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IPPs Warn: Reduction in Electricity Tariffs Could Deepen Power Sector Insolvency



IPPs Warn: Reduction in Electricity Tariffs Could Deepen Power Sector Insolvency

The statement issued by the Independent Power Producers Ghana (IPPs) highlights the precarious situation facing the country’s power sector, particularly concerning the potential increase in debt owed to IPPs. Here’s a breakdown of the key points mentioned:

  1. Tariff Reduction by PURC: The Public Utilities Regulatory Commission’s decision to further reduce electricity tariffs by 6.56% is cited as a significant factor contributing to the financial challenges. Despite aiming to provide relief to consumers, this reduction in tariffs is expected to escalate the financial burden on IPPs due to escalating variable costs associated with electricity production.
  2. Escalating Variable Costs: The statement mentions that variable costs of electricity production, such as fuel, maintenance, and idle capacity charges, are increasing. Factors like the high price of natural gas and currency depreciation are contributing to these rising costs.
  3. Financial Deficits: The IPPs express concern that while tariff reductions benefit consumers, they have not been matched with a decrease in production costs. This mismatch is leading to significant financial deficits within the sector.
  4. Inefficiencies in the Sector: The statement points out inefficiencies in the sector, including high transmission and distribution losses, which further exacerbate the financial challenges faced by IPPs.
  5. Impact on ECG: The financial strain on the Electricity Company of Ghana (ECG) is highlighted, with the imbalance between revenue generation and operational costs leading to financial insolvency and governance deficiencies.
  6. Risk of Default on Obligations: The IPPs warn that with the tariff reduction, the risk of default on obligations to IPPs may increase. Despite ECG’s commitment to a fixed monthly sum to IPPs, the reduction in tariffs could strain the government’s renegotiation appeals and lead to challenges in meeting financial obligations going forward.

Overall, the statement underscores the urgent need for measures to address the financial challenges facing the power sector in Ghana, particularly concerning the relationship between tariff reductions, production costs, and the sustainability of IPPs.

Source: ghmediahub

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