Subsidizing Electricity Tariff Could Exacerbate the Power Sector- ACEP

Subsidizing Electricity Tariff Could Exacerbate the Power Sector- ACEP

Ben Boakye, Executive Director of ACEP

The Africa Centre for Energy Policy (ACEP) has said the government’s recent decision to subsidize electricity tariff for Ghanaians for the next three months is detrimental to the power sector.

The president in his sixth state of the nation address announced that the government would fully absorb the electricity bills for persons who consume 0 to 50 kW/h of electricity for the periods of April, May and June as part of measures to reduce the impact of the pandemic on the citizens.

He added that, for residential and commercial users, the government would absorb 50 percent of their electricity bills using March 2020 as a benchmark.

"Government will fully absorb electricity bills for the poorest of the poor, i.e. for all lifeline consumers, that is free electricity for persons who consume zero (0) to fifty (50) kilowatt-hours a month for this period," the president said.

But ACEP in a statement commending the decision of the government also said it could endanger the sustainability of the power sector.

The Think Tank further pointed out that the tariff is highly regressive and discriminates against the poor who will not enjoy from the tariff.

“The challenge Ghana has had with electricity subsidy for the vulnerable in society is poor targeting. A large proportion of households described by the president as ‘the poorest of the poor’ do not benefit from lower lifeline tariffs because many of them live in compound houses.”

“These people consume higher than the base unit of 50kwh a month, rendering the poor unable to enjoy the lifeline tariff. Rather, consumers who are able to procure separate meters and stay within the 50kw consumption band, typically not the poor, benefit from the lifeline tariff,” ACEP argued in its statement.

The group is further urging the government to make the lifeline consumption free for all and scrap the 50% reduction it has announced.

“Make lifeline consumption free for everyone. This ensures that at least everybody has the option to enjoy electricity for the most essential purposes. Any consumption above the lifeline should be paid for by the consumer. The burden on the government for this approach will be GHS92 million a month, significantly lower than the GHS1 billion under the proposed policy. This generates a saving of GHS2.1 billion which can be used for other interventions to mitigate the impact of COVID-19,” ACEP added.

What recommendations are ACEP making for the government?

To ACEP, the current policy by the government does not cover the targeted poor and vulnerable group expected to benefit from the policy. It has therefore suggested the following ways to the government to ensure that the poor will benefit from the policy.

The government should quickly map out large households in poorer communities who do not benefit from lifeline tariffs because they are too many on a single meter. This will ensure proper targeting of the most vulnerable in society for the intervention. The current implementation of the lifeline policy is known to be ineffective at targeting the poor in society. This means that further efforts are required to ensure that the poor can be supported in this era.

The government should spend part of the proposed expenditure on electricity consumption to identify and support those most impacted by the Pandemic. There are citizens who have lost their jobs and require urgent support while they look for another job. The GHS2.1 billion is more than enough to provide direct cash transfers of GHS 200 for 3 million impacted citizens for three months. It is therefore pointless to rather target the rich through electricity tariffs

Government should summon the creativity of the citizens to find appropriate mitigations strategy for the times. Mapping out the vulnerable and the most affected is a non-negotiable exercise to be effective with interventions. The Pandemic is still evolving and requires efficient resource utilization to prepare for the worse-case scenario. In the era of technology, many software engineers in the country are capable of supporting the government to identify and target the right people. The government should open up and welcome cheaper solutions to map out those who need to support the most.