Tariffs can’t go below 60% — Technical group

The Technical Working Group (TWG) on Utility Tariffs has stated that a 50 per cent increase in the price of electricity is not sustainable.

This is because the revenue that will accrue from that increase will not be able to cover the production and transmission cost.

The analysis made by the TWG indicated that in order to cover at a minimum the cost of generation and transmission, tariff adjustments above 60 per cent might be necessary, taking into consideration the need to minimise the negative budget implication.

The recommendations were contained in an interim report that the TWG presented to the government yesterday.

The Chairman of the TWG, Dr Joe Abbey, presented the report to the Chief of Staff, Mr Prosper Douglas Bani, at the Flagstaff House.

Present at the presentation was the Minister of Finance, Mr Seth Terkper.

The TWG was constituted by the Vice-President, Mr Kwesi Bekoe Amissah-Arthur, following the increases in utility tariffs by the Public Utilities Regulatory Commission (PURC).

The PURC approved 78.9 per cent and 52 per cent increases in electricity and water tariffs, respectively.

Following the increases, organised labour held a press conference and gave the government and the PURC a 10-day ultimatum to reduce the tariffs or face a nationwide strike.

It has since called off its intended strike.

TWG
The TWG was mandated to examine possible scenarios and their implications for the sustainable and efficient provision of utility services and the impact on the national budget.

It was also tasked to examine mitigating measures that would allow industry and consumers to adjust any new levels of tariffs and make proposals for the restoration of the automatic tariff adjustment formula (ATAF).

Presenting the report, Dr Abbey said the group applied the various percentages — from 50 per cent, 60 per cent, 70 per cent to 120 per cent — to the pre-October 1, 2013 average end-user tariff of 22.3349Gp per kilowatt hour.

He said the higher the percentage change approximating the 120 per cent, the lower the budgetary impact.

He said if the base tariff of 60 per cent was adopted, it would be necessary for a higher adjustment over the next five quarters in order to eliminate the deficit on the budget.

”Such an adjustment will require changes due to the ATAF plus one-fifth of the difference between the base adjustment and the zero deficit tariff over the next five years,” he said.

Dr Abbey said the assumption of the working group was that if the ATAF had been operational as of June 2012, the corresponding ATAF value as of October 1, 2013 would have been 49.1368Gp, which was a 120 per cent increase over the value of 22.3349Gp of June 2012.

He said given the spike involved in such a jump, the group considered lower percentage increases from 50 to 120 per cent of 22.3349Gp.

He said in the case of the ECG, what the PURC approved was less than half of what the company had submitted.

Mitigating measures
Dr Abbey said the TWG recognised that the tariff structure as it currently existed entailed significant cross-subsidisation from business consumers to household consumers.

He said in the short to medium-term, efforts should be made to minimise and ultimately eliminate cross-subsidisation of residential consumers by industry.

Preferably, he said, “cross-subsidisation within the residential category could be from the rich to the poor consumers”.

Data
Dr Abbey said the TWG relied on the data presented to it by the PURC.

The Chief of Staff, for his part, said the government would study the report and implement it appropriately.

Source:Daily Graphic/Ghana