MCC confirms tax exemption on Ghana’s compact

Business News of Tuesday, 10 March 2015

Source: Graphic Online

Terkper Mahama MCC

The Millennium Challenge Corporation (MCC) has admitted that the US$500 million support to Ghana’s energy sector has a tax relief element but explained that such reliefs are synonymous with all donor funded initiatives, including the compact.

So far, the corporation has given out some US$9 billion as MCC support to different countries world wide and its Resident Country Director, Ms Deidra Fair James, explained in an interview that each of those compacts included tax exemptions and reliefs. The total amount was disbursed under 30 different compacts, Ms James said.

“Every single one including the first compact and one of the philosophies around this is that if we are granting money to solve a problem then every dollar should go towards solving that problem. It’s important to note that for instance on MIDA salaries and with the companies that do business they still have to pay taxes so the tax exemptions are focused on the goods and services that come in,” she said.

The MCC Compact

Last week, this paper’s lead story focused on the estimation by the Public Utility Workers Union (PUWU) and the Public Services Workers Union (PSWU), both affiliates of the Ghana Trades Union Congress (TUC), that the MCC compact would occasion a loss of about US$133 million in tax exemptions offered to private sector participants..

The focus of the compact, which was signed in August last year, will introduce independent power producers and private distributors in electricity supply, as well as the privatisation of the Electricity Company of Ghana (ECG).

As part of an effort to address power generation and supply challenges in the country, the government signed the second MCC Compact dubbed: “Ghana Power Compact” which sought to double the access to power, improve the energy sector with special attention for scaling up Private Sector Participation (PSP) in ECG.

According to Ms James, Ghana had been a partner country since MCC was founded in 2004, with the first focusing on agric and transportation, and that in 2011 Ghana was selected to develop a second compact with a focus on the power sector.

This she said was borne out of a collaborative engagement and partnership with the government and shared desire not just to manage the power crisis but to solve it.

She said the MCC was oriented such that partner governments were responsible for developing and implementing the compact.

Therefore, in 2012, the government after consultations, made a proposal to MCC for the programme, while it emerged there was need to come out with an efficient, commercially and operationally viable distribution. The compact focused on transforming the sector and providing reliable electricity to businesses and consumers.

“The issue of efficiency and being able to bring in capital came in front and centre because the issue was normally attributed to generation but there are issues up the chain that impact generation. Focusing on fundamentally improving the distribution company’s utility and how it is managed is key,” she said.

Ms James said although the largest part of the money went to distribution, it also looked at generation and strengthening the framework to improve the generation capacity in the country.

Specifically, she said it also looked at how to build capacity of the regulator to improve its ability to monitor the utilities and also set fair prices for electricity consumption.

“Also looking at demand side efficiency, we focused on government buildings and how to make them more energy efficient and how to ensure that Small and Medium Enterprises (SMEs) in particular have access to electricity,” she said.

Govt’s indebtedness to ECG

The Resident Director agreed that government should settle its debt owed to the ECG which stands at about GH¢1.25 billion, more than 62 per cent of ECG’s total debt.

“And that is why government needs to pay it arrears to ECG to have a functioning system. This is key so we agree with that. We do encourage those efforts to revitalise the company and to push towards improving collection and being efficient,” she said.

She said the compact did not only seek to support but there was funding in the compact to improve the systems, such as enterprise resource systems, billing, customer management systems and upgrading infrastructure in order to help with its drive to reduce commercial, technical and collection loses.

She emphasised that although ECG was able to raise some financing, it also needed is long-term financing.

According to her, there was a lot to be gained from partnering with institutions or companies that had run successful utilities in similar circumstances and that it was evident that when private sector and commercial operating principles were injected into utilities it resulted in a reduction of losses and improved the financial situation in these companies.

“So we are saying that yes the measures that are taking place are important because everyone agrees that there is a crisis situation but we are also looking at how to take this to the next level to really ensure that consumers in Ghana are getting world-class service,” she said.

The compact and its PSP

Ms James denied the compact’s PSP was focused on hiving off ‘juicy’ areas and explained the compact was looking at corporate-wide ECG, urban and rural.

However, she said the proposals in 2012 did talk about hiving off Tema as pilot but the final programme was looking at ECG in totality.

She added that there were consultations involving all stakeholders leading to the final compact to ensure that Ghana availed itself of lessons learnt and that it was a public document.