Dr. Apetorgbor Calls for Removal of VAT on Electricity Consumption and Other Measures to Strengthen Financial Stability in the Electricity Supply Chain

Dr. Elikplim Kwabla Apetorgbor, a Power Systems Economist, is proposing several strategic measures aimed at improving the financial stability of Ghana’s electricity supply chain. Among his recommendations is the removal of Value Added Tax (VAT) on electricity consumption and supplies to the Electricity Company of Ghana (ECG). Additionally, he advocates for the indexation of electricity tariffs to exchange rate fluctuations, better operational efficiency, optimized natural gas usage, and the utilization of idle power generation capacity for regional exports.

Dr. Apetorgbor believes these measures will not only stabilize the finances of the electricity sector but also enhance its overall competitiveness and long-term sustainability. According to him, addressing these issues is crucial to resolving the dual challenges facing the sector: high electricity costs for consumers and financial instability throughout the value chain.

The financial struggles of ECG, which include its inability to meet obligations to power generators, transmission companies, and suppliers, can largely be traced to several key factors. These include non-cost-reflective tariffs set by the Public Utilities Regulatory Commission (PURC), significant operational inefficiencies, and high energy losses. In addition, the ECG is exposed to currency depreciation without any mitigation mechanisms, and unfavorable fiscal policies, such as VAT on electricity and supplies, only compound the financial difficulties. Dr. Apetorgbor warns that the cumulative effect of these factors threatens the long-term sustainability of Ghana’s power sector.

Dr. Apetorgbor also referenced examples from other countries to underline the importance of reforming Ghana’s electricity sector. He highlighted Nigeria’s experience, where poor tariff structures contributed to the collapse of privatized utilities. Meanwhile, Kenya’s success in reducing energy losses through operational reforms serves as a positive example. These international experiences, according to Dr. Apetorgbor, demonstrate the urgency of addressing the systemic issues plaguing Ghana’s power sector.

One of his main criticisms is the VAT on electricity, which he believes adds unnecessary costs to ECG’s operations without offering any direct benefits to the sector. Dr. Apetorgbor argues that removing VAT would allow ECG to retain more of its revenue, providing the utility with more financial flexibility. This would, in turn, enable the PURC to increase electricity tariffs as needed to ensure full cost recovery and promote financial stability across the sector.

He pointed to Rwanda’s decision to remove VAT on electricity for industrial users in 2019, which led to improvements in sector productivity and better cash flow for utilities. This move, Dr. Apetorgbor suggests, is a model that Ghana could adopt to improve its electricity sector’s financial health.

Dr. Apetorgbor also raised concerns about the impact of currency fluctuations on ECG’s financial obligations. The ECG has significant commitments under dollar-denominated Public Private Partnerships (PPPs), which make it vulnerable to exchange rate volatility. To address this, he proposes introducing an automatic tariff adjustment mechanism that would allow electricity tariffs to adjust in line with changes in exchange rates. This measure would help protect ECG’s revenue from the negative effects of currency depreciation and ensure greater financial stability for the utility. He cited South Africa’s approach of implementing quarterly automatic tariff adjustments in response to exchange rate fluctuations as an effective strategy for stabilizing utility finances.

In addition to addressing these fiscal and operational challenges, Dr. Apetorgbor also emphasized the need for better resource utilization. He suggested optimizing natural gas usage and tapping into idle power generation capacity to support regional energy exports. By leveraging these resources more efficiently, Dr. Apetorgbor believes Ghana could not only address its internal energy needs but also boost its position as a regional power supplier.

Ultimately, Dr. Apetorgbor’s recommendations center on creating a more resilient and financially stable electricity sector in Ghana. By implementing VAT removal, tariff adjustments linked to exchange rates, and promoting operational efficiency, he believes Ghana can overcome the financial challenges facing its power sector. These measures would not only ensure the sustainability of the sector but also improve the affordability and accessibility of electricity for consumers across the country.