A time with David
David Ampofo, a seasoned journalist, brings to Graphic Business transcripts of some of his interviews from the Ghana Business Documentary. This week’s interview is on the power sector, challenges and electricity traiffs which features Dr Charles Wereko-Brobbey, former Chief Executive of Volta River Authority.
David: You were initially opposed to a tariff increase. What made you change your mind?
Wereko-Brobbey: No, I said that shouldn’t be the focus of the discussion. As far back as 15 years ago, I said if you think electricity is expensive, try candles. The issue of tariffs, in terms of the actual cost of delivering energy, has never been for me of interest or focus.
Unfortunately we’ve just been through one year which has reestablished that fact. If you had to use candles or generators, you know that you’ve had it quite cheap. But – when you go and buy a product, you expect it to be fit for the purpose. The debate has been totally misconstrued. The second level is this: if you focus everything on VRA, VRA is only the producer.
Right now VRA is taking the lead in shaping this debate, but there’s ECG – if it gets its way will charge us three times what it’s charging us now. As an end user that is where the important thing is. I want the debate to focus on the quality of service. I’ve been a chief executive before – give us the money and we’ll do better.
David: Do you feel the issues of quality have come up?
David: Increased tariff, better service – which comes first?
Wereko-Brobbey: If you grant tariff increases today, it will take three or four months to work its way in terms of revenue. And the consumer will simply say – we told you so. We’re paying the right tariff and it’s not there. Here is my suggestion: government through different mechanisms, does support the production of power, and tries to ameliorate the costs to the end user. This is how we can do it: government can bring its support upfront, buy crude oil for VRA, so that VRA can begin to producer and deliver a reliable quantum of power.
David: You mean before you increase the tariff?
Wereko-Brobbey: No. As part of the tariff increase a simultaneous action. With a tariff increase you have to realise that VRA will wait three months to get its money, but the country can’t wait three months. Government pays something called lifeline tariff – the idea was that you don’t just make power available to people, it should also be accessible. The problem we have here is that the poorest people in society live in houses where you have 30 families per unit – compound houses. You give them the access level supply – 50kwh – so you have 30 families sharing 50kwh, which is nothing. I live in this palatial place and I get 50kwh, and it helps me more than it does those in compound houses.
David: How do you fix that?
Wereko-Brobbey: You simply abolish it.
David: And replace it with what?
Wereko-Brobbey: Normal tariffs. Because the people you’re trying to help don’t even get it.
David: So you suggest we abolish the lifeline tariffs?
Wereko-Brobbey: There are two ways you can use this thing: targeted subsidy – if you’re in a certain income bracket you can be given a coupon. What I’m saying is bring it up front, give it to VRA, Gridco, so they can use it. VRA’s biggest problem is crude oil purchase. So if you take that money from the end use – who is not getting it – and give it to VRA that immediately has an impact on the bulk supply tariff. And the end user tariff.
David: But you are record to have said government should pay VRA and stop buying it crude.
Wereko-Brobbey: Government subsidises, whether you like it or not. It can do it for three months. When the revenues of VRA start coming in, sufficiently for them to do things by themselves, then you back off. It’s like trying to kick start a car whose battery has died. You need to crank it up. By the time you get to Techiman, the battery is charged up. And that is something you have to look at.
David: What are the major challenges facing the power sector?
Wereko-Brobbey: There are two. We lose our guard as soon as load shedding stops and that’s where we get this cyclical five year thing. We’re not planning our power sector to deliver as the agency for value-added and economic development. We’re using our power sector primarily as for drinking beer and enjoying ourselves. That is why we have a power tariff structure which actually makes if cheaper for people to drink beer than for industry that adds value to our products.
David: How much more?
Wereko-Brobbey: It pays much, much more than you and I.
David: And that shouldn’t be the case?
Wereko-Brobbey: And that should never be the case. If you want to become rich, develop economically and add value, you’re not going to do it by selling cocoa on the side street. You’re going to take your natural products and then add value. To do that requires power. There’s a direct correlation between a country’s socio-economic development and the amount of energy it puts in. If you want to create wealth, give the incentives to those that create wealth.
David: So it’s the use to which you put it.
David: Whats the second thing
Wereko-Brobbey: The second is what I call – too many chiefs create power cuts. We have a system whose capacity is around 2 400MW. There are eight institutions working in this. Eskom – South Africa – produces 50% of the whole of Africa. It has 50 000MW installed capacity – and it is one organisation.
David: Maybe what works there doesn’t work here.
Wereko-Brobbey: No – look at economies of scale. Here everyone pretends – that they’re Cadbury competing against Nestlé. They don’t understand that the sum of the parts must be greater than the whole. That Gridco, VRA, ECG and all of them coming together must deliver good quality power to you and I. and for me it’s such a small system, it doesn’t justify so many players.
David: You’re saying we should go back to where we were before the power sector reforms were introduced
Wereko-Brobbey: No. let me tell you what happened with the reforms. Everyone who came to work under the reforms wanted to sign a PPA with VRA. Then you had challenges with payments, etc. It’s a situation where we should have allowed the sector to grow. Because even the IPP’s that came – they weren’t prepared to go into the unregulated market where they could sign contracts with mining companies, etc. everyone wanted a PPA with VRA. So the purpose for which you were trying to engender competition is defeated. You need first of all to get cohesive thinking. Gridco in its present form is nothing more than the transmission department of VRA. If you turn Gridco into an independent system operator which does all the planning, purchases from producers, sells wholesale to all the wholesale sellers – then you’re getting somewhere.
David: But the transmission system has seen investment, that probably wouldn’t have happened were it a department of VRA.
Wereko-Brobbey: Not true. All the investment we’re seeing are projects that were planned. Look at where transmission’s money is coming from. It’s being underpinned by VRA’s credibility.
David: Is VRA really on the brink of collapse?
Wereko-Brobbey: I don’t think so. People cry wolf all the time. Government has paid off most of its debts.
David: So how serious is the situation?
Wereko-Brobbey: It’s not serious. There are issues of principle here and we need to be careful about how we look at them. VRA tries to operate like a private sector company. So it says I want a rate of return that enables me to plough back my profit into new development.
David: That’s good, isnt it?
Wereko-Brobbey: No. the reality is – VRA didn’t pay for Bui – government did. It didn’t pay for the thermal development at Tema either.
David: But they’re not seeking a tariff just for that.
Wereko-Brobbey: No, there’s a philosophical difference between working on cost plus and working on rate of return. Rate of return means you’re putting money aside for a future use. Now the reality on the ground is that all VRA’s major investments are funded by government.
David: It’s entitled to an increase but not as much as they’re asking?
David: Should government be involved in this?
Wereko-Brobbey: If you look at any developed country, government has been at the heart of the power sector, until you reach full accessibility, then you begin to introduce private participation.
David: What do you mean full accessibility?
Wereko-Brobbey: The whole population.
David: But isnt that the purpose of bringing in IPP’s?
Wereko-Brobbey: No it isn’t. If you bring in the private sector and say you go and look for your market. Nobody would go to Wale Wale. It has to do with density and the ability to recover your money; people should pay a lot more for power. A stick of candle is 30pesewas – 15c US. That’s why I said let’s not focus the discussion on tariffs. Because as far as the tariff levels are concerned, we’re not paying enough. I’ve just written an article, with the title “Compared to what”.
If you think power’s expensive, compare it to the alternative. What the villagers have to cope with – kerosene. Bad illumination, high cost. So the tariff issue is not really there. But the point is, if I’m willing to pay more, I should pay more. Then I’ll expect that I get good quality power. So this is where the debate has to be.
Last week I had to buy a tanker load of water. I paid 80GHc. That’s one third of my normal annual bill. Go talk to the people of Adenta – they’ve been buying water for 30 years. If you tell them that water is expensive, and it’s coming through their pipes, they’ll think you’re crazy. So let’s structure the argument properly.
David: Thank Dr Wereko-Brobbey