In a candid assessment of Ghana’s power sector challenges, former Minister for Energy, Dr. Kwabena Donkor, has thrown his weight behind the controversial GH¢1 fuel levy, describing it as a pragmatic response to the country’s deepening energy sector crisis.
Speaking in interview, Dr. Donkor explained that the levy is critical to addressing two pressing financial hurdles, Ghana’s ballooning legacy energy debt estimated at over GH¢3.1 billion and the persistent under-recovery of operational costs in the power generation and distribution chain.
“We have a situation where we have the legacy debt GH¢3.1 billion 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-recovery and wiping off the legacy debt,” he explained.
Dr. Donkor acknowledged the widespread public resistance to the levy but urged citizens and policymakers alike to view the matter with sober realism.
“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 two years must eliminate that debt.”
He described under-recovery the gap between actual costs and revenue as a “ticking time bomb” that has long compromised the sector’s financial viability.
Citing the financial structure of power sector investments, Dr. Donkor highlighted the imperative of consistent payments to Independent Power Producers (IPPs), who typically finance their projects with a 70:30 debt-to-equity ratio.
“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.”
While supporting the levy in principle, the former minister was unequivocal in demanding deeper reforms in the sector. He called for aggressive cost containment and operational efficiency to ensure that new inflows are not wasted.
Dr. Donkor did not shy away from criticising past fiscal management, particularly the use of inflows from the Energy Sector Levy Act (ESLA) 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.”
Dr. Donkor further suggested that savings could be made within the petroleum pricing formula itself. He urged a revision of the Unified Petroleum Price Margin (UPPM) and related line items to cushion the impact on consumers.
“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.”
“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 operating expense on transportation is fuel.”
Given recent fuel price drops and subsequent reductions in transport fares, Dr. Donkor argued that margins allocated for transportation and distribution should be revisited.
“Since fuel prices have come down and GPRTU and other transport organisations have come up with a 15% reduction on the back of reduced fuel prices, the UPPM, which is essentially for transportation, both the UPPF and the Primary Distribution Margin must also come down.”
He also raised concerns about the continued justification for certain administrative margins in the pricing structure.
Still, Dr. Donkor reminded that any changes in the fuel price structure or allocation of levies must comply with Ghana’s constitutional and legislative frameworks.
“If we do that, I believe there can be some savings in the existing price build-up to offset the 1 cedi. But the Finance Ministry, by our constitutional construct, even if the whole 1 cedi was to come from the price build-up, the Ministry of Finance is still obliged by our construct to come to Parliament for this.”
Dr. Donkor’s analysis underscores a sobering reality; resolving Ghana’s power sector crisis will require not just new levies, but a disciplined commitment to efficiency, transparency, and long-term planning.
