As originally planned, the Energy Sector Levies Act (ESLA) was introduced to insulate the financial sector from legacy debt in the energy sector and help bolster the real sector of the economy – which the Akufo-Addo government must stick to, former Finance Minister, Seth Terkper has said.

Speaking to the B&FT during a telephone conversation on a wide range of financial sector issues, Mr. Terkper said: “The ESLA and refinancing of VRA’s legacy debt was a pragmatic way of preventing impacts of the energy and road sector debt from contagiously affecting depositors’ funds, jobs and causing a meltdown of the Ghanaian economy – which in 2015 was just emerging from the energy crisis caused by damage of the West Africa gas pipeline and disruption in gas supply from Nigeria”.

The ESLA, he said, was a tripartite agreement that improved the Non-Performing Loans (NPL) situation in 12 domestic banks.

However, he noted: “We are seeing the contrast in allowing some banks to fall and others forced into a consolidation programme. Big is not always beautiful in this context, because the global financial crisis also coined the term “too big to fail”, when it came to the question of allowing bigger banks than Lehman Brothers to also fall.

Already, he argued, the fiscal cost in the form of levies (ESLA) and loans has been heavy, while the impact on the real sector from job losses is also real.

“Given the strong ESLA inflows, we still have an opportunity to redirect the levy to the core business of resolving the real and financial crisis,” said Mr. Terkper, who has not been shy of letting his views on the economy be known since leaving office in December 2016.

“We can do this by removing impediments such as the ESLA ‘cap’ and mainstreaming its flows, to focus better on the NPLs emanating from the energy, road and other sectors. The banking sector also needs the ESLA inflows, and therefore we must revert to paying principal plus interest for all ESLA-backed loans or bonds,” he said.

The ESLA, Mr. Terkper said, is a crisis resolution tool for State-Owned Enterprises (SOEs), Non-Performing Loans (NPLs) and arrears to suppliers such as the N-Gas, Sunon-Asogli. It was also to be used for improvement in rural electrification and public lighting; stabilisation of petrol pump prices; an enhanced levy for the Road Fund to clear arrears to contractors and counterpart banks.

The Act was a “smart-borrowing” initiative under the Home-Grown Policies that Cabinet and Parliament approved in the 2013 and 2014 Budgets, he said.

According to Mr. Terkper, the Finance Ministry setting up ESLA plc in 2017 as a quasi-fiscal agency “seems to compromise the non-classification of SOE debt as public debt”, and in contrast the innovative 2015 ESLA mechanism ‘ringfences’ the inflows to pay debt on SOE balance sheets — through a mandatory “escrow” or debt service account (DSA).

This, he said, was to avoid the ‘bullet’ risk associated with the 2007 Sovereign Bond and use of the Sinking Fund to pay over US$500million of petroleum revenue between 2014 and 2017 to redeem the maturing US$750million debt.

He said there exists a potential to use the ESLA Act, 2015 [Act 899]) to substantially resolve the ongoing banking or financial sector crisis.

The ESLA, he said, is to among other things ensure the financial viability of energy-sector State-Owned Enterprises (SOEs), facilitate investments in the sector; and mitigate against market, credit and liquidity risks of energy sector SOES and their counterpart creditor banks.



“The 2017 ESLA report repeats the goal of using ESLA for leveraging the markets to resolve the adverse direct and indirect impacts of debt to creditors and counterpart banks.

“The debt overhang also increased the exposure of those institutions to credit and liquidity risk, and consequently impacted significantly on the balance sheets of their counterpart creditor banks. To address these challenges, government passed the ESLA in December 2015 – with full implementation beginning in 2016,” Mr. Terper explained.