The 2016 budget and economic policy of Ghana themed “Consolidating Progress towards a Brighter Medium Term” promised government’s commitment to promote fiscal discipline based on enhanced domestic revenue mobilization, prudent management of public expenditure, improved debt management and the implementation of reforms in key areas of the economy. What hope for Energy and Infrastructure?
By Kofi Boahen | Centre for the Study of Energy & Natural Resources
The 2016 budget themed “Consolidating Progress towards a Brighter Medium Term” promised government’s commitment to promote fiscal discipline based on enhanced domestic revenue mobilization, prudent management of public expenditure, improved debt management and the implementation of reforms in key areas of the economy. The government’s commitment will indeed be tested against the backdrop of unbridled borrowing, higher interest payments and fiscal deficits, as well as an upcoming election, all within an International Monetary Fund (IMF) programme. This review will focus on the Infrastructure, Energy and Petroleum sectors.
The total budget of GHS 1,418,584,337 for the infrastructure sector in the 2016 budget is 30% lower than that of 2015. Capital investment of GHS 1,009,929,097 represents 71.2% of the total budget, much lower than the GHS 1,585,315,774 allocated last year. The sector is heavily reliant on Donor support, with contributions of GHS 845,777,312 and GHS 676,941,851 representing 60% and 67% of the total sector budget and capital investment budget respectively. Regarding policy initiatives, the government stated it will draft a National Infrastructure Plan as well adopt a new approach through Public Private Partnerships (PPP) in a bid to close the infrastructure gap estimated at $1.5 billion per annum.
It is unclear why the completed Kpong Water Supply expansion which was supposed to add 40 million gallons per day for the Greater Accra Metropolitan Area according to the 2015 budget, is only producing half of the stated quantity. Considering the financial burden imposed on most Ghanaians who purchase water from private tanker operators, it is unfathomable that such a project which may lighten the burden is only delivering half of its intended capacity. Government is expected to expedite drainage improvement activities meant to solve the perennial flooding within towns and cities in the country, in order to prevent a repeat of the tragic occurrences of June 3, 2015.
A critical look at the Road and Highways section in the 2016 budget as well as previous budgets reveal a wide gap that exists between the stated and actual kilometres (km) of trunk roads that are delivered. This trend could largely be attributed to the time and cost overruns syndrome associated with road development in the country. For instance, the government promised to construct 200km of trunk roads in 2015, but had only completed 67km by the third quarter. Funds including recent petroleum revenues have been spread over several projects mostly due to political expediency rather than a calculated and coherent analysis of the socioeconomic benefits of these road projects. It is hoped that work on key roads including Nsawam – Apedwa, Enchi – Dadieso and Kwame Nkrumah Interchange are expedited as promised in the budget (2016). For instance, petroleum revenues have been spent on over 160 road projects from 2011 to 2014. This inevitably means scarce financial resources are spent on the same road projects than was previously budgeted for, as a result of cost overruns and time overruns. The policy initiative to generate revenue through electronic tolling of roads to finance maintenance works is welcome to the degree that revenues generated are actually spent on improving those roads coupled with effective control measures to curb pilfering of road tolls. A case in point is the Accra-Tema motorway, which has virtually become a death trap, with the road riddled with potholes and non-functioning street lights, despite thousands of Cedis collected from road users.
Incoherent policies of Government invariably drain the country of its limited financial resources. A typical example is Government’s intent to build aerodromes/airstrips in all the ten (10) regions, in a bid to create an efficient transport system to open up the country for socioeconomic activities. The aviation industry, the primary partner in this enterprise, is reeling under several taxes imposed on aviation fuel, which is the highest in the sub region, and other cost inputs. This obviously has increased the cost of production of players in the industry, leading to higher airfares which have severely reduced their passenger traffic.
Energy & Petroleum Sector
The total sector budget of GHS 924,567,775 for 2016 is 14% more than that of last year, with capital expenditure budget of GHS 708,953,071 representing 77%. The sector is also heavily reliant on Donor support, with contributions of GHS 784,444,762 and GHS 618,318,071 representing 85% and 87% of total sector budget and capital expenditure budget respectively. The newly formed Ministry of Power, a split off entity from the previous Ministry of Energy and Petroleum, has been charged with the overarching mandate to end the power crisis.
The Kpone Thermal Power Plant which was expected to commence commercial operations by the first quarter of 2015 is now hoped to be fully operational by year end. IMANI had raised doubts on the proposed generation of 770MW and 33.5MW additional renewable energy in the 2015 budget. Unsurprisingly, the 2016 budget was silent on the progress, if any, on those promised projects. The additional generation of 845MW and 1,053MW promised before year end and 2016 respectively are also in doubt, against the backdrop of earlier promises falling through. The devastating effect that “Dumsor” – load shedding, has had on the businesses and individuals cannot be overemphasized. Thus, it is appalling for government to continuously toy with Ghanaians with unsubstantiated promises to end the power crisis. The government’s myopic and politically expedient policy to resort to emergency power producers as evinced by the 225MW Karpower barge deal, to deliver power to the voting public will not only commit the country to higher-cost power, but also drain scarce cash in the short term and delay long – term sector development. Aside the fact that the Karpower barge is not a panacea to the power crisis, the associated fuel costs coupled with the humongous $700 million that will be spent over the duration of the barge smacks of imprudent public expenditure. For a more sustainable solution to the power crisis, Government should focus on making the Power sector attractive for private sector investment through formulating coherent policies and decisive actions. It is unclear the form the Energy levy, meant to support debt restructuring and pricing regime (tariffs) will take, but it will be absolutely unacceptable for government to pass on its legacy debts to already overburdened Ghanaians, against backdrop of impending tariff hikes.
The Millennium Challenge Compact (MCC) which seeks to among other objectives, provide infrastructure and foundational investments into the Power sector is yet to enter into force, after the agreement was signed last year, as government is still working on completing some of the conditions precedent. As meeting the conditions precedent is a prerequisite before the first disbursement of funds, it is expected that Government will expedite its decisions to ensure the Compact is entered into force as soon as possible.
It was interesting that the Education sector was not allocated any petroleum funds, as this will invariably affect the sector’s capital investment budget which has over the years been less than 5% of the total Education sector budget. The constant critique against the expenditure of petroleum revenues via the Annual Budget Funding Amount (ABFA) has been the lack of spending efficiency, as there is little tangible developmental evidence after five (5) years of oil production. The constant introduction and elimination of Ministries, Departments and Agencies (MDAs) within the ABFA Priority basket every year provides incontrovertible evidence that the country’s leaders lack the political will and fiscal discipline to invest petroleum revenues in the real critical sectors to spur on socioeconomic development. This development has led to petroleum revenues being spread thinly over several sectors, with such investments lacking the potency to deliver development to Ghanaians. The pro- poor Health sector with huge infrastructure deficits has been a victim of Government’s inefficient spending of petroleum revenues. In the 2016 budget, the Office of Government of Machinery was allocated GHS 135.9 million which is more than 400% of the GHS 33 million allocated to the Health sector. The worrisome aspect of this allocation to the Office of Government Machinery is that all the funds are meant for recurrent expenditure (Goods and Services).
The hallmark of financial management is allocation of resources. Government has stated its commitment in the 2016 budget to prudently manage public expenditure, however, its allocation of resources undermine this lofty intent. Rather than resorting to expensive band-aid measures to solve the power crisis, Government should tackle the critical underpinnings of the Power sector – regulatory, legal, operation and investment climate. Government must show strong political will in making tough choices regarding the second Compact (MCC) so as to draw the first Tranche of funds into the Power sector. Incoherent policies have attendant financial costs; Government must critically assess all externalities when formulating policies in order to preempt such occurrences. Government must get its act together regarding the management of petroleum revenues or posterity will judge it harshly for its inefficient investment patterns. The theme for the 2016 budget will remain a mere rhetoric unless stated commitments are buttressed by coherent policies and prudent allocation of resources.
Kofi Boahen is head of the Centre for the Study of Energy & Natural Resources at IMANI.
- Castellano A, Kendall A, Nkomarov M, and Swemmer T (2015). Brighter Africa – The Growth Potential of the sub – Saharan Electricity Sector. McKinsey and Company.
- Emmanuel Buadi-Mensah (2014). IMANI’s Critical Sectoral Review of the 2015 Ghana Budget. Retrieved on December 8, 2014 from http://imanighana.com/imanis-critical-sectoral-review-2015-ghana-budget/
- Ministry of Finance (2015 & 2016). The Budget Statement and the Economic Policy. Accra.
ABOUT THIS PUBLICATION
This publication is by the Centre for the Study of Energy & Natural Resources at IMANI. For more information on the work of the center, visit www.imanighana.com/energy+infra