Former Energy Minister, Dr Kwabena Donkor, has expressed support for the new GH¢1 fuel levy but says it must not be treated as a standalone solution. He insists it should come with bold steps to cut costs, improve efficiency, and ensure financial discipline in the energy sector.
Speaking on the AM Show on JoyNews, Dr Donkor stated that, “My position on the 1 cedi fuel levy is that, as a people, we must first of all accept the fact. We can debate implementation, we can debate timing, we can debate methodology, but the fact is that even using the 3.1 billion dollar legacy debt, it is simplistic to assume that the 1 cedi in 2 years must eliminate that debt.”
He pointed out that beyond clearing the legacy debt, the energy sector is still not covering its operating costs. “We have a major issue that we are not tackling, and which I hope the government will be tackling anytime soon. As of today, we are under a recovery cost in the power sector. When you under-recover cost, you are piling up debt,” he said.
According to him, the levy should address both the legacy debt and the ongoing under-recovery.
“First of all, we must eliminate the existing legacy debt… So we have a situation where we have the legacy debt 3.1 as stated but we are also under-recovering cost. So we have to do two things. The 1 cedi, I believe, will go towards both the under-recovering and wiping off the legacy debt.”
He shared a recent example to highlight how serious the financial challenges are.
“Two weeks ago, the Minister for Finance had to find about 50 million dollars for Karpower immediately. Otherwise, they were threatening that they couldn’t service their loans,” he revealed.
Dr. Donkor explained the risk involved for private sector power producers.
“Remember, project finance is about equity and loans. The norm is that equity may be 30%, and the loan will be 70%. So these IPPs and other players will have to service their loans as well,” he noted.
“So the Minister for Finance had to cough up money for them because we owe them so much.”
He also criticised past handling of funds, particularly under former Finance Minister Ken Ofori-Atta.
“If you look at what Ken Ofori-Atta attempted doing when he collateralised the inflows from ESLA, unfortunately, he did not use all the money received to service the debt. There is evidence that it was also used for other administrative government things that did not help us,” he said.
“But more importantly, steps were not taken to drive up efficiency and drive down cost,” Dr. Donkor added. “For us to recover cost in any business, when you under-recover cost, you will invariably be piling up future debts.”
He stressed that the Ministry of Finance should not be footing fuel bills for power generation.
“It is for that reason that Ministry of Finance has had to purchase fuel for the sector. If we were covering cost, there would not be the need for Ministry of Finance to purchase fuel because fuel would have been purchased from the revenues of the industry.”
Dr. Donkor argued that while the GH¢1 levy may help, it should not be introduced in isolation.
“I am in full support of the 1 cedi, but that will not be enough. We also have to look at the price build-up. Within the price build-up, there must be some savings,” he stressed.
He specifically pointed to the Unified Petroleum Price Margin (UPPM) and other cost components.
“Let me put this on record, I believe the UPPM, for example, should go down. There should be some savings out of UPPM because the biggest single component, the biggest single operating expense on transportation, is fuel.
He also questioned whether existing administrative margins should remain unchanged. “Then we also have to look at some administrative margin. Do we still have to maintain that quantum in the light of falling inflation, in the light of falling petroleum pricing?”
“Even if the whole 1 cedi was to come from the price build-up, the Ministry of Finance is still obliged by our constitutional construct to come to Parliament for this,” he added.
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