Dr Apetorgbor: Remove VAT on electricity consumption

Dr. Elikplim Kwabla Apetorgbor, a Power Systems Economist is recommending the removal of Value Added Tax (VAT) on electricity consumption and supplies to the Electricity Company of Ghana as well as the indexation of tariffs to exchange rates.

He is also calling for the enforcement of operational efficiency, optimising natural gas utilisation, and leveraging idle generation capacity for regional exports.

These measures, he believes, would improve financial stability across the electricity supply value chain while enhancing competitiveness and sector sustainability.

The power sector in Ghana faces a dual challenge such as unaffordable electricity for consumers and lack of financial sustainability across the value chain.

ECG’s inability to meet its financial obligations to generators, transmission companies, and suppliers is a result of non-cost-reflective tariffs approved by the Public Utilities Regulatory Commission (PURC), high operational inefficiencies and energy losses, exposure to currency depreciation without mitigation mechanisms, and unfavorable fiscal policies like VAT on electricity and supplies to ECG.

The cumulative impact of these challenges threatens the sustainability of Ghana’s power sector.

According to Dr. Apetorgbor, experiences from countries like Nigeria, where poor tariff structures led to the collapse of privatised utilities, and Kenya, which achieved substantial reductions in losses through operational reforms, highlight the importance of addressing these systemic issues with urgency.

He said VAT adds significant costs to ECG’s operations without direct benefits to the sector, and therefore eliminating VAT will allow ECG to retain more revenue, providing space for PURC to adjust tariffs upward for full cost recovery.

He cited an example in Rwanda which removed VAT on electricity for industrial users in 2019, enhancing sector productivity and improving cash flow for the utility.

On index tariffs to exchange rate fluctuations, he pointed out that ECG’s obligations under dollar-denominated Public Private Partnerships leave it vulnerable to currency depreciation.

Therefore, an automatic tariff adjustment mechanism is necessary to protect revenue stability, citing South Africa which implemented quarterly automatic tariff adjustments in response to exchange rate fluctuations, stabilising utility finances.

This he believes will protect ECG’s revenue from currency depreciation.

Source: Joy Business