Category: Uncategorized

This article serves as a continuation (Part 2) of the Hydra Headed Challenges of the Proposed Privatization of the Electricity Company Of Ghana (ECG)  an Op-Ed, delving deeper into the topic, expanding on key insights, and addressing additional perspectives to provide a more comprehensive understanding.

11. Impact on the Government’s 24-hour Economy Strategy

One of the Government’s flagship policies – the 24-hour economy is yet to be fully rolled out.  So far, it has gained interest and also been viewed with skepticism in some quarters. Obviously, businesses who opt to run around the clock operations will require around the clock stable power supply. Will the tariff policy of a private sector ECG take the 24-hour economy into account? Will the tariff be designed to encourage the adoption of the 24-hour economy by selected businesses so that they are encouraged to operate around the clock as a result of deliberate lower tariff at low peak periods?

12. Multiple Prepaid Meters

There are a multiplicity of prepaid meters currently in use by ECG customers and in recent years, ECG frequently introduced “new meters” almost at will. What will the harmonization strategy be? Will the end-user have to continue with this or will there be a metering uniformity approach? Will any harmonisation measure result in cost to the consumer?

13. Will ECG’s Assets be Disaggregated Between “Core” and “Non-Core” Assets?

ECG possess assets (asset such as “spare land”) that may not necessarily be required for the operations of a utility entity.  Will the company’s assets be segmented and if so, will there be a “non-core assets” category that GoG may auction to earn some income to offset any accrued debt it will absorb?

14. A History of Failure of State-Owned Enterprises (SOEs)

In the late 80s and early 90s, quite a number of statutory corporations (ECG being one of them) were converted into private limited liability companies. The expectation at the time was that these SOEs (apart from those subsequently divested to the private sector) will be run as private sector corporate entities and make profits. The case of ECG is very similar to that of many other SOEs – it has become more indebted as a limited liability company than it was when it was a statutory corporation. On the other hand, other electricity distribution companies managed by the private sector (e.g. Genser and Enclave Power) must obviously be making profits otherwise, they would not have attracted private sector investments. The lesson is that it is not whether the entity is owned by the state, it is whether it is properly managed as a business. How will the privatization approach ensure that the private sector operator does not make ECG a more indebted entity?

     15. Transfer Pricing Prevention and Dividend Strategy

There are numerous examples of entities in which Government hold shares but for which Government earns no dividends and ends up being saddled with debt.

If GoG retains equity, what will be GoG’s position on dividends as a condition for sale? Will there be a mandatory dividend policy? Will there be benchmarks or cost parameters modelled in a manner to ensure GoG can forecast dividends after a specified period (when ECG becomes profitable). Can such dividends be drawn down ahead of the end of year financial statements?  Can GoG borrow against such projected dividends?

16. Compact with USA Millennium Development Authority (MIDA), Millenium Challenge Corporation (MCC)

Will GoG receive any grant for ECG aspects under Ghana’s second Compact with the USA (focused on the power sector “Compact”)? Will there be additional capital expenditure incurred by the Government? Will the new government of USA continue with the Compact? What will be the implication of either scenario?

17. Impact of Access to Electricity

Since the GoG has a policy to increase citizens’ access to electricity, especially in deprived communities, how will this be achieved in a commercial led ECG operations?

18. Separating the Wheat from the Chaff

How will Government set parameters to separate serious bidders who have the technical and financial muscle from those who are just adventurers seeking transactional opportunities? Naturally, there may be “middlemen” who may parade the appropriate corridors – how will GoG minimize this and ensure there is greater transparency in the process?

19. Requirements to List on the Ghana Stock Exchange (GSE)

Will the new owner be required to list ECG on the GSE in order that ordinary Ghanaian can own shares and if so, will there be a requirement to list a specified percentage of the equity (in order to retain a percentage of dividends in local currency)?

20. Local Content and Growth of Private Sector

There are a number of “local content” related issues that must be factored into the process.

• There is an assumption that Ghanaian entities do not have financial wherewithal to take over a company like ECG.  This may be true but there are other areas of already deepening local participation which can be further deepened.

How will the framework ensure that the private entity purchases inputs (e.g. cables and meters) from local suppliers?  Without such arrangements, purchase from sources outside Ghana could adversely affect local players especially because ECG is a near monopoly.

Examples include:

• Supply of cables (Nexans Kabelmetal Ghana Ltd., Reroy Cables Ltd, Tropical Cable & Conductor Ltd., etc. )
• Manufacture of meters and transformers (e.g. Alpha TND Ltd., Westrafo Gh Ltd, Ghana Electrometer)
• The marketing and sale of credit to the final consumer can be separated from distribution.  If this is done, will the marketing and sale be reserved for local vendors and if yes, how will these vendors be selected by the foreign-led entity in a transparent process without politically exposed persons leveraging their influence to lodge themselves into the chain?  Presently, the Energy Commission License Manual provides for separate licenses for distribution and sales so it may be important to indicate how the private entity will be given both licences.
• Further, how does GoG seek to achieve the over ambitious local content targets set out in the Local Content and Local Participation Guidelines issued the Energy Commission.

21. Potential Impact on GoG’s Industrialization Agenda

The Government has expressed its intention to pursue a value addition strategy. Already, many manufacturers claim they have been struggling to remain competitive as a result of the high cost of capital and high cost of utility. No country can industrialise if it is selling power to strategic industries for more than $0.06 per KWh (Ghana is selling above that price).  Since a private sector led ECG will naturally be profit driven, what strategy will GoG use to balance the cost of power to industry (and the need to lower tariff to selected industries) in order to achieve the industrialisation objectives?

22. How will it Affect the Integrated Aluminium Industry

The potential of the integrated bauxite to aluminium sector as a game changer is well known.  Whereas parts of this industry (e.g. VALCO and potential refinery) will remain bulk purchasers in the deregulated market (and will not rely on ECG), allied industries further downstream (e.g. entities involved in aluminium based fabrication of household items) will need ECG. It is therefore important that the privatization of ECG is not considered in isolation since these downstream industries are major job creators.

23. Climate Change, “Legacy Hydro”, Power Source Mix and Matters Arising

Recently, a lot of finance which goes to the power sector are designed to achieve green transition objectives in order to attract climate finance.  This trend is likely to impact the sources from where a private sector led ECG procures funds for future investment. The ability to attract financing will also depend on the sources from which ECG gets its power to distribute.

Is there going to be a conscious policy on the power mix so that overtime (and in line with Ghana’s energy transition policy) the selected operator will increase the renewables component of the power mix that it distributes?

• There are already allied measures such as the Renewable Energy Fund which has not been funded – how will the fund be populated and will ECG be required to increase purchases from renewables?
• Net metering from household solar users– will the private sector entity be required to continue the net-metering arrangement and which incentives will GoG give to encourage private operators to continue with climate friendly net metering arrangements?

24. Legacy Hydro and Volta River Authority (VRA)

How will GoG leverage the advantage of the comparatively low generation cost from its Akosombo Dam (which is essentially a “legacy hydro” asset) in order to create a mix that enables GoG to provide targeted industry friendly tariff.

25. Board Appointees

If the Government has representatives on the board how would these representatives be chosen and how do they ensure that Government interests is protected at all times? What reporting mechanisms will GoG put in place to ensure the requirement in Ghana’s Public Financial Management law for government representatives to report to the Ministry of Finance is complied with (currently it is more flouted than obeyed).

26. Leveraging Ghana’s Position in the Trajectory of the West Africa Power Pool (WAPP) to Make Ghana an Energy Hub

Ghana’s location gives it an edge to become an energy hub in the WAPP trajectory.  Perhaps with the right policies ECG can be transformed into a major power exporter to anchor Ghana’s power hub strategy. How will GoG align the privatized ECG operations to increase export to the West Africa sub-region through an enhanced distribution network under a power hub strategy?

27. Public Utilities Regulatory Commission (PURC) Role and the Proposed PURC Integration into the Energy Commission

Under the previous government, there were suggestions about merging the tariff regulator (PURC) with the Energy Commission (the sector regulator). Will the current Government pursue this and if so, how will this affect the independence of the tariff regulator especially in a private sector ECG?

28. Potential Impact of InternationalMonetary Fund (IMF) Programme

To what extent will assumption of ECG’s accrued liabilities make Ghana’s debt stock any worse and how can the potential impact be minimized?  Will this affect any re-negotiation with IMF in the current programme and if so, will it lead to policy changes that will lead to the assumption of higher risks by investors or cause policy inconsistencies?

29. New Investment Asset Class?

What benchmarks will the new owners be required to meet to develop ECG and its power distribution mandate into new asset class for which the investing public will be interested?

30. Impact on NEDCo and GRIDCo

Some indirectly related (but nevertheless relevant) questions will naturally pop up in the minds of potential investors so these must be thought about by policymakers.  Examples include the following:

• If the ECG privatization model is successful, will the model be replicated for Northern Electricity Distribution Company (NEDCo)? [Apparently,   there has been a very recent assessment of the lapses in NEDCo’s invoicing practices which was carried out by a very experienced power sector consultant and a lot of lessons may avail the new Minister on this].
• Will VRA and Ghana Grid Company (GRIDCo) be next in line? Irrespective of whatever happens to ECG, will GRIDCo’s operations be split between the infrastructure and operator roles to deepen private sector role in the transmission operations?
• Independent system operator – will an independent transmission system operator be appointed for GRIDCo?
• Transmission losses – it has been reported that ECG experiences transmission losses which adds to its costs. One report indicates transmission losses is about 20%. How will it be ensured that the losses are minimized and the cost is not passed on to the consumer?

31. External Pressure

How will GoG manage “external pressure” especially geo-strategic soft power – it is generally assumed that some public sector decisions are subject to such external pressure for geo-strategic reasons. How will GoG balance this vis-à-vis technical, commercial and Ghana’s own economic transformation strategy?

32. Redundancy And Matters Related To Labour

PUWU has already expressed its reservations about the privatization.  This is not surprising because privatization always encounter workers’ resistance.  How will this be managed in order not to send wrong signals of potential risks to investors? How will potential cost related to redundancy be handled? What labour rationalization strategies will be adopted to minimize cost repercussions – such as redundancy and social cost of any layoffs?

33. Public Perception and Issues Bordering on Transparency

How will public trust in the transparency of the privatization of ECG be built? – public goodwill will be necessary for the future operation.

The Government of Ghana (GoG) has signaled its intention to return to the privatization of Ghana’s power distribution utility company (ECG). There are currently no details as to how this will be done. For several reasons, however, any mention of the privatization of ECG immediately triggers public interest. This is not just because of the opposition to the process expressed by the Public Utility Workers Union (PUWU) of the Trades Union Congress (TUC) but also because of other antecedent issues including the recent Power Distribution Services (PDS) scandal (which happened during the last incarnation of ECG privatization). Accordingly, whatever approach the Government uses, the issues that it will face will be numerous extending beyond the electricity sub-sector. [In an earlier paper my colleague, Ferdinand D. Adadzi wrote on some of the legal issues that arise in the context of Ghana’s PPP Act, Act 1039].

This Op-Ed is not meant to debate whether ECG should be privatized or not. It assumes the privatization will go ahead. It only seeks to draw attention to some of the multiple issues that must be well examined in advance of the start of the exercise. Among other things, the goal of this Op-Ed is to help focus public discussions away from the usual political divide. It is the hope of the author that the issues mentioned in this Op-Ed, will help steer the public debate past the usual political lines of “for” and “against”.

Unintended Impact of Problem Solving

Obviously, the proposed privatization of ECG is meant to solve some perennial problems including but not limited to the high level of indebtedness.

The author holds the view that, in any attempt to find a solution to a problem, it is important to ensure that the solution itself does not trigger more problems. Particularly, in the case of ECG, there are chances that the privatization will impact other national and strategic goals during or after the privatization. Whilst this Op-Ed is not intended to provide a detailed analysis or solutions, it is meant to get the public and policy makers to bring most, if not all critical issues into the equation, ahead of concluding on the approach to privatization.  Hopefully, this will also help reduce the politicization of an otherwise technical and strategic exercise.

1. Accrued Liabilities and Matters Arising

It is anticipated that for the privatization to be attractive to the private sector, GoG will absorb the accrued debt of ECG as private sector operators are not likely to be interested in assuming responsibility for prior liabilities. The critical question, therefore, becomes – how will the debt be ring-fenced and retired by GoG over a defined period? Further, since ECG’s debt will continue to accrue interest after the privatization, will there be a freezing strategy on the debt to ensure it does not worsen GoG debt profile?

Whilst absorbing the liability, how will the Government take account of previous loans to ECG (GoG on-lending) – will it capitalize any yet to be amortized on-lending?

2. The Potential Ripple Effect of Electricity Tariff

Like any public utility, the distribution of electricity has immense social and economic impact with its inescapable ripple effect. For example, higher tariffs impact livelihoods, add to the cost of doing business and trigger inflation. The privatization strategy must, therefore, come with a multifaceted tariff strategy within which the private sector proponents may operate. Without a clear Government tariff strategy, the natural disposition of the private sector will be to minimize cost, recoup investment quickly and maximize profit. Such tariff strategy would be necessary to inform how the tariff regulator makes decisions on requests for future tariff increases.

3. Consequential Questions to be Addressed in Respect of the Tariff Strategy

There will be several consequential questions that must be addressed pursuant to whatever tariff strategy is adopted.  These include the following:

(a) Lifeline Consumers

The PURC rate setting guidelines categorizes lifeline, medium and high consumers. Will Government give subsidies to “lifeline consumers” (in order to prevent the obvious social impact of commercial tariffs on lifeline consumers) and if so, will this be treated by the operator as a Public Service Obligation (PSO) in which case the PSO will lead to a potential recourse to the public purse? Or will the private sector make “lifeline concessions” and price it into a cross-subsidization tariff structure? Either approach will potentially have both economic and political impact.

(b)  Industry Versus Household Tariff

It is reported that about 40% of consumption is household and about 45% are special load consumption of high consuming industries. Will there be discriminatory tariff for strategic industries which have multiplier job creation potential?  Will the tariff strategy specifically require a higher tariff to domestic consumers as against selected industries? Will the GoG require beneficiaries of such lower tariff to demonstrate that it has translated into jobs and taxes accruing to the GoG?

(c) Direct Tariff Negotiations With Bulk Buyers

How will the policy on direct tariff negotiations of a private-sector-led ECG be regulated to prevent undermining bulk suppliers such as VRA?  What will be the threshold Energy Commission will set on what constitutes bulk consumption in order to deliberately drive the growth of both light and heavy industries?

This is particularly important since the bulk consumers are in the “deregulated market” of the power sector. Even within the current regime, there have been allegations of instances where ECG, for commercial reasons, has allegedly negotiated tariffs (below that of generation companies in the deregulated market) which created challenges for some big manufacturers as whether to buy from ECG (in the regulated market) or directly from generation companies (e.g. VRA) in the deregulated market.  The question is – to what extent can the private sector led ECG negotiate directly with bulk buyers and to what extent can the tariff regulator prevent ECG from undercutting bulk tariff agreed prior in time with generation companies?

4. A History of Knee Jerk “Absorption of Tariff”

Ghana has had a long history of policy makers who, after allowing utility prices to rise, are faced with the reality of public complaint especially from lower income earners (who constitute the bulk of the voter population and indirectly influence public policy formulation). In panic response, they announce knee jerk policies often designed to “absorb the increases in tariffs”. Such absorption  subsequently leads to higher public debt. The consequential macroeconomic instability falls back on businesses who are called upon to pay more taxes in order to stabilize the adverse macro-economic impact. Will there be a strategy to avoid a recurrence?

5. Potential Impact on Water Supply

There is a direct link between the availability of power supply to water pumping stations and regularity of water supply to water consumers. It is often alleged that Ghana Water Company (GWCL) is frequently in arrears of its payment obligations to ECG. How will the inter-company (ECG-GWCL) relationship be handled in order to ensure that the invoicing and debt collection strategies of a private sector led ECG, does not lead to disconnection of power supply to water pumping stations.  The social impact of such a scenario is obvious and needs no further elaboration.

6. A Debt-Ridden Company or Potential Cash Cow?

ECG is definitely a debt-ridden company now, but it is also a potential cash cow (otherwise, no private business will show interest).  How will the privatization strategy achieve a balance between any requirement for GoG’s debt absorption (or write off) with benefits from the future profits that will accrue to ECG.

7. Equity Structure

Will GoG retain equity in the privatized ECG and if so, will all or part of GoG’s equity be on “carried interest” basis? If not, what happens if government is required to make capital contributions to equity?  Will the Ghanaian tax payer have to cough up money towards future capital calls and what mechanisms will be put in place to ensure that there is reasonable return on capital to both the private sector and GoG sides of the enterprise?

8. Continuing Contracts and Transfer Pricing

As a going concern, ECG will have continuing contracts including the obligation to purchase fuel and other inputs. Allegedly, these are lucrative contracts as reported in the media. How are these contracts to be treated after the privatization to ensure transfer pricing is minimized in order to secure dividends accruing to the GoG side of equity holders.

9. The Take or Pay Obligation in ECG Power Purchase Agreements (PPAs)

How will GoG handle the take or pay obligation clauses in PPAs with Independent Power Producers (IPPs)?  Will they be passed on to the private sector to re-negotiate and whose responsibility will it be to continue buying fuel for the IPPs?  Will there be a recourse to the GoG even after the private sector takes over?

10. Waterfall Mechanism/Energy Sector Levy Act (ESLA)

As in the case of the Tema Oil Refinery (TOR) levy, which was imposed years ago, the waterfall mechanism/ESLA did not achieve the goals they were set up for.  How will these previous solutions be married into the privatization process and what carry on effect will it have?

There are many challenges facing us as a country, which the expectation is that the new government will urgently address. One that seems to be quite immediate is the power supply challenges, which are now topical due to the news that scheduled maintenance of the West Africa Gas Pipeline was rescheduled and fuel supply challenges may cause that to result in some power outages. The government, in its first week in office, has to urgently deal with the problem to avoid such disruption to power supply for both domestic and industrial use. In the midst of the various press releases and statements on dealing with the imminent power supply challenges, the Government has mentioned that it may look at privatisation of ECG. The President and his nominated minister of energy indicated that the government is looking at the option of privatisation or private participation.

Privatisation or Private Participation & the Models

Privatisation as a tool to get private sector parties involved in public service delivery involves a number of different models that must be carefully thought through based on the specific problems identified and the role private sector parties must perform in order to overcome such a problem(s). Privatisation, in the strict sense, involves the transfer of ownership, control and management of a state-owned enterprise or entity to a private sector party. However, in the broad sense, it can mean any involvement of a private sector party in the delivery of traditional public service, usually through a right granted contractually by the government to enable the private sector party to deliver the public infrastructure and related services.

The recent unsuccessful private sector participation (PSP) in the operations of the very entity at the center of the discussion – the Electricity Company of Ghana Ltd (ECG) – is strictly not privatisation. The PSP was an arrangement to get a private sector player involved in the power distribution under the ECG without transferring the ownership and control of ECG. This was implemented under the second Compact signed between the Government of Ghana and the United States of America. Many reasons account for the unsuccessful implementation of the concession arrangement opted for under the PSP under the Compact.

Full privatisation strictly undertaken will involve the transfer of ownership of the public sector entity, which generally is the transfer of the shares. There can be partial privatisation, where the government continues to hold some ownership. Privatisation can also be implemented as an asset transfer arrangement. As many will recall, a number of privatisations were implemented during the PNDC era, where a number of statutory corporations were divested under the auspices of the Divestiture Implementation Committee. In order to divest ownership, the statutory corporations were converted to companies pursuant to the Statutory Corporation (Conversion to Companies) Act and its legislative instruments that listed fifty-one corporations to convert. Interestingly, this included ECG, which was converted from the Electricity Corporation of Ghana, a statutory corporation, to the Electricity Company of Ghana Ltd, a private company limited by shares whose shares are solely owned by the government. That is, whilst it was converted, it was not privatised, and the government still retained the full ownership as a sole shareholder.

Other models for getting the private sector involved in the provision of public infrastructure and related service delivery include various options under public-private partnerships (PPPs). Various contractual arrangements are used, including concessions, operations and maintenance, build-operate-transfer, build-own-operate-transfer, rehabilitate-operate-transfer, and many more models, which are covered under the Public Private Partnership Act, 2020. Management Contracts are not covered under the PPP Act but come under the Public Procurement Authority Act. Outsourcing without the transfer of operational and financial risk also does not come under the PPP Act but remains an option for involving private participation.

Considerations for ECG Privatisation

A decision to adopt privatisation or private participation as a solution must be based on many considerations. First, in deciding to involve private participation in ECG’s operations, one needs to have in mind that there are two general competing interests at stake. A private party’s ultimate interest is to maximise profit and shareholders’ value, whilst that of a public entity or government is to have sustained provision of services at the most affordable tariff. The private and public parties do not, therefore, have the same perspective. A private party is focused on its investors, whilst a public party is focused on the consuming public. The government entering into such public-private arrangements must, therefore, have clear key performance indicators to ensure sustainable provision of services at affordable tariffs. This is particularly the case given the near monopoly ECG enjoys, at least in the southern sector.

Secondly, if the numerous problems facing the power sector are traced to the distribution segment of the power sector, be it technical and commercial losses, political interference, inefficient management, improper procurement, technological challenges, setting of realistic tariffs, collection of revenue, etc., or a combination of any of these, are to be overcome through some form of private participation, the right model for the private participation must be determined. Clear identification of the problem must drive the decision on whether privatisation or any form of private participation is the right tool and, if it is, what model must be adopted. The emphasis here is that a proper diagnosis of the problems facing the power sector is required for a determination of the solution to implement. Private sector involvement in the sector may not be appropriate to resolve all the problems facing the sector. For example, if the problem is with realistic tariffs, the involvement of the private sector will not change the under-recovery of the cost of power generation, transmission and distribution.

If private sector involvement is the proposed and most efficient solution, one must determine the right model for such involvement. As pointed out above, there are many models to involve a private sector party. This could involve actual privatisation, where the government divests its interest wholly or partially. In seeking to do this, the right legal framework must be strictly followed with proper economic, technical, commercial and financial due diligence informing clear benchmarks that must be set for the divestiture. It must be quickly added that even though this is an option, it is an unlikely model given the strategic nature of ECG, its critical role in the power sector and the security concerns.

Other models under the PPPs can also be looked at. The PSP option implemented under the Compact resulted in the grant of concession to the private party consortium. The current framework for PPPs in Ghana is the Public Private Partnership Act, 2020. Other than specific exemptions, any contractual arrangement between the public entity and private party for the provision of public infrastructure and services traditionally provided by the government, where the private party performs all or part of the infrastructure or service delivery function of the government and assumes defined risks over a significant period comes under the purview of the PPP Law.

As noted, outsourcing of specific services, be it management of the operations under a management contract or revenue collection, will not come under a PPP arrangement once there is no assumption of financial and operational risks by the private party. This must be guided by the Public Procurement Act.

For the implementation of any of these models to have any significant impact in the medium to long term, the structure of implementing the selected model must be informed by key considerations, including proper value for money assessment, clear and measurable output specifications based on key performance indicators, transparency and fairness in the adopted procurement process based on the proper procurement cycle with clear steps and objective measurable criteria, safeguards for public interest, environmental and social consideration, affordability, proper risks allocation, well-drafted contracts with clear obligations and performance indicators, etc.

One of the problematic requirements in the implementation of the selection of a private party involvement is the requirement of local content and local participation, particularly where the technical and financial capabilities required can only be satisfied by foreign players. Currently, the regulations fixed the minimum equity level for local participation at 30% at the start and moving up to 51% in ten years. This is the area where political patronage comes into play, leading to issues of corruption. A situation where a local party without the necessary financial and technical capability but with the right political association is imposed on a foreign counterpart generally leads to challenges as the very problem of political interference in the management of public operators is transferred into the private party management.

Successful privatisation or public-private contractual arrangement requires expertise from different fields – technical (electricity, asset evaluation, loss reduction expert, service quality standards), financial (valuation, financial modelling, tariff analysis, funding structure, etc.), legal (regulatory, contract drafting and review, environment and social regulations, license and permits, etc.), economic (market analysis, cost-benefit analysis, policy impact assessment, risks, etc.), environment and social, project management, risk management, institutional, and governance, etc. The right transaction advisor with the combined relevant expertise is required. In addition, this does not simply call for engaging a foreign consultant. The problems are local. A transaction advisor must appreciate the local nuances of each relevant field to understand what is required.

Last but not the least, any decision on privatisation or private participation in the operations of ECG must be taken after broad stakeholder consultations. It is important to get input from relevant stakeholders to make an informed decision and garner implementation support. The stakeholder engagement should not be listed to regulators and government entities but include business associations, civil societies, relevant labour unions and other relevant stakeholders.

Conclusion

Whilst this article does not argue that privatisation or private participation is the solution to the power sector challenges, it indicates that adopting privatisation or private participation in any of its many forms must be based on a proper assessment of the challenges, clear identification of the problem and a well-thought-out solution. If privatisation or private participation is to be adopted, the model must be fit for purpose. The appropriate framework must be adopted, and the right advisors must be engaged to guide the process, which must be devoid of political patronage. Above all, there must be broad base stakeholder engagement to have buy-in and support for any decision and its implementation.

We are back to erratic power supply.⚡️⚡️⚡️ You can call it dumsor or it is not? 🤷‍♂️ Fact still remains, there are serious challenges in power supply to residents and businesses. In the midst of the challenges, there are plenty of opportunities. Offgrid mini solar power supply is one and a low-hanging fruit. We have the sun. 🌞🌞🌞

Enablers

All we need are as follows:

• Sponsor – who sets up the project company to implement a business scheme where the off-grid solar system is installed for residents and businesses without the user paying the total cost. For example, a four-bedroom house, on average, requires a solar installation costing between ¢70k to ¢100k. Affordability may be a challenge for the average worker. However, a four-bedroom household spends a monthly electricity bill of ¢1000 to ¢2500. Under the scheme, the project company bears the initial installation cost. The finance is structured so that you simply pay your monthly bill as the cost of the use of the power credited towards the cost.
• Investor / Financier – the sponsor will require financing. The financing provided is used for the capex and opex for the solar system. The repayment is structured based on the monthly bill payments from the consumers paid to the sponsor/project company and partly used to repay the loan from the lender financier. As security, charges are created over the solar systems, receivables, plus guarantees if required. Equity investors also have the opportunity to be shareholders in the project company.
• Consumers – these are the businesses and domestic users who have to endure the erratic power supply. They get their own power system with the option to buy off anytime they are in the position to do. Meanwhile, they get regular power supply based on monthly bill payments plus maintenance fees payable since the solar system is within their control.
• Regulator – the government still remain the regulator through the Energy Commission (albeit more efficient) to safeguard the interest of all the parties involved. The roles will include licensing the sponsor and project company, setting key performance indicators for supply, liaising with the government to continue with policy to scrap duty on solar panels and accessories to make them a bit cheaper for all, and licensing the installers and certifying the panels and accessories.

Solution?

Simple but workable solution? Why are we not doing it? Well, I wish I knew. I am just sleeping without power in the heat, thinking out loud. We will all be on our way to work after sleeping in the heat while the politicians debate whether it is dumsor or not, and the seller of power who needs consumers will boldly tell us that buying what you want, paying for it, and getting it when you want it is a privilege.

Do you have a plant powering your residence? Even if you do, as you switch to the plant when ECG withdraws your privileges, I imagine you spend about ¢500 on diesel or petrol for each withdrawal of privilege for a night. As privilege is withdrawn 5 to 8 times a month, that is ¢2500 to ¢4000. Offgrid solar power should make economic and environmental sense to you or not? Add the environmental advantages, employment opportunities and profit to the sponsor and financiers. You can think of the carbon footprint reduction and all on your own. Then add to it the goodwill for you or your businesses in relation to sustainability and ESG-related things. 🌏🌏🌏

Conclusion

If you are getting into this, know that it requires a comprehensive transaction structure, well-drafted agreements and compliance with laws. Talk to a transactional lawyer.

Access to finance and its related costs remains a major challenge for doing business in Africa, particularly for small businesses. This hinders the establishment of new businesses and the ability of existing businesses to upgrade or upscale. In some cases, inadequate funding ultimately leads to an abrupt end or failure of business. One reason for this is that businesses mostly resort to traditional financing options without exploring alternative financing options that are now available.

This article highlights these options for the consideration of businesses, especially micro, small and medium enterprises (MSMEs).

Traditional Financing Options

Businesses in need of financing typically opt for traditional financing, which generally includes two main funding options.

The first option is self-financing, which involves the business owner using personal funds or seeking funding from lending institutions such as banks or other financial institutions. This option may sometimes include raising money (through equity or loan) in the capital market. However, self-financing is often limited or inaccessible, prompting the need to explore other funding sources.

The other option, obtaining loans from financial institutions is the mainly available option, traditionally. While this option is widely available, many businesses – particularly MSMEs in Africa including Ghana, are unable to access this funding due to the stringent credit requirements.

Typical credit approval requirements for businesses include:

• convincing evidence of a solid track record, being in existence for a considerable amount of time. This includes evidence of registration and incorporation, licensing and permits, and satisfaction of all legal requirements for the business.
• providing valuable collateral such as real estate, over and above the amount of the loan requested.
• proof of secured future receivables which will be directed through the account of the lender.
• good corporate governance system structured around personalities with proven track records at the helm of affairs, etc

Even where businesses manage to meet all the stringent requirements, they still grapple with high lending costs. Ghana currently averages an interest rate of 35% (as at July 19, 2024).[i] The returns generated by these businesses are often unable to match such repayment obligations, further limiting their reliance on traditional financing options.

Alternative Financing Options

Alternative financing provides a viable option for entrepreneurs seeking to actualise their promising business ideas, businesses in need of additional funds to grow or upgrade, and financially distressed businesses seeking urgent funding to avoid closure. Alternative financing refers to financing other than the traditional financing options explained above.

In other words, alternative financing refers to financial channels, processes, and instruments that have emerged outside the traditional finance system, such as regulated banks and capital markets. MSMEs must, therefore, not restrict their options for sourcing funding to the traditional options but look to available alternative financing options. Some of these options are discussed below.

1. Crowdfunding

Crowdfunding involves raising funds from groups of people, each contributing relatively small amounts, to support a project or business. This group can include family members, old schoolmates, church members, or the public. Although it may seem modern, as it has existed in African culture before traditional financing was popularised. In Ghana, this can be likened to concepts like “susu”, “nnoboa” or “ntoboa”, which fostered saving culture and collective fund-raising for persons in distress.

Imagine you require capital of ¢50,000 to purchase motorbikes to start a delivery business. While securing a bank loan may be challenging, with a good business plan, you could potentially raise ¢100 each from fifty friends on your old school WhatsApp platform, which has over one hundred members to reach your funding goal.

Crowdfunding is typically facilitated through online platforms, but it does not necessarily have to be undertaken through these platforms. Its popularity has surged as a viable option for financing businesses.

Accordingly, as a proactive measure, the Bank of Ghana and the Securities and Exchange Commission (SEC) have issued policies and guidelines outlining the regulations for investment crowdfunding (equity and peer-to-peer lending/debt crowdfunding) and non-investment crowdfunding (donation and reward) in Ghana. These regulations must be adhered to for all formal crowdfunding activities.

2. Grants for SMEs and Start-Ups

Everyone loves getting ‘free’ money, and grants are an excellent way to achieve just that. These grants, often offered by development finance institutions (DFIs), government programs and some not-for-profit agencies, are aimed at supporting vulnerable groups, boosting specific business sectors or promoting some business practices. MSME-targeted grants may focus on businesses that engage vulnerable persons, operate in deprived communities as a source of livelihood for a particular community, or support women’s entrepreneurship.

Grants are typically awarded based on specific qualifications. Businesses seeking grants must meet the stated criteria. Applications for grants may be open periodically or around-the-year applications for consideration depending on the grant awarding agencies.

Some grant awarding agencies that MSMEs can consider in Ghana include AfDB[ii], Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)[iii], MasterCard Foundation, the World Bank, specific government intervention programs administered by MDAs, and a number of foreign embassies in Ghana which have fund opportunities for innovations, agribusiness, renewable energy, women-led business.

3. Debt-to-Equity Conversion

In a typical lender-borrower relationship, the borrower is expected to repay the principal amount with interest within the repayment period. For businesses burdened with significant debt that struggle to meet current repayment schedules, a common approach is to secure additional loans to repay maturing debt. An alternative financing option, in this case, is to convert the debt into equity. This must be based on an agreement with the lender.

Converting from being a lender to a shareholder offers the advantage of receiving dividends when declared. This is a long-term commitment that may not suit every lender as they may not necessarily want to be a shareholder in perpetuity. Redeemable preference shares, which are redeemable at a future date, can be explored as an option in this arrangement.

Another consideration is mezzanine financing, a blend of debt and equity. In this arrangement, businesses have the option to convert owed debt into equity in case of default only after other senior lenders have been repaid. Mezzanine debt is particularly useful when a company has exhausted bank and asset-based loans but requires additional funds for various purposes like expanding operations, acquisitions, or facilitating the transfer of a business to family members or the management team.

4. Private equity and M&As

One approach for business owners to consider is to open ownership interest by inviting other investors. This can be achieved through private equity participation or through mergers. Instead of aiming for full ownership of an unprofitable venture, consider enhancing your business through strategic partnerships with other equity participants or through mergers and acquisitions. Private equity investors can be approached through private placements or by formally engaging with private equity or investment firms, who play matchmaking roles by introducing suitable investors – including high-net-worth individuals or investment firms.

A merger option can also be a viable strategy for upscaling or the growth of a business. For example, instead of seeking loans or new equity investors as a way of obtaining funds to open a branch in another region, you can propose a merger with a similar business operating in that region which may be seeking an opportunity to operate in your region. This type of arrangement can be mutually beneficial to both businesses without the financial strain if appropriately implemented.

This collaborative approach can offer financial support and expertise, fostering growth and success. It is also an effective strategy for entering new markets. MSMEs could use leverage this approach to position themselves to take advantage of the African Continental Free Trade Area (AfCFTA), tapping into broader opportunities for expansion and integration.

5. Venture Capital / Growth Equity / Angel Investors

This option is often considered the most common alternative financing option. Essentially, venture capitalists are seasoned business experts who invest external funds into startups and businesses in exchange for equity.

On the other hand, angel investors are affluent individuals who use their personal funds to invest in early-stage startup ventures, seeking equity or convertible debt in return. These investments can serve as seed capital for launching a business or as growth equity/expansion capital for more established companies in need of funds for substantial growth. In addition, venture capitalists and angel investors may also provide valuable guidance, mentorship and industry connections to help businesses succeed.

An effort in this regard is the establishment of the Venture Capital Trust Fund in Ghana, which is a government-backed venture capital aimed at investing in SMEs. There are other venture capital funds managed by private firms which businesses can access.

6. Private Listing or Public Offerings

It has long been held that listing on financial markets is reserved for “matured” or “big” companies and that such an option for raising capital was not available to MSMEs. This narrative is being changed by regulators in Africa, who have recognised the importance of providing alternative financing options for businesses. As a result, new avenues are being created to enable SMEs to access capital through the stock exchanges.

In Nigeria, the idea has been mooted for SMEs in the agro-allied sector to form cooperatives where smallholder farmers will be aggregated for easier access to funds and eventual listing on the Nigerian Stock Exchange (NSE).[iv] This approach may be extended to include other businesses and adopted.

In Ghana, the Ghana Alternative Market (GAX) is a parallel market operated by the Ghana Stock Exchange (GSE). It focuses on businesses with potential for growth and accommodates companies at various stages of development, including start-ups and existing enterprises, both small and medium. To list on the GAX, a company must meet specific criteria. Incentives companies may enjoy from listing on the GAX include mandatory underwriting of the minimum offer directly or indirectly by the sponsor. Therefore, there will be no likely failures of Initial Public Offers. Additionally, companies listing on the GAX gain access to a revolving fund to support the cost of raising capital and deferment of up-front fees. This may also apply to funds under the GAX-SME listing support fund to pay fully or partly for the cost of advisory services.

Conclusion

While traditional financing remains a widely embraced approach to business financing, businesses should explore alternative options as well.  The main challenge facing MSMEs remains access to and the cost of credit. Alternative financing has proven to unlock remarkable opportunities for numerous entrepreneurs and foster the growth of small businesses.

[i] https://www.bog.gov.gh/economic-data/interest-rates/

[ii] https://www.afdb.org/en/news-and-events/press-releases/guinea-usd-14-million-loan-african-development-fund-will-support-industrial-development-and-resilience-smes-72224

[iii] https://thebftonline.com/2024/05/27/52-smes-to-benefit-from-agi-giz-afnext-grant-scheme-2/

[iv] https://guardian.ng/how-smes-can-access-funding-opportunities-list-on-nigerian-stock-exchange/

https://mastercardfdn.org/all/the-mastercard-foundation-fund-for-resilience-and-prosperity-launches-agribusiness-challenge-fund/

 

The economy is going through challenges. The government has admitted this, knowing this is an election year. The opposition has trumped it as the basis of voting them back into power. Both the government and the opposition are, therefore, in agreement on this. If there is no faith in their agreement, our submission to the International Monetary Fund programme is a clear confirmation of the current economic challenges we face as a country.

Notwithstanding the economic challenges, the already wide infrastructure gap cannot be widened further. Infrastructure, transport infrastructure (road, lorry parks and stations, rails, and ports), health facilities, housing (emphasis on affordable housing), markets, sports infrastructures, educational institutions, residential and commercial, water and power infrastructures, agriculture, industries, among many, must be developed. The question is how the government continues to finance these infrastructures despite the economic challenges.

This article argues that the best option for financing infrastructure development should shift from government funding to private sector-led funding under a well-regulated and streamlined contractual arrangement between the public and private entities.

Challenges

There is a wide infrastructure gap in Ghana, as in many African countries. Such a gap exists in many sectors, including housing, transport (roads, ports and rail), utilities (water and power), health, education, etc. Increased expenditure is required in order to bridge the infrastructure gap. It has been suggested that for Ghana to make a meaningful attempt at breaching the infrastructure gap, it must raise annual expenditure on infrastructure development to $2.3 billion annually from the current $1.2 billion.[i] However, such an increase in expenditure is unlikely to be realized given the current economic challenges the country faces.

The World Bank captures the economic risk and challenges of the country as follows: “Risks to the outlook include financial sector stress following the DDEP, contingent liabilities in the energy and cocoa sector, domestic policy slippages with the 2024 elections being a particular risk, delays in external debt restructuring, commodity price and other external shocks, and sharper-than-expected monetary policy tightening in advanced economies.”[ii] These risks and challenges have resulted in Ghana seeking assistance from the International Monetary Fund (IMF) under an IMF programme with a bailout package of some $3 billion, which has so far seen disbursement of two tranches of $600 million each for a total of $1.2 billion[iii]. All these are likely to affect infrastructure development.

These economic challenges are going to widen the infrastructure deficit in Ghana as it makes it difficult not only to increase the annual infrastructure expenditure but even to maintain the current level of expenditure. Since 2024 is an election year, there is likely to be increased demand for infrastructure and added pressure on the Government to find a way to meet such demand. However, if the Government is to maintain the resolve not to give in to overspending leading to a wider budget deficit, there is the need to find alternative ways to deal with infrastructure demands than through Government direct budgetary expenditure.

Private Sector Involvement

The most viable option available for the Government is to look to the private sector beyond what is currently the practice. The Government must deliberately seek to share responsibility for infrastructure development and related services with the private sector. The private sector has always been seen as a partner in the economic development of the country. The 1992 Constitution provides the basis for this in the directive principles of state policy when it provides as part of the economic objectives that steps to establish a sound and healthy economy shall have the underlying principles of “ensuring that individuals and private sector bear their fair share of social and national responsibilities including responsibilities to contribute to the overall development of the country”.

There are many examples of government-private sector collaboration for infrastructure development in this country. The financing and construction of the Akosombo dam is a prime example. This is in addition to private finance initiatives in the generation space that resolved the ‘dumsor’ crisis. A not-too-distant example is the Tema port expansion and the implementation of the Ghana card programme. Such private sector-led infrastructure development is not limited only to what may qualify as major projects but can also be used in community-based infrastructure projects such as community centres, health posts, irrigation infrastructure, housing, off-grid power projects, etc.

The important role of the Government in achieving the objective of effective private sector involvement in infrastructure development is to create an enabling environment. A government-implemented public procurement process to engage private parties in the development of infrastructure does not create as much challenge as private finance initiative (PFI) and public-private partnership (PPP) arrangements. There should not be a situation where scarce unavailable government fund is spent on building astroturf parks, community housing, boarding-house facilities at schools, community markets, etc. This needed community-based infrastructure can be financed through a PFI and PPP arrangement. This is in addition to major national infrastructure developments. The Government need to create the enablers for private sector participation.

Enablers

An enabling environment for PFIs and PPPs, as a minimum, must be based on clear regulations, capable implementing agencies with capacity, political will, and properly drafted contractual documents that clearly assign rights, obligations, proper risk allocation, and a monitoring and evaluation system to ensure execution of the project in accordance with the contract. These are the main success factors for the government to get the private sector involved in infrastructure development beyond the usual process of government-financed infrastructure development through public procurement. A brief overview of the factors will be helpful.

• Legal framework – a collaboration between the government and private sector should be based on clear regulations that provide for clear processes and requirements for project initiation, procurement, contracting and implementation. Whilst Ghana has passed the Public Private Partnership Act, 2020 (Act 1039), which came into force at the end of December 2020, it has not seen full deployment and not many projects have been implemented under that Act as one would have envisaged. In order to give effect to the Act, detailed regulations, guidelines and implementation documents must be developed. More importantly, there must be a step-by-step manual that guides both the private and public sector parties on the implementation of PPP projects with clear timelines. Perhaps if the process provided under the Act is simplified with clear guidance, one may see traction in the space.

There are some notable exclusions from the scope of the Act, which requires directives for the purpose of clarity. This will include a purely public finance initiative that is implemented by the public sector.

• Capacity – secondly, the knowledge of the actors is a key success factor. The individuals to implement must have the capacity to do so. The capacity of the implementing entities – ministries, departments and agencies (MDAs) and metropolitan, municipal and district assemblies (MMDAs) – must be built. The implementers must have full knowledge of the process, from project identification, preparation, procurement, contracting to implementation. There must not only be capacity building but a shift in the mindset of officials from the usual public procurement process. Currently, both public and private sector parties shy away from implementing projects under the PPP process, given its complexities in the requirements and approval processes. In building the capacity of the officials, emphasis must not only be on the process but on the mindset needed to get private involvement, which will be helpful to boost private involvement.

This should be a customer-centric approach rather than a regulator-centered approach. That is, the role of the public sector officials should not only be as a gatekeeper but must be geared towards the achievement of the end objective of ensuring the delivery of the needed infrastructure. This will require the public sector to provide the assistance required to ensure the relevant requirements are met rather than simply reject private initiatives.

Public sector capacity must be complemented by experts who understand their context. This calls for the engagement of transaction advisors with the required technical and local context expertise to structure and guide the process through project inception, preparation, procurement and contracting to implementation.

• A champion – related to the above recommendation to ease the complexities is the need to have a private sector participation champion within the Government. The champion must not only be knowledgeable in requirements for PFIs and PPPs but must have the political leverage or clout to ensure the usual public sector inertia and bureaucracy do not frustrate or slow down the process. Implementing a project as a PFI or PPP project generally involves the coordination of a number of separate MDAs and/or MMDAs. A single high-ranking official with the knowledge and the political backing to ensure efficient collaboration on the public sector side and the ability to push through the process based on stated timelines in an efficient and transparent manner is a major success factor.

Whilst we need strong institutions, there is the need for a strong man or woman to ensure the institutions function properly, having a mindset of achieving a particular objective. In this case, that objective is to get the private sector to lead the infrastructure development agenda. That requires a complete mindset and attitudinal change in the role of the public sector. A champion is needed for that effort.

• Procurement and contractual framework – a critical aspect of regulating PFI and PPP initiatives is a transparent procurement process that ensures value for money. The framework should deal with project selection, project preparation and packaging prior to the launch of the procurement process. The procurement process must be transparent and based on a clear process with criteria for selection at each process. Criteria for prequalification and selection at the expression of interest and proposal stages must be well set out. Each stage must be based on definite timelines. There must be a step-by-step guide that guides both the public and private entities. In order to allow for innovation, there should be a process for considering alternative proposals that are not compliant. In addition, there must be a process for considering unsolicited proposals that do not disadvantage proponents or sponsors of such proposals since they take the burden – financial and otherwise – from the public sector in the preparation of the project.

Standard contractual documents must be developed. The use of standard contractual documents simplifies and avoids delays in reaching an agreement between the public entity and the private party. The Government, through the regulator, must develop standard contractual documents that are adopted depending on the type of project, complexities, optimum risk allocation and value for money. The contract must provide for clear project requirements and key performance indicators. These are dependent on the nature of the project. However, the standard contract must provide a guide on the drafting of such requirements.

• Monitoring and evaluation framework – contract administration is a must for a PFI or PPP project. Since the project execution is under the purview of a private sector party whose motive is to make profit, the public sector must have an effective monitoring and evaluation process to ensure the project is implemented first in accordance with the contract and the interest of the public. In most cases, the private party funds the project, design and construct, and operate and maintain the project. The public entity must ensure the project is executed in accordance with the project scope and requirement and achieve the required level of performs. There must, therefore, be effective contract administration, which ensures KPIs are being met at each stage – design, construction, operation and maintenance.

An enabling environment that will attract private sector parties to invest in the development of public infrastructure and provide related services must have the above elements. These together provide a system that incentivises the private sector-led public infrastructure development. Therefore, if the Government, in view of the current economic challenges, seeks to adopt this option for addressing the widening infrastructure gap, it must create and streamline the enablers. However, there is no need to wait. Even in the current environment, the government can still get the private sector involved once the government focuses on this alternative option for the delivery of public infrastructure. What is required is the political will.

Conclusion

The current economic challenges call for the adoption of alternative approaches to public infrastructure investment. A viable option is getting the private sector parties on board, not just as contractors, but in a manner that they lead the funding of the infrastructure projects without recourse to public funds or government-led borrowing from domestic or international financial markets. The use of PFIs and PPPs provides this option. Whilst the Government has continuously talked about this, the current challenges may force the government to move to the next stage of putting in place the enablers and moving to the next stage of actual use to at least close the widening infrastructure gap. The time to embrace private sector-led public infrastructure development is now.

[i] https://elibrary.worldbank.org/doi/abs/10.1596/1813-9450-5600

[ii] https://www.worldbank.org/en/country/ghana/overview

[iii] https://mofep.gov.gh/news-and-events/2022-01-22/ghanas-secures-second-tranche-of-imf-us%24600m-for-disbursement

The Unclaimed Balances and Dormant Accounts Directive

In 2021, the Bank of Ghana, established guidelines for the management of dormant accounts and unclaimed funds held by banks and specialized deposit-taking institutions. Under these directives, an account is deemed dormant if there is no customer-initiated activity for two years and banks are required to maintain a register of all Dormant Accounts.

Banks are also required to notify account holders before their accounts are declared dormant, ensure proper communication for account reactivation, and publish dormant accounts that remain inactive for three years in national newspapers.

Unclaimed funds in these bank accounts after the publication should be transferred to the Bank of Ghana, where account holders or their representatives can subsequently claim without interest.

The directive also outlines penalties for non-compliance and emphasizes the protection of customers’ funds while establishing clear procedures for reclaiming dormant account funds.

What About Digital Money?

Given the widespread use of mobile and electronic money in Ghana, the Bank of Ghana issued similar guidelines to regulate dormant electronic money accounts and unclaimed funds in 2022. Examples of mobile and electronic money include MTN Mobile Money, Telecel Cash, AT Cash, Cryptocurrencies etc.

These regulations are::

• A period of twelve (12) consecutive months of inactivity renders an electronic money account dormant.
• Service providers licensed or authorized[1] to issue electronic money are required to:

1. contact the account holder not less than one month before the account is designated as dormant,
2. provide and maintain a register of all unclaimed funds until such a time that the funds have been claimed by the dormant electronic account holder or their legal representatives.

• In the event the Service Providers are unable to contact the account holder, they may contact the Next-of-Kin or other person designated by the account holder without disclosing the electronic account balance(s).

Recommendations:

Although the processes currently in place are meant to prevent or reduce fraud, they are quite cumbersome and expose the grieving family to further physical, emotional and financial burden. In order to ease the estate administration process without sacrificing its integrity, the following are recommended:

1. The National Identification Authority, the Births and Deaths Registry, the Ghana Association of Bankers, and banks/financial institutions should collaborate and work towards developing a centralized digital system where applicants for LA/Probate are able to conduct a search to determine the bank accounts held by a deceased person. As discussed above, it is a challenge to determine the specific banks deceased persons held accounts in their lifetime. Measures such as the use of secure platforms, requirement for the production of specific identification documents (e.g., death certificates, proof of identity, and relationship to the deceased) may be used to prevent abuse of such a platform.
2. The Judiciary and the Ghana Bar Association, in partnership with banks and financial institutions, should establish guidelines to simplify the process for executors or administrators to verify the accounts and account balances of deceased persons. This will help to reduce the difficulties and stress associated with accessing such funds.

• The rules of the court should make it possible for beneficiaries who are unable to pay the estate tax upfront to have the estate tax deducted from the estate. By so doing, the beneficiaries who may be pinching pennies will be relieved of the onerous burden of raising funds to pay the estate tax. This service could come at an extra fee.

1. The policy of non-payment of interest by the Bank of Ghana when funds are re-claimed should be re-considered especially for funds held in local currency. Given the very unstable nature of the local currency, the funds should be put into an interest-yielding account so that in the event they are re-claimed, there is at least no loss in value.
2. The challenges discussed above are more pervasive when the deceased died intestate. For varied reasons, Africans are averse to making wills. Whatever the reasons may be, it is highly recommended that people make wills in order to control the distribution of their assets and protect their loved ones after their demise.

Conclusion

As Cicero famously said in his book “De Legibus”; “the welfare of the people is the highest law”. This underpins the fact that the law was made to benefit rather than burden man. Accordingly, the law must be used as a tool to promote the advancement of society and not to thwart it.

While he walked this earth, he hid his chest,

For reasons he alone knew best.

But wherever he rests in realms above,

He’d wish his treasures found by love—

By those who knew his heart’s true quest,

     Not locked away in a bank’s dark chest.

[1] Under the Payment Systems and Services Act, 2019 (Act 987)

The loss of a loved one takes an immense toll on family and friends. Beyond the grief, is the burden of the administration of the estate of the deceased which tends to be challenging and frustrating for the administrators, executors and beneficiaries of the estate.

This article examines some of the practical challenges posed by the current legal regime in Ghana for persons with interest in the estate of the deceased. Some recommendations will also be made which, though aimed at easing the process, will maintain the integrity of the process.

About 70% to 90% of people in Africa die intestate; that is without making a Will. The remaining 10% -20% prepare Wills before they die and are said to have died testate.

Under Ghanaian law, where a person dies testate, the named executors in the Will have to apply to the Court for the grant of Probate in order to administer the estate of the deceased.[1] On the other hand, where the deceased died intestate, Letters of Administration (LA) will have to be obtained in order for the estate of the deceased to be administered in accordance with law.[2]

A third scenario may arise where the executors die before the maker of the Will and are not replaced by the Will maker, or the executors upon the death of the maker of the Will, renounce probate, which will call for Letters of Administration to be obtained with the Will annexed.

In such a situation, the same procedure used for the grant of probate will be applied only that, this time, the applicants will be administrators and not executors.[3]

It is noteworthy that it is only after Probate has been obtained or Letters of Administration or Letters of Administration with Will annexed have been granted by the Court, that the estate of the deceased may be administered.

Challenges with accessing the Bank Accounts of an Intestate

Accessing the bank accounts of an intestate is usually fraught with many challenges among which are:

• Determining the bank accounts of the intestate.

At times, the bank accounts of the deceased are not readily known, and it is a herculean task to determine which banks hold the money of an intestate especially when there are currently 23 Commercial banks, 26 Savings & Loans Companies and 147 Rural & Community Banks in Ghana [4].

• Accessing the funds in the bank accounts identified or determined.  

Legal, regulatory and procedural factors account for some challenges in accessing the funds in the bank accounts of the deceased some of which are discussed below:

Notification of the Bank(s):

The bank(s) of the deceased must be notified about the death and the bank(s) will typically freeze the account(s) to prevent any unauthorized access.

The Submission of Required Documents to the Bank:

After the grant of Probate, Letters of Administration or Letters of Administration with Will annexed, the executors/ administrators may be asked to furnish the banks with the following documents:

• The Death Certificate of the deceased.
• The Original and copies of the Probate or Letters of Administration obtained from the High, Circuit or District Court.
• Valid identification documents of the executors/administrators.
• Bank account details of the deceased.
• Any other specific forms or affidavits required by the bank.

Bank Verification of Documents:

The bank will usually review the submitted documents to verify their authenticity and ensure that all legal and internal bank requirements are met. The bank will also ascertain whether the deceased is indebted to the bank before the funds-release process can be initiated.

Access and Transfer of Funds:

When the documents submitted are verified, and all outstandings on the account are cleared, the bank will grant the executors or administrators access to the funds in the account. The executors or administrators can then apply for the transfer of the funds to an estate account for proper distribution to beneficiaries according to the Will of the deceased or in accordance with the laws of intestate succession in Ghana.

Bank-Specific Requirements:

While the general process remains the same, some banks may have additional forms, fees, or procedures. It is always advisable to contact the specific bank directly for detailed requirements and guidelines. For instance, some banks require that all executors or administrators be present before the funds are transferred and most banks would prefer to issue a cheque, bankers’ draft or a bank transfer to paying cash.

Beneficiaries v Next of Kin

As part of their onboarding procedure, many banks require prospective account holders to provide the details of a Next-of-Kin to act as a contact person in the event of the account holder’s death or incapacitation. Some account holders erroneously believe that their stated Next of Kin is the beneficiary of the proceeds of their accounts and so they either provide the details of their children or some other relatives or persons who may be far removed from their day-to-day lives.

The Bank of Ghana in a bid to dispel this misconception issued Notice No.BG/GOV/SEC/2024/22 on “Next-of-Kin” (the “Notice”). The Notice explained the legal position of a Next-of-Kin in the event of the death of the account holder and encouraged account holders to ensure that their Next-of-Kin is of legal age and capable of providing relevant information when the need arises. The Notice also clarified that the Next of Kin does not automatically inherit the funds in the account of the deceased.

Paying Tax on The Unknown

Apart from legal and administrative fees payable, the estate of the deceased is required to pay to the Republic three percent (3%) of the value of the estate as tax or estate duty[5]. Practical problems arise because the amount of money in the deceased’s bank account is usually not known (as this information is not disclosed by the banks) at the time of the application to the Court for the grant of Probate or Letters of Administration (LA).

To curtail this problem, some courts order the banks listed in the application for the grant of LA or Probate to furnish the Court with the balances standing in the bank account of the deceased so that the actual value of the estate is ascertained for tax purposes.

While this may seem a proactive solution, it contributes to the delay in the estate administration process. Each bank will have to conduct its due diligence on the account of the deceased before the bank provides the Court with the information requested. Also, caution must be exercised so that the balances filed by the banks in the Court are brought to the attention of the judge.

Notwithstanding the setbacks identified with this approach, its adoption by all courts in Ghana will be extremely helpful and it will be needless for executors and administrators to guess balances in the bank accounts of the deceased which will warrant the subsequent filing of affidavits to enhance the value of the estate.

Spending money to get money

An estate which comprises an impressive portfolio of high-value assets will be accompanied by a corresponding high estate tax payable. At times applicants are stranded when they are unable to raise funds to pay the estate tax. For instance, in applications for the grant of Probate where the named executors are not beneficiaries in the Will, there is no incentive for them to raise funds for the payment of the estate tax. The beneficiaries are tasked with this onerous responsibility, and they may have to rely on loan sharks or wealthy individuals to pre-finance the estate tax at a fee.

What About Unknown Bank Accounts?

Prior to 2021, unclaimed monies standing to the account of a deceased person were handled according to the internal policies of the bank.

What happens to accounts that may not be known to the administrators of an intestate? Prior to 2021, unclaimed monies standing to the account of a deceased person were handled according to the internal policies of the bank. These accounts could be subject to the levies and charges on the account, transferred to a suspense account or retained until such a time that the account will be affected by a regulatory action or an act by a beneficiary.

[1] Order 66 Rule 12 of the High Court Rules (Civil Procedure) Rules, 2004 (CI 47) provides the order of priority for a grant where the deceased left a will.

[2] Order 66 Rule 13 of CI 47 provides the order of priority of grant where the deceased died intestate.

[3] In Re Duncan (Decd); Duncan v Duncan (1982-1983) GLR 384

[4] https://www.bog.gov.gh/supervision-regulation/all-institutions/

[5] Civil Proceedings (Fees and Allowances) (Amendment) Rules, 2014.

 

Disability may present to an individual the challenge of the high cost of independent and sustainable living. For instance, the cost of acquiring or replacing an assistive device, which is integral towards enabling inclusion, is usually expensive beyond a person’s capacity to sustain. It is such costs that tax exemption for Persons with Disabilities (PWDs) is intended to alleviate. This article focuses on the procedure to be followed by PWDs when seeking an exemption from income tax. In particular, we will review whether vetting PWDs has any significance when applying for such an exemption.

Background

PWDs are amongst the few groups of individuals entitled to exemption from income tax. Provision for this tax relief is found under sections 12 (3) and 35 (1) and (2) of the Persons with Disabilities Act, 2003 (the PWD Act).

The grant of this and other exemptions prescribed under the PWD Act is subject to the requirements outlined in section 42 (1) of the PWD Act. In the context of income tax, these requirements include:

• Mandatory recommendation by the National Council for Persons with Disabilities (the Council).
• Approval by the Kenya Revenue Authority (KRA).
• Satisfying the requirements and conditions set out in the regulations by the Cabinet Secretary responsible for matters relating to finance (the Cabinet Secretary).
• Discretion of KRA to refuse exemption on the basis that it has not been provided for in the allocation of public resources.

A reading of these provisions yields the conclusion that the fact of disability alone does not avail an automatic relief to a PWD. It further suggests that exemption from tax on grounds of disability is a legal privilege as opposed to an absolute right, but only to the extent provided for under section 42 of the PWD Act. Pursuant to section 35 (2) of the PWD Act, which enables the Cabinet Secretary to prescribe the procedure for the application and grant of exemptions under the PWD Act, the Persons with Disabilities (Income Tax Deductions and Exemptions) Order, 2010 (the Order) was promulgated.

Order 4 (3) thereof provides that the Council is required to establish a committee whose members shall include a medical doctor for the purposes of vetting applications for exemption.

In order to apply for an exemption, a PWD must be registered with the Council to facilitate the issuance of a Certificate of Disability in accordance with Regulation 7 (1) of the Persons with Disabilities (Registration) Regulations, 2009 (the Regulations). The process leading to the issuance of the Certificate of Disability calls into question the necessity of verifying PWDs before recommending tax exemption. To appreciate this point of view requires an understanding of the process of registering as a PWD.

Registration Process

Registration of PWDs is provided for under section 7 (1) (c) (i) of the PWD Act, as read together with Regulation 5 (2) of the Regulations. Pursuant thereto, an applicant is required to attend an interview, a medical examination, and any other assessment that the Council may consider necessary. In connection with this, the Council has put in place a Service Charter that stipulates, amongst other things, the application guidelines for PWD registration (the Guidelines). Based on the Guidelines, an applicant is required to submit to the Council a duly filled application form attaching a Medical Assessment Report (Medical Report) signed by the Director of Medical Services and a passport-sized photo.

The Medical Report acts as an advisory as to whether a person has a condition that may qualify as a disability, in which event the Medical Report proposes the necessary recommendations for assistance. Following the presentation of these documents to the Council, the Council conducts a compliance check. If the requirements are met, the person is registered by the Council on the same day and issued a Certificate of Disability, which is valid for a period of five (5) years renewable as provided for. The benefits accrued from such certification include free access to assistive devices; education assistance; economic empowerment projects comprising local purchase/service order financing; provision of tools of trade as well as grants to PWD-dominated self-help groups; provision of protective facility e.g., sunscreen for those with albinism; and tax exemption.

Application for Tax Exemption

As stated above, the process of registration as a PWD and the application for tax exemption once such registration is complete, are two (2) different legal processes. Similar to PWD registration, applying for a tax exemption begins with the submission to the Council of a duly filled application tax exemption form, attaching copies of the following documents: medical report signed by the Director of Medical Services; KRA PIN Certificate; National Identification Card; KRA remittance documents (for those in informal and self-employment); latest pay-slip; and a letter from the employer.

To renew an exemption, one is advised to apply three (3) months before the expiry date. The application for renewal is predicated on the same documents, with an addition of the expired exemption certificate. The Persons Living with Disability – KRA Guidelines on Tax Exemption for PWDs (the KRA Guidelines) also require an applicant to be in receipt of taxable income under the Income Tax Act and to include a Tax Compliance Certificate in the document attachments. The KRA Guidelines also cite the PWD Act and the Order as the legal basis for PWD income tax exemption.

Upon receipt of the application, the Council establishes a committee that includes, among others, a medical doctor to review the application. The Council then submits a recommendation to the KRA Commissioner (the Commissioner) by uploading the application through KRA’s Tax system on the applicant’s behalf. If the upload is successful, a system-generated acknowledgement number is emailed to both the applicant and the Council. The Commissioner reviews the application so as to determine whether to grant the exemption, and he is required to make a decision within thirty (30) days of receipt of the recommendation.

Where an exemption is granted, the Commissioner issues the applicant with a Tax Exemption Certificate valid for three (3) years. However, it is noteworthy that the KRA Guidelines on the exemption for PWD and the Service Charter set the exemption validity period at five (5) years. Where the Commissioner rejects an application, the decision is notified to both the applicant and the Council in writing.

Comparing the Processes

The steps leading to a PWD’s exemption from tax or registration with the Council are identical, to the extent that the final application is received by the Council, at which stage the applicant’s role becomes dormant. The Council then assumes the role of the initiator. The two (2) processes then diverge, with the Council deciding on registration and also acting as a recommender with respect to the tax exemption application.

The comparability of the methods in both cases makes it challenging to comprehend the rationale for vetting for tax exemption. Given the requirements of the law and the set standards, registration must come before exemption. Vetting, on the other hand, begins as the first step in recommending exemption. Given the Medical Report’s aim, which is a consequence of disability assessment (unless fraudulently obtained), and the reality of a valid certificate of disability, requiring an applicant to attend a vetting session appears to be a redundant exercise.

Is Vetting of PWDs for Exemption superfluous?

Various reasons lend merit to the proposition that vetting of PWDs is superfluous.

First, the disability assessment undertaken is intended to get an expert opinion on whether or not one has a condition that qualifies as a disability. There are validity requirements in place to safeguard against fraud, including the limitation of assessment to gazetted government hospitals as well as the execution of the Medical Report by the Director of Medical Services. Besides, the applicant has no access to the Medical Report until it is executed and delivered to the Council for collection by the applicant. Finally, the Council issues a legitimate report to the applicant. As a result, the report provides sufficient evidence of an applicant’s disability. This, in effect, dismisses the necessity of vetting.

Second, the objective of vetting is hypothetical in the sense that it is not explicitly stated. As a result, confusion has taken root in the performance of this requirement. A case in point is the misunderstanding that the exercise empowers the Council to redefine disability for purposes of exemption, an issue which was addressed in the case of Kiramana v National Council for Persons with Disability & Another (2023) eKLR. In this case, the Court rejected the argument by the Council that the Petitioner was rehabilitated and held that the Petitioner, who had been medically certified as a person with disability, had been denied due protection of the law, dignity and respect as prescribed for persons with disabilities pursuant to Articles 27, 28 and 54 of the Constitution of Kenya, 2010 (the Constitution). The Court consequently declared the Petitioner to be a PWD within the meaning of section 2 of the PWD Act and Article 260 of the Constitution, both of which exclude the disability threshold that vetting purports to evaluate.

Third, the Kiramana v National Council for Persons with Disability case operates to estop the vetting committee from basing their recommendation on considerations outside of what the Constitution and the law provide. Equally, certification of disability following a medical assessment renders the role of a medical doctor in the vetting committee unnecessary. In any event, the Council lacks the professional competence to determine whether a person’s condition qualifies as a disability.

Finally, the Certificate of Disability issued upon registration is prima facie evidence of recognition by the Council of a person’s disability. To subject a registered PWD to vetting, is in essence, to disregard the validity of the Certificate of Disability. Since the Certificate of Disability originates from the Council, the vetting requirement appears to paint the Council as an institution in perpetual self-doubt, thus inviting PWDs to perceive it as an entity unworthy of public trust.

Conclusion

The foregoing analysis of the rationale for vetting of PWDs fails to disclose a strong case for its maintenance. Requiring PWDs to go through vetting for tax exemption is an unnecessary obstacle that calls for an amendment of the Regulations to discard the requirement. The current system runs contrary to the overriding purpose of the law, in that the PWD population is turned into a servant of the law rather than the latter working to ensure balance among the competing interests in this section of Kenyan society.

In the competitive landscape of the legal industry, networking has become an indispensable tool for law firms striving for success. Building and maintaining professional relationships with clients, peers, and other stakeholders is crucial for the growth and sustainability of a law practice as it contributes to the overall success of the firm.

The 2023 Construction Law Conference

On the 17^th and 18^th of October 2023, an opportunity for networking presented itself, where AB & David Zambia was invited to attend the Construction Law in Africa Conference 2023 hosted by two Sandton-based Law firms namely Pinsent Maisons LLP and Keating Chambers.

The Managing Partner Mr. Dumisani Tembo, the Partner Ms. Mambwe Mwiya and myself attended the conference to represent AB& David Africa.

The conference took place in the heart of Johannesburg, South Africa, the city’s bustling business district, which offered a unique opportunity for attendees to delve into the intricate world of construction law from an African perspective and gain valuable insights from seasoned practitioners and businessmen around the world. The venue provided the perfect setting for participants to engage in meaningful discussions and network with like-minded professionals whilst enjoying a buffet of food and drinks.

The conference boasted a lineup of distinguished speakers, each an expert in their respective fields within construction law. Pinsent Masons, known for its global expertise in construction and infrastructure projects, brought together a panel of legal luminaries to share their insights and experiences. From navigating complex contractual issues to addressing dispute resolution strategies including the need for arbitration clauses in construction law contracts, the speakers also covered a wide range of topics crucial to understanding the nuances of construction law in the African context.

The key topics discussed during the conference included the development of African Arbitration Centers through green Arbitration, its pros and cons, climate change, electricity energy generation and renewable energy transition, Independent Power Projects Investments, construction contracts and many more.

Attending the construction law conference in Sandston hosted by Pinsent Maisons LLP and Keating Chambers was therefore not just an educational experience, it was an immersion into the dynamic world of construction in Africa and a job well done indeed.

The expertise shared by the speakers, coupled with the networking opportunities, made this event a cornerstone for legal professionals seeking to stay abreast of industry developments and build meaningful connections in the field. As construction projects continue to shape the African landscape, the insights gained from this seminar will undoubtedly prove invaluable to those who attended and are navigating the legal complexities of the industry.

Upon introspection of the conference as a whole and it being my first attending an event on behalf of AB & David, some of the important networking take away were as follows:

Client Acquisition and Retention

Through the several meet and greets with individuals and businesses, we were able to connect with potential clients in need of legal services, for certain projects in Africa. While making a lasting impression for the firm and increasing the likelihood of acquiring new clients. We were also able to work on maintaining strong relationships with existing clients which is equally important for client retention and fostering long-term partnerships for a consistent revenue in flow them.

Referral Opportunities

Meeting people in person is one of the most effective ways for law firms to generate business as word of mouth spreads faster to date. This experience allowed us to develop relationships with other advocates and attorneys from various jurisdictions such as Botswana and Lesotho who may in future refer clients to us where our expertise is more aligned with a specific case.

Knowledge Sharing and Professional Development

Attending the construction law conference therefore provided us with the opportunity to stay abreast of industry trends, legal developments, and best practices obtained in the construction law field.  In engaging with peers, it allowed us to exchange insights, strategies, and knowledge amongst ourselves thereby contributing to the continuous professional development of not only lawyers but various businessmen and women in the construction field who had attended the conference and who in exchange were able to provide us insights on the practical aspect of construction law.

Brand Building and Reputation Management

Lastly, the conference allowed us to showcase our areas of expertise, values, and commitment to the African community as a whole. We were also able to instill confidence and reassure potential Clients and Partners in the firm’s capabilities to execute projects under the construction law field and other Corporate related works. This in itself, was helpful in managing our reputation effectively, addressing any concerns or misunderstandings people may have about the firm in the promptest manner possible.

Conclusion
Networking stands as the lifeblood of a law firm, providing an avenue through which professional relationships flourish, opportunities materialize, and reputations are solidified. In the legal realm, where trust and credibility are paramount, networking is not just a supplementary activity, it is the cornerstone of a success law firm and business.

Beyond the traditional realms of client acquisition and referrals, networking offers a nuanced tapestry of collaborative prospects and knowledge-sharing platforms. It is the pulse that keeps a law firm attuned to industry shifts, legal developments, and emerging trends, ensuring a continuous evolution that befits the dynamic nature of the legal profession.

In essence, networking for a law firm is not merely a transactional exchange of business cards, it is a strategic investment in the firm’s growth, resilience, and enduring presence within the legal landscape.

Recommendation

It is therefore my recommendation that when an opportunity to network presents itself, one will do right to jump at it. Networking opens doors to valuable resources and collaborative opportunities. Whether it’s partnering with other law firms on complex cases, accessing shared resources, or gaining insights from mentors, networking fosters an environment of collaboration. This interconnectedness therefore leads to strategic alliances, joint ventures, and the pooling of resources, ultimately and often benefiting those who participate.