Dr. Kwabena Donkor, the former minister of energy, has endorsed the new GH¢1 fuel fee but cautions that it shouldn’t be viewed as a stand-alone remedy. He maintains that it must be accompanied by decisive measures to reduce expenses, boost productivity, and guarantee financial restraint in the energy industry.
“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 said in an interview on JoyNews.
He emphasized that the energy sector is still unable to pay its operational expenses after paying off its historical debt.
“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.
“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 costs. 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 asserted.
“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.
Explaining the risks involved for private sector power producers, he said, “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. So the Minister for Finance had to cough up money for them because we owe them so much.”
“If you look at what Ken Ofori-Atta attempted to do 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 emphasized that fuel costs for electricity generating shouldn’t be covered by the Ministry of Finance. Although the GH¢1 levy would be beneficial, Dr. Donkor contended that it shouldn’t be implemented alone.
“It is for that reason that the Ministry of Finance has had to purchase fuel for the sector. If we were covering cost, there would not be the need for the Ministry of Finance to purchase fuel because fuel would have been purchased from the revenues of the industry.”
“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 specifically mentioned other cost elements and the Unified Petroleum Price Margin (UPPM). Additionally, he asked if the current administrative margins ought to be maintained.
“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.”
“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?” he asked.
He added that, “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.”
