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.