Cedi appreciation a strategic windfall for energy sector recovery and ECG’s solvency

Exchange Rates and Energy Sector Reset in Context

Ghana’s energy sector faces financial distress. This is due to structural inefficiencies, cost under-recovery, and foreign exchange volatility.

The Electricity Company of Ghana (ECG) is at the center of this crisis. It collects revenue and manages power sales. ECG struggles with rising arrears, liquidity issues, and high US dollar obligations.

The depreciation of the Ghana cedi (GHS) has worsened ECG’s financial situation. The Public Utilities Regulatory Commission (PURC) sets exchange rates below market levels. Most Power Purchase Agreements (PPAs) are priced in US dollars. Each cedi lost increases ECG's domestic currency burden. This mismatch leads to delayed payments to Independent Power Producers (IPPs) and state bailouts.

In 2025, a significant macroeconomic change is occurring. The GHS has appreciated over 10% against the USD since January. This reverses nearly four years of depreciation. Factors include IMF disbursements, investor confidence, cocoa and gold exports, and tighter monetary policy. This appreciation benefits ECG and the broader energy sector financially.

Why FX Appreciation Matters to ECG Mechanically?

Understanding the impact of cedi appreciation is crucial for ECG's finances. The utility pays monthly invoices to IPPs and fuel suppliers in USD.

For example:

- If ECG receives a USD 50 million invoice,
- At a GHS/USD rate of 12, it needs GHS 600 million.
- With an improved rate of 10.80, it now costs GHS 540 million.

This results in savings of GHS 60 million per month if dollar prices remain stable.

Over a year, this totals GHS 720 million in avoided costs. These savings could be used to:

- Reduce payment arrears to IPPs,
- Fund urgent network upgrades,
- Support metering programs,
- Settle part of ECG’s legacy debts.

ECG’s unaudited financials show that over 35% of its expenses are forex-linked. A 10–12% appreciation significantly impacts its expenditure profile.

Additionally, lower import costs for fuel ease pressure on cash flow obligations for ECG.

Strategic Implications and the Future

1. Immediate Liquidity Relief:
The GHS appreciation improves ECG’s working capital position directly. Less GHS is needed for USD invoices, allowing timely payments to suppliers.

2. Potential Reduction in Government Transfers:
The government often injects liquidity into ECG for dollar payments under the Energy Sector Recovery Programme (ESRP). With an appreciating GHS, these transfers become less burdensome on the national budget.

3. Opportunity to Settle Legacy Debt:
Legacy debts held by ECG can be repaid using forex gains now realized from the appreciation.

4. Establish a Forex Stabilization Mechanism:
A portion of savings should create an Energy Sector Forex Stabilization Fund for future currency fluctuations.

5. Policy Recommendations:
Regulators like PURC should reassess tariff frameworks urgently based on forex savings while ensuring consumer protection through transparent recalibrated tariffs.

The Turning Point for Ghana's Energy Sector

The recent appreciation of the Ghanaian cedi marks a strategic turning point for Ghana's energy sector in early 2025. For too long, ECG has struggled with forex-linked obligations but now has a chance to stabilize finances and reduce arrears effectively.

However, this opportunity requires careful planning and action from both ECG and the Ministry of Energy. Without strategic reforms and regulatory coordination, short-term relief may not lead to lasting improvements.

The task ahead is clear: institutionalize gains from this situation into structural improvements while preparing for future currency shocks.

As former U.S Treasury Secretary Larry Summers said: “Crises create opportunity.” Ghana’s energy sector stands at such a crossroads today.