By Elikplim Kwabla APETORGBOR(PhD)
Ghana’s energy industry has faced significant financial challenges for an extended period, primarily due to structural inefficiencies, insufficient cost recovery, and particularly, fluctuations in foreign currency exchange rates.
The core of this issue lies with the Electricity Company of Ghana (ECG), which is responsible for collecting most revenues and purchasing electricity within the power supply chain. The company’s financial position has been continually strained due to mounting debts, insufficient cash flow, and significant liabilities denominated in US dollars.
In history, the devaluation of the Ghana cedi (GHS) has considerably weakened ECG’s financial stability, exacerbated by PURC’s practice of setting exchange rates lower than market levels.
In many Power Purchase Agreements (PPAs), fuel supply contracts, and service-level agreements denominated in USD, each cedi decrease in the exchange rate value imposes a greater financial strain on ECG when measured in local currency.
The discrepancy between GHS revenues and USD obligations has led to a distorted financial cycle, resulting in late payments to Independent Power Producers (IPPs), inconsistent power supply, and repeated government rescues.
Nonetheless, an uncommon and potent shift in macroeconomics is occurring in 2025. From the start of the year, the GHS has surged more than 10% relative to the USD, overturning almost four consecutive years of steady decline.
Encouraged by a mix of IMF payments, restored faith from investors, revenues from exported cocoa and gold, along with more stringent monetary policies, this currency strengthening is providing an immediate financial benefit to ECG and the overall energy industry.
The cedi appreciation presents a practical opportunity to ease ECG’s solvency crisis, improve sector liquidity, and restore balance to a value chain that has been trapped in a deficit-financing cycle.
Why Does Foreign Exchange Appreciation Matter for ECG From a Mechanical Perspective?
To grasp the actual effects of the cedi’s appreciation, look at the financial responsibilities of ECG.
The utility must settle monthly bills with independent power producers (IPPs) and fuel providers for the produced electricity and provided fuels. A considerable portion of these payments—including capacity fees, fuel expenses, and certain supplementary services—are invoiced in US dollars.
Let us look at a simplified example:
- The ECG gets a monthly bill for $50 million from a group of Independent Power Producers (IPPs).
- If the exchange rate between GHC and USD is 12, ECG must secure GH₵ 600 million to cover this expense.
- At the present exchange rate of 10.80, the same invoice now amounts to just GHS 540 million.
- This equates to a straightforward savings of GH₵ 60 million each month, provided that the dollar rates remain constant.
Over a fiscal year, this amounts to GHS 720 million in avoided forex-adjusted costs, which could instead be used to:
- Decrease outstanding payments to independent power producers according to the terms outlined in the power purchase agreements.
- Fund urgent network upgrades,
- Support usage tracking and revenue safeguard programs, or
- Resolve some of ECG's outstanding debt obligations.
These findings go beyond theory. According to ECG’s unaudited 2024 financial statements, more than 35% of their overall spending was tied to foreign currency exchanges. Consequently, a 10-12% increase in the exchange rate significantly affects their expenditures. Proper management of this situation could transform the company’s position from being close to bankruptcy to achieving short-term profitability.
Furthermore, this appreciation decreases the expense associated with imported fuels managed via intermediaries such as VRA, Ghana Gas, and GNPC. These entities conduct their natural gas and light crude oil deals in dollars too. Lower demands for local currency financing alleviate strain on ECG’s monthly financial outflows, allowing more funds to be allocated towards infrastructure improvements.
Strategic Consequences and Tomorrow's Outlook
Instant Liquidation Support and Improved Financial Stability
Directly enhancing ECG’s working capital position is the result of increased GHS appreciation. As less GHS is required to cover USD bills, the company can make timely payments, regain control over its payment schedule throughout the supply chain, and sidestep any late fees or additional charges.
Prompt payments also restore confidence with independent power producers and fuel providers, guaranteeing an uninterrupted supply and preventing the hazards of load shedding due to cutbacks.
Possibility of Decreasing Government Assistance Programs
The Government of Ghana, via the Ministry of Finance, regularly provides liquidity injections into ECG to aid dollar-denominated payments as part of the Energy Sector Recovery Program (ESRP).
As the GHS strengthens in value, the financial load of these transfers significantly decreases. This opens up room within the national budget for either social spending or investment in infrastructure within the sector instead of providing operational subsidies.
Chance to Resolve Past US Dollar Debts
ECG and other entities like GRIDCo and VRA have legacy debts denominated in USD. The forex gains realized now can be strategically channeled to accelerate repayment of these loans, reducing interest costs and forex exposure over the medium term. Proactive debt servicing under current exchange rates would create long-term savings and creditworthiness improvements.
Initiate a Forex Stabilization Mechanism
Considering the repetitive pattern of currency fluctuations, the present surge shouldn’t be regarded as lasting.
Part of the savings achieved through GHS should be allocated to create an Energy Sector Foreign Exchange Stabilization Fund, governed with stringent regulations. This fund will help protect entities like ECG and others from potential impacts during future instances of GHS devaluation.
Policy Recommendation: PURC and Ministry of Energy Actions
Authorities such as the Public Utilities Regulatory Commission (PURC) and the Ministry of Energy and Green Transition (MoEnGT) should promptly revisit their approaches to tariffs and cost recovery mechanisms.
Foreign exchange savings must be reported clearly, enabling adjusted fees that mirror genuine operational expenses without imposing undue strain on customers. Furthermore, this situation offers a suitable opportunity to engage in discussions for redrafting power purchase agreements in cedi terms.
The Pivot Moment for the Energy Sector and ECG Restructuring
The strengthening of the Ghanaian cedi during the initial five months of 2025 isn’t merely a monetary occurrence; it marks a pivotal moment for Ghana’s energy industry.
ECG, which has struggled for a long time due to foreign currency debt commitments, now has a chance to steady its financial situation, decrease outstanding debts (based on PPA payment conditions), and regain a route toward operational stability.
Nevertheless, this chance needs to be grasped with both caution and immediacy. If there isn't careful financial planning, significant structural changes, and well-coordinated regulations, the benefits stemming from the GHS’s strengthening could evaporate into mere temporary respite rather than leaving a long-lasting effect.
The assignment for ECG and the Ministry of Energy is straightforward: formalize the achievements, transform cost reductions into lasting enhancements, and ready the infrastructure for withstanding potential monetary upheavals.
As Former U.S. Treasury Secretary Larry Summers once said, "Crisis creates opportunities, but so do recoveries—if we use them wisely." Ghana’s energy industry, particularly ECG, currently finds itself at this pivotal juncture.
The author serves as the Chief Executive of Independent Power Generators in Ghana.
Provided by SyndiGate Media Inc. Syndigate.info ).
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