Theo Acheampong Responds to Craig Murray

Editor’s Note: Theo Acheampong Co-Founder and CEO of Africa Economics LLC, writes a rejoinder  in response to Craig Murray, former deputy Ambassador to Ghana who believes that USA and the IMF’s privatisation agenda the nation’s energy sector will ruin Ghana.
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Just read Craig Murray’s article titled “IMF and USA set to ruin Ghana” and though he – as a former Deputy British High Commissioner to Ghana and an insider – makes some interesting points about the neo-colonialist agenda of the Bretton Woods institutions; he misses most of the points about the electricity sector reforms he sought to use to justify his central thesis. Privatisation and unbundling of utilities from erstwhile monolithic vertically integrated utilities can be a good thing – it is good from a socio-economic efficiency point of view and there are numerous papers I can cite to buttress this point. His evidence of the weakness of the UK electricity market juxtaposed against Ghana’s is somewhat unfounded as it fails to take into account the local context prevalent with many state-owned African utilities – i.e. gross mismanagement, high liquidity and credit risks, etc. The bottomline is that Ghana needs to generate power to catalyse economic development. The key component to macro-economic growth and development is adequate and reliable power generation capacity! Gone are the days when under-pricing of energy for consumers and lower supply side tariffs became a major harbinger to increasing the generation capacity. The root causes of the inadequate investment in Ghana’s power sector generation and distribution are all known and has very little to do with a neo-colonialist agenda. Like I wrote in a policy brief co-authored with IMANI Ghana back in January 2014, the biggest impediment in the energy sector reforms has been policy inertia and disjointed programmes and/or initiatives which aren’t backed by any concrete short to medium term blueprint, in addition to total lack of long-term and sustainable planning in the energy sector. Surely, that cannot be the fault of the IMF, or is it? We need to learn to take blame ourselves! The major challenges facing Ghana’s energy industry can be summed in the following:  growing demand estimated at 10-15% per annum coupled by supply inadequacy and unreliability of especially the distribution network (ECG loses about 20% of the energy supplied them to commercial and technical losses). Coupled to this is an extremely poor pricing framework, weak regulatory capacity and various institutional bottlenecks. Electricity production is an extremely capital intensive venture which most governments cannot shoulder by themselves given other responsibilities like having to provide for social infrastructure such as education, healthcare and national defence. Hence, why there is the need to reform the sector to attract the much needed private sector investments. As Zhang et al (2006)[1] note, energy sector reforms have tended to include the following three main elements:
  1. “Restructuring the industry in order to enable the introduction of competition. This means breaking up, or ‘unbundling’, the incumbent monopoly utilities, possibly into separate generation, transmission, distribution and retail suppliers of electricity.
  2. Privatisation of the unbundled generators, transmitters, distributors or suppliers.
  3. Development of a new regulatory framework. Instead of direct regulation by a government department, the establishment of ‘independent’ or quasi-independent regulatory bodies, in the forms of offices and commissions, has been favoured, drawing particular on the regulatory models of the USA and UK.”
With regard to the distribution side of the market, privatisation of state-utilities can take shape in many forms such as operating concessions and Greenfield investments to direct asset sales. The experience from most developing countries shows that there rarely is a complete transfer of the entire electricity supply chain to the private sector (for example as occurred in the United Kingdom). Instead, what exists are co-existential forms of private-public ownership patterns. What Ghana needs to do with regard to the energy sector is what is outlined in this interesting Millennium Challenge Corporation (MCC) Concept Paper tilted “Increasing Private Sector Investment through Power Sector Reform” and other literature. They can be summarized as:
  1. Need for an Effective Sector-Specific Legal Framework to govern IPPs;
  2. Need for Increased Transparency of Tariff-Setting Process including full cost recovery but with Effective Lifeline Provision (Social Safety Nets);
  3. Need for Gas Pricing and Allocation Policies and Regulations- Transparent and Equitable Open Access to Cheaper Gas Resources for Power Generation;
  4. Wholesale Pricing; Establishment of a Bulk Electricity Trader/Wholesale Off-Taker that Provides Credit-worthy Alternative to Government Sovereign Guarantees and a One Stop Shop for Standardised Power Purchase Agreements;
  5. Strengthen the Independence of the Regulatory Bodies and improve corporate governance protocols to ensure there is enough momentum behind the Sector Reform Process.
A review of the literature on electricity sector privatisation and reform programmes in developing countries especially shows that the success or failure of the privatisation of monopolies depends on the post-privatisation regulatory framework, which in turn is a function of the political and social system. This notwithstanding, deregulation and market liberalisation of the utilities sector have yielded overall positive efficiency improvements.[2][3][4] In conclusion, even though Government of Ghana has announced plans to privatise beleaguered state-owned power distributor ECG through a concession contract[5], I do expect government to leverage this initiative to go deepen the reforms by entrenching local content in the in all aspects of power sector related activities beyond the ex-post efficiency gains. This can be achieved through use of already existing local expertise and skills development, provision of goods and services (local participation in project bids and procurement contracts) to technology and know-how transfer backed by an active research and development programme to sustain the economic multipliers. So, the IMF and World Bank may be “bloodsucking institutions” as Craig Murray puts it, but I disagree that the electricity sector has been ruined by these institutions in the name of privatisation and deregulation ? has he thought about the alternative of bankrupt utilities? We have rather failed at consolidating the reform efforts and even the government attests to this.  For example, we lack a clear legal framework guiding the liberalisation process and reform of the sector almost 20 years after efforts were started back in the mid 1990s. Reading: [1] https://dspace.lib.cranfield.ac.uk/bitstream/1826/4101/1/Electricity_sector_reform_in_developing_countries.pdf [2] Levy, B. and Spiller, P.T. (1996) Regulations, Institutions, and Commitment: Comparative Studies of Telecommunications, Cambridge: Cambridge University Press. [3] Parker D. and Kirkpatrick C.(2005) ‘Privatisation in Developing Countries: A Review of Evidence and Policy Lessons’ Journal of Development Studies, 41(4), 513-541 [4] Villalonga, B. (2000), ‘Privatization and Efficiency: Differentiating Ownership Effects from Political, Organizational, and Dynamic Effects’, Journal of Economic Behaviour & Organization, 42, 43-74. [5] This is part of the conditions needed to access the $498 million Millennium Challenge Compact II Funds from the US government
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