The Energy Sector Levies Act, passed in December 2015, makes provision for an ‘Energy Debt Recovery Levy’; and for the Finance Ministry ‘to open and maintain an account’ into which payment of monies collected in respect of same are to be paid.
Per the new petroleum price build up, GHp41 is charged per litre of petrol and litre of diesel, while GHp37 is charged per kilogramme of LPG for the Energy Debt Recovery Levy.
Government has explained that the levy is meant to help clear what is described as ‘legacy debt’, estimated at some US$1.5billion, which hangs around the necks of power sector utilities VRA, ECG and GRIDco.
When the new levies were announced, the African Centre for Energy Policy (ACEP) did an estimate and came to the conclusion that government would make an incremental revenue of GH¢3.2billion annually, based on volumes of petrol, diesel and LPG consumed in 2015.
When existing levies and taxes are added, the energy policy think-tank said earnings will come to some GH¢5billion annually.
Some Ghanaians did not take kindly to the new levies; they did not understand why government had to design the new levies to intercept and not allow them to enjoy in full the consumer surplus brought about by the crude oil price slump.
The Africa Centre for Energy Policy (ACEP), for example, wondered why a person had to pay power sector levies when he buys fuel while the person pays a tariff for using electricity, and in which tariff is worked capacity charges meant for investment by the utilities – as well as an energy charge when purchasing fuel for generating plants.
“We have challenges understanding why apart from paying higher electricity tariffs, consumers are also being asked to pay debts accumulated from inefficiencies on the part of VRA and ECG, as well as government’s negligence of its responsibility to the utilities, through petroleum levies,” ACEP said at a press conference in January.
Six months down the line, government has announced again that it intends to issue a 10-year syndicated US$2billion bond to clear the same legacy debt in the power sector.
“What we are trying to do as a government is put all the debt into one portfolio. The three entities all have big legacy debts (in total) hovering around US$1.5billion,” Chief Director of the Petroleum Ministry Prof. Thomas Akabzaa told Reuters in Accra.
“The bond will be issued before end of the year, certainly,” Prof. Akabzaa said.
Prof. Akabzaa explained to the B&FT that government decided to issue the bond to help clear the debt upfront to boost investor confidence, since funds from the levy will come in trickles.
“The levy comes in trickles and it will take a lot of time before we can accumulate that quantum of money to pay. So the bond is to kind of frontload payment to the banks while we service the banks as money comes in,” he said.
Investors in the gas sector, he said, have expressed worry over the power sector debt, saying it is one of the major challenges to monitising gas in Ghana — a reason government wants to clear the debt as soon as it can.
While agreeing that the explanation “makes sense”, Dr. Mohammed Amin Adam of the Africa Centre for Energy Policy (ACEP) told the B&FT that government needs to come up with a payment plan so the levies do not end up being used for something else.
“When you do not have a payment plan and then you are taking the levies and using it for something else, it becomes a debt overhang; interest accumulates and it becomes a problem around your neck,” he said.
“If you default then it becomes more problematic, and the only way you can default is if the levies are being used for something else; and I have never trusted government collecting the levies and using it for the stated purpose.”
Government, Dr. Amin further indicated, needs to “come clean” on how much is accruing through the levy; and how long it would have taken to clear the debt with the levy.
“In all this there is need for transparency, and there is need for full disclosure,” he said