In a significant announcement that will impact all customers in Ghana, the Public Utilities Regulatory Commission (PURC) has disclosed a planned increase in utility tariffs, specifically for electricity and water, set to take effect on October 1, 2024. This decision, unveiled by Dr. Ishmael Ackah, the Executive Secretary of PURC, will see electricity rates climb by 3.02% and water rates rise by 1.86%. The basis for this tariff revision lies in a range of economic factors, emphasizing the need to ensure the financial stability and consistent supply of these essential services. Dr. Ackah points to fluctuating exchange rates, domestic inflation, the cost of natural gas, and the specific electricity generation mix as key drivers behind this adjustment. These factors are largely beyond the control of the utility providers but have a direct impact on operational costs.
Economic Factors Influencing Tariff Increases
Several core economic elements have been cited as reasons for the upcoming increase in utility tariffs. The Ghana Cedi experienced a depreciation of 4.96% against the US Dollar between the second and third quarters of the year. This depreciation has a direct impact on the cost of imported resources, notably natural gas, which is a significant component in the generation of electricity. The rate of domestic inflation also plays a pivotal role. Although there was a slight decline in inflation from 24.38% to 22.27%, this still represents a high level of inflation that affects the overall cost of production and distribution for utility companies.
Moreover, fluctuations in the cost of natural gas contribute significantly to the financial equation. The weighted average cost of gas (WACOG) dropped from $8.0422/MMBtu to $7.8368/MMBtu. While this decline might seem beneficial, the overall impact on production costs is complex and involves multiple interacting factors. Additionally, the electricity generation mix in the country, which remained stable during the review period, continued to rely heavily on thermal sources (65.19%) compared to hydro sources (34.81%). This reliance on thermal generation, which is generally more expensive due to fuel costs, further influenced the need to adjust tariffs.
Ensuring Financial Stability of Utility Providers
The PURC’s review process, guided by its Quarterly Tariff Review Framework, aims to maintain the real value of tariffs, thereby ensuring the financial stability of utility providers. Dr. Ackah emphasized that these adjustments are essential to ensure that utility companies can continue delivering consistent and reliable services to consumers. The financial health of these providers is critical; without adequate revenue, they might struggle to maintain and upgrade infrastructure or procure the necessary resources for uninterrupted service.
The review highlighted a total under-recovery of GH¢173.98 million for the electricity sector, translating into the 3.02% tariff hike. This under-recovery signifies the gap between the revenue generated at current tariff rates and the actual costs incurred in producing and supplying electricity. For the water sector, a revenue gap of GH¢12.01 million was observed, necessitating the 1.86% increase in tariffs. These adjustments are designed to bridge these financial gaps, ensuring that utility providers can remain operational and continue to invest in improvements and expansions.
Balancing Consumer and Provider Needs
The Public Utilities Regulatory Commission (PURC) uses its Quarterly Tariff Review Framework to maintain the real value of tariffs, ensuring the financial stability of utility providers. Dr. Ackah emphasized that these tariff adjustments are crucial for allowing utility companies to continue delivering reliable and consistent services to consumers. The financial health of these companies is essential; without adequate revenue, they may struggle to maintain, upgrade infrastructure, or procure the resources needed for uninterrupted service.
The recent review revealed an under-recovery of GH¢173.98 million in the electricity sector, leading to a 3.02% tariff increase. This under-recovery indicates the gap between the revenue generated at current tariff rates and the actual costs of producing and supplying electricity. In the water sector, a revenue gap of GH¢12.01 million was noted, prompting a 1.86% tariff hike. These adjustments are intended to bridge these financial gaps, ensuring that utility providers can continue operations smoothly and invest in necessary improvements and expansions.
