Dr Kwabena Donkor backs GH¢1 fuel levy, but says it shouldn't be in isolation

Former Energy Minister Dr. Kwabena Donkor supports the new GH¢1 fuel levy. However, he believes it should not be a standalone solution. He calls for bold steps to cut costs and improve efficiency in the energy sector.

On the AM Show on JoyNews, Dr. Donkor said, “We must accept the fact of the 1 cedi fuel levy.” He noted that while we can debate its implementation and timing, it won't eliminate the $3.1 billion legacy debt alone.

He emphasized that the energy sector is not covering its operating costs. “We have a major issue that we are not tackling,” he stated. Currently, there is an under-recovery of costs in the power sector, which leads to accumulating debt.

Dr. Donkor believes the levy should address both legacy debt and ongoing under-recovery. “First, we must eliminate existing legacy debt,” he explained. The 1 cedi will help with both issues: under-recovery and wiping off legacy debt.

He shared a recent example of financial challenges in the sector. “Two weeks ago, Finance Minister found about $50 million for Karpower immediately,” he revealed. Without this funding, Karpower threatened they couldn’t service their loans.

Dr. Donkor discussed risks for private power producers as well. “Project finance typically involves 30% equity and 70% loans,” he noted. These Independent Power Producers (IPPs) also need to service their loans.

He criticized past fund management by former Finance Minister Ken Ofori-Atta. “Ofori-Atta collateralized inflows from ESLA but mismanaged funds,” he said. Some money was used for administrative purposes instead of servicing debts.

“More importantly, steps were not taken to drive up efficiency,” Dr. Donkor added. He stressed that under-recovering costs leads to future debts in any business.

He argued that the Ministry of Finance should not pay fuel bills for power generation. “If we covered costs, there would be no need for this support,” he explained.

While Dr. Donkor supports the GH¢1 levy, he insists it shouldn't be introduced alone. “We also have to look at price build-up and find savings,” he stressed.

He specifically mentioned reviewing components like Unified Petroleum Price Margin (UPPM). “The UPPM should go down; it’s a major expense due to fuel transportation.”

Dr. Donkor questioned whether existing administrative margins should remain unchanged amid falling inflation and petroleum prices.

“Even if all of the 1 cedi came from price build-up, Parliament must approve it,” he concluded.