Ghana’s Finance and Economic Minister, Mr. Ken Ofori-Atta on Monday presented a supplementary budget announcing that his administration has declared a state of emergency on the energy sector, following the annual payment of $500 million to settle debts on so-called idle power generation plants.
The minister, who spent over three hours, enumerating what his administration intentions resolving the situation, said: “We are in a state of emergency and must, therefore, respond with urgency and boldness”.
His statement came following the recent threat by Independent Power Producers (IPPs), to stop generating power, following a debt of $700 million, that had saddled the sector.
Debts Poses Threat to Economy
In the minister’s estimation, “the energy sector debt posed a grave financial risk to the economy,” explaining that the payment for capacity charges on idle generating plants based on agreements signed by the erstwhile National Democratic Congress (NDC), was also not helping the situation.
“At the heart of these challenges are the take-or-pay contracts signed by the NDC which obliged us to pay for capacity we do not need,” he added.
The minister further stated that the country could boast of 5,083 megawatts (MW) installed power capacity, which was almost twice the peak load load hovering around 2,700 MW, thereby leaving an idle installed capacity of 2,300 MW.
Payment on the idle plants culminate in an annual amount of $500 million, which the government pays to ensure that the country does not go back to the dreaded power crisis, which dragged on for over four years leading to a coinage of the term “Dumsor Dumsor”, meaning on an off.
He added that the demand for natural gas too is on the rise and these things are shocking the economy.
The minister therefore announced an increase in energy sector levies act on fuel, which could help to reduce the debts in the energy sector.
However, the announcement has been opposed by Mr. Duncan Amoah of the Chamber of Petroleum Consumers in (COPEC), who warned that the increase in fuel taxes will bring untold hardships to Ghanaians.
Removal of Luxury Vehicle Tax
Mr. Ofori-Atta further announced that the government has scrapped the Luxury Vehicle Tax, which was introduced to ensure that vehicles with engine capacity of more than 3.0 paid additional taxes to government.
Its introduction resulted in the reduction in sales on such vehicles, a state that compelled the vehicle and assets owners association to petition the government to reconsider abolishing the tax.
Bank Bailout
The minister then revealed that the banking sector bailout by government has restored confidence in the banking sector, bringing some security to depositors and helping save some 3,000 jobs.
This was after an initial reform undertaken by the government resulted in the collapse of seven banks, with over 4,000 people losing their jobs.
Other Sectors
The budget also focused on areas such as roads, schools, and other infrastructure projects.
Observations
It has however been observed that the issues that have attracted most public attention after the budget has been energy sector challenges, the issue with luxury tax, the payment of contractors, increase in phone talktime tax, which have been highly debated by both opposition members and ruling party officials, opinion leaders and academics.
DAP/as/APA