The Ministry of Finance (MoF) has assured Parliament of the Electricity Company of Ghana’s (ECG) capacity to repay the on-lend loan of US$ 60 million which is meant for the phase II of the Ghana Energy Development and Access Project (GEDAP).
Parliament last week approved a loan agreement between the Government of Ghana and the International Development Association for an amount of US$ 60 million which the government intends to lend to the ECG for GEDAP.
The Ministry of Finance, when it appeared before the Parliamentary joint committee on Finance and Mines and Energy, said an assessment on the financial capability of the ECG had been undertaken by a joint technical team comprising officials of the World Bank and the results were positive.
The Ministry, led by the Minister, Mr Seth Tarkper, also indicated that adequate repayment security measures had also been instituted to ensure the ECG does not default.
Some of the measures include the opening of an escrow receivable account for the purpose of depositing receivables from the project solely for the repayment of the loan.
The Finance Ministry further stated that the current cash waterfall payment schedule for the power sector being implemented by the Public Utilities Regulatory Commission (PURC) also provided an additional security measure to ensure that the escrow account receives proceeds on time for the repayment of the loan.
Terms and conditions of the loan
The agreement between government and the IDA comes with an interest rate of 1.25 per cent per annum, a service charge of 0.75 per cent per annum on withdrawn balance, a commitment charge of 0.5 per cent per annum on the unwithdrawn balance, a grace period of five years and a repayment period of 25 years.
The government of Ghana in return is lending this facility to the ECG at an interest rate of 5.3 per cent per annum, service charge of 0.75 per cent per annum on withdrawn balance, a commitment charge of 0.5 per cent per annum on the unwithdrawn balance, a grace period of five years and a repayment period of 17 years.
Additionally, the ECG is expected to bear all the exchange rate risk associated with the loan facility.
GEDAP project
In 2007, government initiated the GEDAP project at a total cost of US$296.83 million.
Reduction of system losses
In June 2010, government secured an additional funding credit facility in the amount of US$ 70 million and on-lent it to the ECG to enable it upgrade its distribution network and commercial and technical capacity with focus on improving revenues and reducing commercial losses across the country.
Out of this total financing, about 96.10 per cent has been disbursed and utilized by the project as at end of June, 2016.
With the help of this funding, the ECG has completed the construction and installations of 33/11 KV substations and medium-voltage lines.
It has also completed the construction of seven district offices/customer service centers to deal with the growth in customer population and improve customer service accessibility and has also implemented a new company-wide Commercial Management System (CMS).
The ECG has also supplied and installed 140,000 meters in the Ashanti region.
These measures have led to the reduction of overall system losses from 26 per cent in 2007 to 22 per cent as at December, 2015.
Operational challenges
The Parliamentary joint committee on Finance and Mines and energy in its report on the loan agreement indicated that, in spite of the above investments and achievements, key operational challenges still remained within the ECG.
It said whiles the measures to enhance ECG’s operational performance had helped reduced losses, it did not effectively reflect in the improvements of ECG’s financial performance, as the company was still grappling with high commercial losses, inadequate revenue collection and limited integration of its systems and functional units.
It noted that the additional funding of US$ 60 million would focus on investments to scale up the activities in the ongoing GEDAP.
It said the investments would be targeted to improve the operational efficiency and financial viability of the ECG.
The project is planned to be implemented over a period of 24 months and is expected to scale up the ongoing activities under the first phase of GEDAP through an improvement in revenue collection and enhancing the management and planning processes of the ECG.
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