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0 The 2025 Budget Speech delivered by Ghana’s Minister for Finance, Dr. Cassiel Ato Forson, brings to light the critical challenges facing the country’s energy sector and outlines various measures to address them.
As Ghana struggles with rising debt, inefficiencies, and high energy costs, the government’s proposed interventions aim to restore financial stability, enhance efficiency, and ensure long-term sustainability. However, these measures present both opportunities and challenges that require careful consideration.
One of the major challenges confronting Ghana’s energy sector is the growing financing shortfall. In 2024, the government allocated GH¢20.8 billion to support the sector—funds that could have been used for critical development projects such as infrastructure, healthcare, and education. Looking ahead, the financing shortfall is projected to increase to GH¢35 billion in 2025, with an estimated total deficit of GH¢140 billion for the period 2023–2026. Additionally, the government remains burdened with legacy arrears owed to Independent Power Producers (IPPs), which stood at US$1.73 billion by the end of 2024.
Inefficiencies in the energy sector further compound the crisis. Poor revenue collection, unsustainable contracts with IPPs, and high operational costs have left major institutions such as the Electricity Company of Ghana (ECG) and the Northern Electricity Distribution Company (NEDCo) in financial distress. ECG alone owes GH¢68 billion, underscoring the urgent need for reform.
The high cost of energy production is another pressing issue. Ghana remains heavily reliant on expensive liquid fuels rather than cheaper natural gas sources, leading to inflated electricity costs. The Weighted Average Cost of Gas (WACOG) is expected to rise from $7.83 per MMBtu to $8.45, further increasing the financial burden on consumers and businesses.
Another significant challenge is the discontinuation of energy projects due to debt restructuring. Fifty-five energy-related projects remain delayed, with US$3 billion in undisbursed loans and US$300 million in outstanding interim payment certificates. Given the IMF-imposed annual disbursement ceiling of US$250 million for bilateral loans, it could take more than a decade to complete these projects, potentially hindering economic growth and worsening energy shortages.
To tackle these challenges, the government has introduced the Energy Sector Recovery Programme (ESRP). This initiative focuses on reducing financial shortfalls, enhancing efficiency, and stabilizing the sector. Key measures include increasing private sector participation (PSP) in electricity distribution to improve revenue collection, transitioning from liquid fuels to gas to reduce energy production costs, and renegotiating IPP contracts to lower fixed capacity charges and variable operation and maintenance (O&M) costs.
Tariff adjustments also form a crucial part of the government’s strategy. The Public Utilities Regulatory Commission (PURC) will continue to implement quarterly tariff reviews to reflect inflation, exchange rate fluctuations, and generation costs. A major tariff hike is scheduled for the fourth quarter of 2025 to accommodate additional capacity charges, increased fuel costs, and capital expenditures.
Debt management and fiscal discipline are also central to the government’s approach. Strict enforcement of the Public Financial Management Act is expected to prevent further arrears accumulation, and an audit of arrears will be conducted to ensure payments are made only for verified debts.
In addition, the government plans to consolidate various energy sector levies under the Energy Sector Levies Act (ESLA). This will merge existing levies such as the Energy Debt Recovery Levy and the Sanitation & Pollution Levy into a single levy, with proceeds directed toward addressing financial shortfalls and servicing legacy debt obligations.
Lastly, infrastructure development remains a priority under the government’s $10 billion “Big Push” initiative. This program includes investments in energy-related infrastructure to support the country’s 24-Hour Economy policy, which aims to expand economic opportunities by ensuring reliable electricity supply.
The government’s proposed solutions offer several potential benefits. The transition from liquid fuels to natural gas is a positive step toward reducing production costs and enhancing sector efficiency. If successfully implemented, these measures could alleviate the financial burden on the government while ensuring a more stable energy supply.
The inclusion of private sector participation in electricity distribution also has the potential to improve revenue collection and minimize losses at ECG and NEDCo. With greater financial sustainability, these entities can provide better services to consumers.
Furthermore, the government’s commitment to fiscal discipline through audits and value-for-money measures could help curb unnecessary expenditures and enhance accountability in the energy sector. This approach may prevent further debt accumulation and ensure resources are used efficiently.
Despite the potential benefits, the government’s plan also presents several challenges. One major concern is the high reliance on tariff adjustments. Frequent increases in electricity tariffs, while necessary for financial stability, could face public resistance and negatively impact consumers, particularly low-income households. The government must carefully manage these adjustments and provide targeted subsidies or social safety nets to protect vulnerable populations.
Additionally, the delayed implementation of energy projects remains a significant challenge. With only US$250 million available annually for disbursements, completing stalled projects could take over a decade. These delays may slow down economic progress and lead to persistent energy shortages, hampering business growth and industrialization.
Another notable gap in the budget is the limited focus on renewable energy. While the government has prioritized efficiency improvements and a shift to natural gas, there is little emphasis on investments in renewable energy sources such as solar, wind, and hydro. A diversified energy mix that includes renewables would enhance long-term energy security and reduce Ghana’s vulnerability to global energy price fluctuations.
Over-reliance on natural gas also poses risks, as fluctuations in global gas prices could affect Ghana’s energy costs. A balanced approach that integrates renewable energy alongside gas would provide greater resilience against market uncertainties.
Lastly, the budget’s focus on fiscal consolidation and spending cuts could reduce funding for social programs. If not managed carefully, this could exacerbate poverty and inequality, undermining the broader goals of economic development and social stability.
Conclusion
The 2025 Budget presents a well-structured approach to addressing Ghana’s energy sector challenges, with a strong emphasis on cost reduction, efficiency improvements, and financial discipline. Key interventions, such as the Liquid Fuel-to-Gas Swap, IPP contract renegotiations, and private sector participation, have the potential to improve the sector’s financial health and ensure long-term sustainability.
However, the government must also address critical gaps, including the need for increased investment in renewable energy, strategies to mitigate the social impact of tariff hikes, and measures to accelerate the completion of stalled projects. Transparent implementation, public engagement, and a balanced approach between fiscal prudence and social equity will be crucial for the success of these initiatives.
Overall, while the budget outlines important steps toward stabilizing Ghana’s energy sector, its effectiveness will depend on the government’s ability to implement these measures efficiently and equitably, ensuring that both economic growth and social welfare are prioritized.
The writer is an upcoming Energy economist in London, United Kingdom.
E-mail: aephanielowusuagyemang@gmail.com Contact: +233 57 397 8117
