The Minister-designate in charge of Finance has been caution by the Institute of Energy and Climate Change Policy (IECP) his not to increase utility and fuel prices in the short-term.
In a press release signed by the Director of Research and Policy, Dr. Philip Kofi Adom, the think-tank says the interference might not be the best way to go in bringing relief to consumers.
“IECP believes that if electricity tariffs should come down, it should be done by the invisible hand of the market and not the visible hand of the government,” the statement said.
Read the statement below
Halting Utility Prices a Dangerous Path
The Institute of Energy and Climate Change Policy (IECP) has noted with concern, the decision by the nominated minister of finance not to increase utility and fuel prices in the short-term.
This interference might not be the best way to go in bringing relief to consumers. For a very long time in the history of the country, energy security, particularly in the electricity sector, has been a major problem.
Both inadequate supply and increased demand have been the main underlying causing factors, albeit the latter has received very little attention.
On the supply-side, the major causes have been the below marginal cost pricing and insecurity in fuel supply, particularly gas supply. The below marginal cost pricing arose due to governments effort in the past to provide a budgetary relief to end-users of electricity.
This has, however, created a dual problem in the electricity sector. First, the move has deteriorated the financial position of the utility companies, which has culminated into the huge debt the utility companies face; a problem we are still confronted with and have to deal away with as a country.
Second, the decision by government to provide a budgetary relief via a visible hand made end-users of electricity irresponsible; this increased energy wastage and deteriorated energy conservation.
We do not know how short the short-term will be, but nonetheless, IECP believes that halting prices in the electricity as proposed by the nominated finance minister will further worsen the financial position of the utility companies and deteriorate energy conservation during that proposed short-term.
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We do also agree with the new government’s proposal of lower electricity tariffs; since this will both enhance productivity and create pocket relief for households for other spending activities.
However, IECP believes that if electricity tariffs should come down, it should be done by the invisible hand of the market and not the visible hand of the government.
The market must be allowed to operate even in this difficult times. Rather, there is the need to have a second look at the current block pricing structure adopted by the country, which seems to be a biased parent.
Apart from the fact that it penalises the industrial sector (the productive sector) more in favour of the residential sector (the consuming sector), it provides no incentive for good behaviour.
As a consumer, I must have the assurety that if I exhibit good behaviour in the past month, I will be rewarded meaningfully in the present month.
Having a pricing structure that incorporates this incentive will not only drive the incentive to be energy efficient among end-users but also drive the general electricity tariffs down.
Dr. Philip Kofi Adom
Director of Research and Policy (IECP)
Contact: 0246763661 email:[email protected]