A number of legislators have launched a barrage of criticism at government for entering into an on-lending loan deal with the Electricity Company of Ghana (ECG) that will see the state-owned power distributor pay about US$54million in interest to government on a US$60 million concessionary facility intended to enhance the efficiency of the power distributor within a 17-year period.

The criticisms, ignited mostly by members of the minority in the legislature, follow Parliament’s approval of an on-lending agreement between the government and ECG for about US$60m secured from the International Development Association (IDA) under the Ghana Energy Development and Access Project (GEDAP).

According to the Finance Ministry, in line with the government’s debt management strategy, government intends to on-lend the entire facility to ECG under the following terms: loan amount of about US$60million at an interest rate of 5.3percent per annum, a service charge of 0.75percent per annum on withdrawn balance.

Others include a commitment charge of 0.5percent per annum on the un-withdrawn balance, a grace period of five years and a repayment period of 17 years.

Prior to the passage, the ranking Member of the Finance Committee of Parliament, Dr. Anthony Akoto Osei raised concerns over the five percent interest the ECG would have to pay government on the facility.

He explained: “We are getting a loan at 1.25 percent and we know that ECG is not in the best shape but government is on-lending to ECG at 5.3percent, that’s too much. That is the reason ECG is in trouble- government owes them money it has not paid yet.

“I want to know the reason why ECG should pay much higher, that is, four percent over what government is getting it for. I think it is unfair. They (ECG) are in this state partly because of government unpaid bills.”

He added that in practice, the ideal situation was for government to borrows at 1.25 percent and on-lend at the same interest.

But per the arrangement, government gets to charge the ECG more than double the interest on the original facility.

The accumulated interest on the on-lending facility will cost the ECG about US$54.06 million, while it will cost government approximately US$18.75m to service the facility; meaning a difference of US$35.31m.

Nevertheless, the Deputy Finance Minister, Mona Quartey explained that ECG is in a position to repay the loan explaining that the on-lending agreement come at a fee for government for handling the risks associated with the loan.

In 2007, government initiated the Ghana Energy Development and Access Project (GEDAP) at a total cost of US$296.83million. The purpose of the GEDAP is “to improve the operational efficiency of the electricity distribution system, increase the access to electricity and to help transition Ghana to a low-carbon economy through the reduction of greenhouse gas emissions.