How ECG short-changed energy sector and collapsed cash mechanism

– Ex-PURC Board member

A former board member of the Public Utilities and Regulatory Commission (PURC), Dr Nii Darko Asante, has placed the blame for the failure of the Cash Waterfall Mechanism (CWM) squarely on the Electricity Company of Ghana (ECG).

PURC, during the tenure of the dismissed Managing Director ECG, Samuel Dubik Mahama, in several reports tothe President, Nana Akufo-Addo, raised concerns about how management was flouting the CWM.

Indeed, in March this year, The Herald, obtained an audit report conducted by PricewaterhouseCoopers (PwC) concerning the ECG and its non-adherence to the CWM established by the PURC.

At the time of his dismissal, an angry President Akufo-Addo, wanted Dubik Mahama arrested at the Kotoka International Airport on his arrival from London, where he was, when he was told to resign or be embarrassed with a dismissal.

Forensic audit into his tenure, was also discussed at the presidency. Workers of ECG, had maintained that most of his touted successes were mere hot air. The US$25 million revenue app by Hubtel, had also been fraught with dirty claims.

The PricewaterhouseCoopers (PwC) audit, uncovered substantial disparities between the reported collections and the actual disbursements by ECG, amounting to approximately GHS3.5 billion over ECG’s CWM allocation from July 2022 to September 2023, adding this is not in line with the CWM for month-on-month analysis.

The report, also mentioned that from its analysis performed on the bank statements received, a net difference of GH¢1.9 billion was noted between the total collections declared on the CWM-approved schedules and the inflows consolidated from the bank account statements shared.

PURC, had continuously accused ECG and its management led by Dubik of refusing to comply “with the guidelines of the new CWM as directed by the President, Nana Akufo-Addo, in August 2023.

“This defeats the principle of fair and equitable allocation of revenue to sector players under Level B as approved by the CWM Standing Committee in line with the revised CWM guidelines. The Commission wishes to state that ECG should co-operate and allow the CWM to function as directed by the President. Additionally, MoF, should also take the necessary steps to honor its obligation by paying for the shortfalls.”

The Cash Waterfall Mechanism Validation Report for November 2023 Payment, reported same about the ECG management’s handling of cash collected and how they are distributed.

In the audit report, PricewaterhouseCoopers, revealed frustrations, including a lack of cooperation from the management of ECG in carrying out its audit, saying the state company in many instances refused to supply it with information, especially documents, as well as respond to queries on identified infractions.

On Joy News’ PM Express on October 21, Dr Nii Darko Asante, expressed frustration over ECG’s role in undermining the financial distribution framework designed to ensure fairness in Ghana’s energy sector.

“What you’re observing was expected to happen from day one when the Cash Waterfall was set up. It’s not a surprise that matters got worse over time,” Dr. Asante said.

He stated that ECG, had long been a problematic player in the sector.

He explained that historically, the company has prioritised its own revenue needs, often at the expense of other critical sector players like GridCo and other generation companies.

“ECG has short-changed the sector in terms of revenue for years. They collect from consumers, take what they want, and then decide who gets what’s left. If they’re supposed to collect 100 cedis, and their costs are 20 cedis but they only collect 40, they still keep the full 20 cedis,” Dr. Asante explained.

“This leaves the rest of the sector with only 20 cedis to share instead of the 80 cedis that should have been available.”

According to Dr Asante, the Cash Waterfall Mechanism (CWM) was intended to correct these imbalances by ensuring that whatever ECG collected, was fairly distributed according to predefined ratios.

“The CWM brought visibility to how the insufficient funds were being shared,” he stated.

However, this transparency has not prevented the sector from struggling due to ECG’s consistent failure to collect sufficient revenue.

Dr Asante, also highlighted how ECG’s reported revenue often does not reflect actual cash received.

“Anyone who has done basic accounting will recognise that what is reported in the financial statements does not always reflect cash collected.

“The CWM was looking purely at actual revenue accrued — cash received into ECG accounts, not just what was billed or claimed to be collected.”

Joining Dr Asante on the show, Dr Steve Manteaw, Co-chair of the Ghana Extractive Industry Transparency Initiative (GHEITI), voiced his concerns about ECG excluding a significant portion of its revenue from the CWM.

“It surprises me that, despite the substantial jump in revenue, about 50% of the funds generated are kept outside the CWM,” he told the host, Evans Mensah.

Dr Manteaw, stated that excluding such a large percentage of ECG’s revenue, could severely damage the credibility of the Cash Waterfall Mechanism.

“This exclusion creates serious credibility issues for the energy sector’s financial recovery, especially since the CWM was designed to ensure fair distribution of funds among sector players.”

He further stressed that, ECG’s actions could undermine efforts to stabilise the sector’s finances.

“If about half of their revenue is kept out of the mechanism, it makes it difficult for any real progress to be made in addressing the financial challenges of the energy sector,” Dr Manteaw added.

Dr Asante, acknowledged that ECG’s complaints about the funds being insufficient for their operations were valid, but added that the situation was no different for other players in the energy sector.

“You’ll hear ECG complaining that it’s not enough for them to run their distribution — and that’s true. But what about GridCo? What about the generation companies? Nobody has enough money to run the system,” he stressed.

Both experts, concluded that while the Cash Waterfall Mechanism was a step in the right direction, its effectiveness has been undermined by ECG’s actions and the continued exclusion of significant revenue streams from the system.

The post How ECG short-changed energy sector and collapsed cash mechanism appeared first on The Herald ghana.