President John Dramani Mahama has justified the need for more taxes to be imposed on Ghanaians to pay for debts owed by public institutions.
According to President Mahama, though he does not enjoy slapping taxes on Ghanaians, the hard decisions have to be taken in the interest of the country.
He was responding to a question about the numerous taxes imposed on Ghanaians from December 2015.
The President’s justification suggests that anytime state institutions accumulate debts, Ghanaians will be taxed to pay the debt, something that must be resisted by citizens.
What President Mahama said on taxes on fuel
“Our major institutions have accumulated lots of debts, which is choking VRA, ECG.
“VRA owes virtually every bank in the country. If we want a sustainable power, we have to deal with that debt.
“I don’t have that money; if I had, I will pay somewhere.
“God has blessed us with a reduction in oil price so government can add taxes on the price of fuel so we can pay the debt.
“I don’t see anything wrong with what we have done. The taxes are also going into roads, which will create jobs.
“It is a re-investment; it is just like recycling our own money. 70% of our people don’t file tax returns.
“The only way you can get everybody to contribute is indirect taxes. The increase is hitting us the users of private vehicles.
“If you use private vehicles, you pay more; but if you took trotro, 15 of you use the same fuel and pay less”.
Crude oil at $30.66 per barrel
The taxes justified by the President have made Ghanaians to pay over $4 per a gallon of fuel as against the less than $2 per gallon citizens of United States of America pay.
Crude oil prices continued a relentless dive early on yesterday, falling almost 20 per cent since the beginning of the year as analysts scrambled to cut their 2016 oil price forecasts and traders bet on further price falls.
U.S. crude West Texas Intermediate (WTI) was trading at $30.66 per barrel at 0531 GMT on Tuesday, down 75 cents from the last settlement and about 20 per cent lower than at the beginning of the year. Earlier, it traded at $30.60, the lowest since December 2003.
Brent crude futures fell 83 cents to $30.72 a barrel.
New tax on petroleum products
Power generation and infrastructural support tax imposed on prices of petroleum products to pay for debts in the power sector is expected to generate GH₵1 billion.
In view of the generally poor remuneration levels in the country, it is wrong for government to impose taxes to pay for debts resulting from inefficiencies of state institutions.
GH₵4.5bn debt in power sector
Debts in the power sector alone amount to some GH₵4.5 billion, according to Haruna Iddrisu, Minister of Employment and Labour Relations.
But the question is, who is responsible for creating the debt and why should petroleum products be taxed to pay for electricity?
MDAs owe ECG GH¢1.2bn
The debt government owes the Electricity Company of Ghana (ECG) as a result of power consumed by Ministries, Department and Agencies (MDAs), as well as other state institutions, is estimated to be GH¢1.2 billion.
Individuals using post-paid meters are disconnected by ECG anytime they owe, and therefore why should the same citizens who pay their electricity bills be taxed to pay for power consumed by MDAs and other public institutions?
ECG’s $150m cumulative losses a year
ECG’s cumulative losses per annum amount to some 30%, which translates into about $150 million losses a year.
Due to government’s inability to pay for power consumed, the ECG, which is the interface between power generators and consumers, as it is the sole distributor of power in the country, is highly indebted to Ghana Grid Company (GRIDCo) -- the country’s only power transmission operator -- which also owes VRA, the main power generator, and other independent power producers.
As of last year, the debt that government owes the Electricity Company of Ghana (ECG) as a result of power consumed by Ministries, Departments and Agencies (MDAs) as well as other state institutions was not available; but anecdotal evidence, as provided by workers of ECG, VRA and GRIDCo in a joint statement issued in January last year, suggests that the state owes the power distribution company in excess of GH¢1.2 billion, which constitutes about 62 per cent of the total debt owed the ECG.
The quantum of outstanding arrears to the ECG is reported to have resulted in underinvestment for energy distribution facilities, aggravating the challenge of system losses -- currently at around 25%.
Every quarter, government agreed to pay GH¢36 million to clear the debts.
Govt should bailout VRA
As of July this year, VRA owed banks to the tune of over $1.3 billion, and it will be very difficult for VRA to secure a loan from any bank in Ghana to pay its debt to N-Gas.
This means the Government of Ghana, which is the 100% owner of VRA, will have to look for money to bailout VRA to ensure that N-Gas does not cut supply to Ghana.
Ghana gets about 25% of power through gas from Nigeria, which flows through the West African Gas Pipeline via Benin and Togo, and the threat by N-Gas to reduce volumes by 70% would have raised the cost of supply.
VRA’s power generation problems are a sign of the budgetary stress facing Ghana, a country that is following an International Monetary Fund programme to restore fiscal balance.
The power crisis stems from a fall in supply from hydro sources, government underpayment to the Electricity Company of Ghana, residents’ illegal consumption and tariffs too low for VRA to recoup its costs.
Causes of VRA’s debts
The indebtedness is the result of ECG, Independent Power Producers (IPPs) and the Volta Aluminium Company (VALCO) to pay VRA for services rendered, as well as the unrealistically low tariffs sanctioned by the Public Utilities Regulatory Commission.
Even though ECG has signed power purchase agreement with IPPs, it has failed to do same with VRA despite persistent pressure from VRA in the last four years.
The sources noted that one of the reasons ECG has persistently failed to sign the power purchase agreement is a clause in the agreement which demands that ECG pays outstanding debts with interest.
ECG argues that consumers of electricity do not pay outstanding debts with interest; therefore it cannot do so to VRA.
For this reason, the sources said ECG usually pays IPPs first before considering paying VRA and Ghana Grid Company (GRIDCo).
According to our sources, consumers pay ECG in cedis but ECG has to pay IPPs the dollar equivalent of power purchased using prevailing exchange rate as stated in the power purchase agreement.
This, the sources said, takes a large chunk of ECG’s money, for which reason ECG is unable to settle its debt to VRA since about 40% of power ECG purchases goes to government institutions, which do not pay bills.
Despite the huge indebtedness, VRA cannot cut supply to ECG because of its strategic nature.
In addition, the sources noted that VRA supplies fuel to the IPPs in the country.
However, the IPPs have failed to pay for the fuel with the explanation that ECG has not paid them in full, and since ECG and VRA are state institutions, VRA should collect the fuel money from the money ECG owes them.
Despite this challenge, VRA continues to supply the IPPs fuel because failure to do so would result in huge deficits in power supply.
Consequently, VRA has borrowed money from numerous banks just to keep generating power for the nation.
Now, most of the banks are reluctant to lend to VRA because of the huge indebtedness.
The government in 2013 settled arrears in tariffs owed by the Ministries, Departments and Agencies (MDAs) to ECG and instructed the MDAs to pay their own utility bills thereafter.
The sources said, for this reason, anytime VRA requests money from the Ministry of Finance and Economic Planning to purchase crude, the ministry replies that MDAs have been given money to pay their light bills and, therefore, ECG should be able to collect the money and pay VRA.
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