Legacy debt in Ghana’s energy sector has become a buzzword after years of significant and persistent accumulation of debt in the sector. One of the critical challenges of the energy sector is high indebtedness accumulated through various systemic flaws.
The sector’s efficiency and stability are threatened partly due to the albatross of legacy debt, which has failed to go away despite various efforts.
Due to the high levels of the debt and how threatening it has become, Ghanaians have been called upon to pay more in levies to address the situation. This is not the first time levies have been imposed to defray the debts in the energy sector.
What has gone wrong over the years? The High Street Journal seeks to put the spotlight on the menace that has become an avenue for more taxes, yet sees little to no improvement.
Historical Context of the Legacy Debt
The roots of Ghana’s energy sector debt can be traced back to the early 2000s, characterized by rapid urbanization and electrification. To meet the growing energy demands, the government entered into numerous Power Purchase Agreements (PPAs) with Independent Power Producers (IPPs).
The power crisis between 2012 and 2016 also worsened the situation as many of the agreements signed were structured on a “take-or-pay” basis, compelling the government to pay for power regardless of actual consumption. This arrangement, combined with inefficiencies in revenue collection, technical losses, and tariff structures that did not reflect the true cost of power generation, led to the accumulation of substantial debts.
As of 2015, the Chamber of Petroleum Consumers (COPEC) estimates that the debt has hit $2.2 billion. The then government saw the need for something to be done, and hence, through the philosophy of burden sharing, a levy was introduced.
ESLA to the “Rescue”
By 2015, the situation had become critical, prompting the introduction of the Energy Sector Levies Act (ESLA). This legislation aimed to consolidate various levies to address the sector’s financial challenges. ESLA generated quite a significant amount of funds that could have helped to address the situation.
Despite generating substantial revenue, the levy could not achieve its intended objectives. Several factors have contributed to its shortcomings:
- Diversion of Funds Through Collateralization: In 2017, the establishment of ESLA PLC led to the securitization of ESLA revenues, diverting funds from directly settling legacy debts to servicing bonds. This shift meant that proceeds were used for recurring debt servicing rather than reducing the principal debt, undermining the original purpose of ESLA.
- Misapplication of ESLA Proceeds: Sector players also reveal that the funds generated under ESLA were sometimes allocated to non-energy-related expenditures. For instance, in 2019, approximately GHS 600 million was used to settle pension arrears, and GHS 61.5 million served as a Partial Risk Guarantee, both actions contravening ESLA’s legal requirements and depriving the energy sector of necessary investments.
These and many other factors contributed to ESLA, a levy that promised to wean Ghana’s energy sector of its debt overhang failing to achieve the objective.
Current State of the Legacy Debt
From $2.2 billion in 2015, Finance Minister Dr. Cassiel Ato Forson reveals that Ghana’s energy sector debt currently stands at $3.1 billion. He indicates that approximately $3.7 billion is required to clear all arrears.
Interestingly, Minister for Energy, John Jinapor, reveals that the Electricity Company of Ghana (ECG) alone owes about GH¢80 billion, which is even above the total legacy debt in dollar terms. This signifies a very troubled energy sector that needs rescue. This alarming situation prompted Energy Minister John Abdulai Jinapor to emphasize the urgency of implementing drastic measures to prevent a financial collapse of the sector.
The New Levy – Will it be the End of the Road?
In response, President John Dramani Mahama’s administration has outlined a comprehensive strategy to address the crisis, including an amendment of the Energy Sector Levy.
Parliament passed the Energy Sector Levy (Amendment) Bill, which introduced a GHS1 levy on a litre of petroleum products. The objective is to raise an additional GHS5.7 billion to support the energy sector, specifically to reduce the country’s growing energy debt and ensure a stable power supply.
This new levy has been met with mixed reaction from the general public due to the experience from the ESLA introduced in 2025. The fear is that there is no guarantee that this levy won’t be diverted to fund other tangential projects, leaving the core purpose of its introduction.
Won’t Ghanaians, in the near future, be asked to pay more levies to solve the same old problem?
Aside from the fear of diverting from the core purpose, one other criticism raised is that the rate of GHC 1 per litre is too high considering that Ghanaians just had a respite few weeks ago. Industry player Dr. Steve Manteaw is proposing 25p per litre or GHC 1 per gallon.
He is also calling for a robust accountability mechanism that will ensure that the proceeds are not abused and misapplied.
The Bottom Line
It is a no-brainer that Ghana’s energy sector legacy debt remains a significant threat to economic stability and national development. While the government’s ongoing reforms, ranging from audits and tariff adjustments to renewable energy investments, present a promising roadmap, it is crucial that the Energy Sector Levy is used strictly for its intended purpose: to settle the legacy debt once and for all. Ghanaians have already borne the cost for years, and it would be unjust to ask them to pay again in the future for the same burden.
