Utilities to follow, as IMF pushes for full cost recovery

Ghanaians should expect to pay more for petrol, water and electricity by the end of this month.

They should also expect another increase in prices of petroleum products, water and electricity by the end of April 2004.

The increases are inevitable as they are part of stringent conditions the Kufuor government has to meet in order to receive more funds from the International Monetary Fund (IMF).

Petroleum product prices should have gone up last August, while that of water and electricity should have been adjusted in July but government was unable to do so because of fears of provoking social unrest.

However, in October and November 2003, when government felt the tension had gone down, electricity and water tariffs were quietly pushed up by six per cent and ten (10) per cent respectively. These were, however, not enough to enable the two companies cover their losses. IMF estimates that as at October 2003, petroleum prices were about seven per cent below full cost recovery levels. The Fund is pushing for "full cost recovery" at all cost, this year, through an automatic price adjustment mechanism.
Government and the Fund hope that with money from the World Bank, the utility companies can improve their output, thereby mitigating expected backlash from the increases. The assumption is that, once consumers are happy with the services, they would be ready to pay higher tariffs. Government is also expected to embark on a "public awareness" campaign.
The IMF, unhappy with government's inability to put up prices so as to ensure that the Volta River Authority (VRA), Ghana Water Company and the Tema Oil Refinery recover their full cost of operation, has made these a condition upon which further funds would be disbursed to the country. The three institutions are monopolies and the IMF is pushing for automatic price adjustments, as "price liberalization is not an option". "Rigorous implementation of the automatic price adjustment formulas for petroleum, electricity and water will be essential for successful programme implementation," said IMF documents available to Public Agenda.
VRA owes Ivorian electricity company and the strategic reserve plant owners US$35million.
Ghana's history of not going according to the dictates of the IMF has resulted in a situation in which monies agreed to be lent to the country over a period of three years is disbursed in piecemeal to squeeze compliance to all written conditionalities.
Government has to show it has carried out all that it has agreed on with the IMF before any more money is released. While the IMF is pushing for government to get Ghanaians to pay more, it is discouraging government from paying its employees more money. The IMF has warned government to resist any political pressure to increase workers' wages.
"Ghana has a history of poor financial discipline in election year," noted the IMF report. The report further noted that "authorities will need to resist possible political pressures to depart from their proposed expenditure framework". It singled out, particular pressures "with respect to the civil service wage bill, which is already disproportionately large by international standards."
Last year, government was forced to offer a 22 per cent wage increase to civil servants because cost of living had escalated following the steep increases in the price of petroleum products. This, however, did not go down so well with the IMF mission which visited the country in September 2003. Their report said they "viewed the substantial rise in the wage bill as a cause for concern."
The Fund's position notwithstanding, civil service workers could expect a marginal wage increase of around 19 per cent.
Government is also to introduce the National Health Insurance Levy, which is a two and a half per cent increase in the Value Added Tax by the middle of the year.
Government is also expected to achieve a single digit inflation this year, down from 22 per at the end of 2003.
The IMF and donors are also pushing for "civil service reforms, energy sector restructuring, reform of land registration and measures to strengthen governance."
Another thorny issue the government has to deal with in order to please donors, it to find a way of getting Ghana Commercial Bank (GCB) off its hands. The Fund and government had agreed to dispose of the GCB by September 2003.
Government last August abandoned plans to sell off the bank to a strategic investor because of intense political opposition from civil society groups among others. The Fund saw this as a "missed opportunity" and has not ruled out the eventual sale of the bank. "In the long term, divestiture remains the best solution for GCB's problems, and should be considered again when circumstances permit," it noted.
Government has already dropped hints that it intends to raise money by floating its shares on the stock exchange. What it failed to mention, however, is that as it did in the case of Ghana Telecom, it is obliged to develop a management contract for the bank. Government however does not think it would be "politically feasible" to implement the management contract this year as it is an election year.
Until this is done, the Fund has placed a ceiling on the Tema Oil Refinery borrowing money from the bank. Ninety per cent of the TOR debt is owed to GCB.
IMF and Government of Ghana documents available to Public Agenda indicate that the main structural conditionalities for this year, which would be captured in the 2004 budget are; ensuring that petroleum, electricity and water tariffs are automatically adjusted at least every quarter, capping further borrowing by TOR from the banking system, improving governance of GCB and clear arrears between utilities and government.

The 2004 budget is projected to have a financing gap of about $60 million, which is expected to be filled by borrowing from donors, leaving the government even more vulnerable to external pressures.

The country expects a modest real GDP growth of 5 per cent.

Political implications

Government, according to the IMF, is determined to implement these tough measures irrespective of it being an election year. The political implications could be grave given that the New Patriotic Party won the 2000 elections by a slim majority. In fact, they failed to secure an outright majority in the first round and only made it after opposition minority parties backed them in the run off.

The fallouts from implementing these decisions are going to be hardest on the masses of Ghanaians, about half of the population, who live below the poverty line and are struggling to earn a living.

For them food, a decent shelter, education and good health remain a luxury.

No Price Increase In Petroleum Products, Utilities, Says Ministry

THE government has given the assurance that there will be no increases in the prices of petroleum products and utility services this year.It said due to the reasonable level of the Akosombo lake, efficient programme of the Volta River Authority (VRA) and the Electricity Company of Ghana (ECG), coupled with the arrangements to ensure stable petroleum prices, there would be no need to increase the prices.
These were contained in a press statement issued by the Ministry of Energy in Accra yesterday. It was in reaction to a publication in an Accra weekly to the effect that there would be increases in the prices of petroleum products and utilities.The statement said the publication, which had generated a lot of debate in the electronic media, quoted its source from a release issued by the External Relations Department of the International Monetary Fund (IMF).
It said Ghana, like other countries, faced the risk of fluctuations in the price of crude oil on the international market.“The ministry wishes to remind all that the Public Utility and Regulatory Commission (PURC) has a responsibility to determine price adjustments for the utility companies”, adding, however, that, “the ministry wants to assure the public that the government is doing everything possible to keep prices of utilities in check.”