the commodities. Figures provided by the National Petroleum Authority (NPA) says the cost of petroleum subsidies climbed by 167 percent to more than GH¢lbillion in 2012. Mr. Terkper in an interview with Citi News recently stated that: ‘We used to pay subsidies in the region of 80-90 million dollars and managed to not make any adjustments, but today the price is above 112-115 and we are paying on average of US$’150million a month (as subsidies)”. Another clear indication that when the government “necessarily intervenes” in the “business” of energy in the short-run for political expediency, the country or the economy of Ghana suffers (generally in the long-run).

Historically, the balance sheets of these government-related institutions -the Tema Oil Refinery (TOR), Volta River Authority (VRA) and the Electricity Company of Ghana (ECG) -have not been the best because of the generic claim that, largely, “non-payment of realistic tariffs by consumers” is the cause. However, this is not the full picture as this is one but part of the cause while deferred and late payment of subsidies owed to these service providers is another.

It should be noted that if government seeks to justify such interventions in the “business” of energy but is not willing or able to make timely payments, it affects the companies involved (TOR, VRA, ECG) who in turn default on their payments to their creditors (suppliers and banks/financiers). If government does not have the capacity and capability to ensure pre-payment or prompt payment of subsidies to energy companies, then it is only prudent that the government backs off from its stance that “government intervention is necessary” — especially when such “interventions” result in debt (and its accumulation) in the energy business, negative effects on credit ratings of these national companies and the country as a whole, as well as increased budget deficits. The results are that in the medium- to long¬term, the country experiences an increase in its debt-level — and this in turn poses a significant threat to government revenue unless steps are taken to control such debts.

As the debate continues on which way to go as far as the fuel subsidyremoval is concerned, I re-state my quote to government and civil societies groups (especially those in favour of fuel subsidies) that “Energy (oil, gas and electricity) is a serious business for serious-minded people, and it needs to be looked at as such!” Our own history has vindicated the various assertions that subsidies are not the way to go, as they are not sustainable (especially in the business of energy). We have done this over and over again with TOR, VRA and ECG over the years, and historically the effect of such decisions on the economy as a whole is glaring for all to see.Hence, the country’s continuous “necessary interventions” by government in the business of energy only justifies the assertion that “Insanity is doing the same thing, over and over again, and expecting different results”.

Hence, let us as a nation run the business of energy as all successful businesses do — with management and financial prudence! Let us proactively and creatively offer homemade out-of-the-box solutions based on and derived from the Ghanaian context and culture, and are relevant from the Ghanaian perspective (other than subsidies and/or some World Bank/International Monetary Fund conditionalities). This, when done, will continue to ensure government remains a social protection institution that proactively and creatively offers out-of-the-box social interventions to protect the poor and marginalised in society without sacrificing the quality of the “business” of energy; which has dire implications and consequences for the poor and marginalised in society — the same people that we (as a government) seek to protect.

Source: B&FT

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Reporting Oil and Gas project was launched on 4th June 2009atTakoradi, Western Region, Ghana by Penplusbytes (PPB – www.penplusbytes.org) with the vision of providing a one stop online information and knowledge about Ghana’s oil and gas sector
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