Investment Firm Urges Gov’t to Tackle ECG’s Forex Losses Through Local Banks, Not Just Privatization

As government moves forward with plans for private sector participation in the Electricity Company of Ghana’s (ECG) retail operations, investment banking firm C-NERGY Ghana Limited has urged a shift in focus towards creative financing solutions involving the banking sector to address the utility’s foreign exchange losses.

In its review of the 2025 budget, C-NERGY argued that while private sector involvement could improve revenue collection and operational efficiency, it is not the solution to ECG’s financial woes. Instead, the firm emphasized that the power distributor’s mounting debts are largely driven by foreign exchange losses, which need a more homegrown, financial-sector-driven approach to resolve.

The Forex problem

The ECG has been significantly impacted by foreign exchange (forex) losses, primarily due to the depreciation of the Ghanaian cedi. In 2023, ECG reported total losses exceeding GH¢10 billion, with approximately GH¢8.3 billion attributed to net exchange rate losses.

This substantial financial strain arises from a mismatch between ECG’s revenues and expenses: while the company’s income is predominantly in cedis, a significant portion of its liabilities, including payments to entities like the Volta River Authority (VRA), Independent Power Producers (IPPs), and Bui Power, are denominated in U.S. dollars. Consequently, any depreciation of the cedi increases the cost of these dollar-denominated obligations, leading to considerable exchange rate losses.

Banking Sector’s Role in Addressing ECG’s Forex Risks

C-NERGY’s position suggests that commercial banks and financial institutions could play a critical role in managing ECG’s foreign exchange exposures, possibly through mechanisms such as:

• Forex hedging strategies to protect ECG from currency fluctuations.
• Structured financing solutions to manage cash flow gaps.
• Syndicated lending from local banks to reduce reliance on foreign loans.

This approach aligns with broader economic objectives, as ECG’s financial health is directly tied to Ghana’s power stability and the government’s 24-hour economy vision. According to C-NERGY, fixing ECG’s cash flow challenges through domestic financial engineering could provide more sustainable results than relying solely on private sector involvement in operations.

Privatization Debate: A Familiar and Controversial Path

The government’s push for private sector participation in ECG’s retail segment has been met with strong opposition from organized labor, particularly the Trades Union Congress (TUC) and the Public Utility Workers’ Union (PUWU). Critics argue that privatization has historically led to job losses, foreign profit repatriation, and loss of economic control, citing the failures of Ghana Airways, Ghana Telecom, and Ghana Water Limited as cautionary examples.

The botched Power Distribution Services (PDS) deal in 2019, where ECG’s retail operations were handed over to a private entity only for the contract to be terminated within a year, has also reinforced skepticism about the effectiveness of private sector participation.

Policy Implications: Fiscal and Economic Stability at Stake C-NERGY’s recommendation signals a broader policy challenge:

1. Can local financial institutions absorb ECG’s forex risks without increasing their own systemic vulnerabilities?
2. Will alternative financing models help prevent future debt accumulation in the power sector?
3. Is private sector participation being pursued at the expense of deeper financial reforms within ECG?

Energy focused think tank, the Africa Centre for Energy Policy (ACEP) has fingered issues such as under-recovery, low revenue collection rates, and systemic waste within the power distributor. According to its findings, between 2017 and 2022, ECG’s financial losses escalated from GHS 295 million to a staggering GHS 9.7 billion. Additionally, from August 2023 to July 2024, under-recoveries totaled GHS 13.6 billion, with an average revenue collection rate of just 43%.

ACEP has also raised concerns about ECG’s financial transparency, noting the operation of 61 separate bank accounts across 16 financial institutions, which hampers effective auditing and oversight. Moreover, discrepancies in exchange rate reporting have been identified, with ECG allegedly using rates higher than interbank figures, resulting in net exchange losses of about GHS 6.5 billion in 2022 and approximately GHS 7 billion in 2023.