## 1. Ghana's Regulatory and Tariff Framework

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### A. Key findings on the sector’s role and fiscal impact
- Reliable and affordable electricity is central to Ghana’s industrialization, digitalization, job creation, and inclusive growth, reflected in policy initiatives such as the authorities’ 24-Hour Economy Strategy and Ghana's National Energy Compact (GNEC).
- The energy sector has been a persistent source of fiscal pressure and macroeconomic vulnerability:
  - Financial shortfalls estimated at about 1–1½ percent of GDP in recent years.
  - Significant arrears accumulated to independent power producers (IPPs) and fuel suppliers (FS), requiring recurrent government intervention through budget transfers and arrears clearance.
- Unreliable electricity supply imposes direct costs on firms and deters private investment:
  - Approximately 95 percent of Ghanaian manufacturing firms report power outages that affect their productivity (World Bank Enterprise Survey).
  - Willingness-to-pay for reliable grid electricity estimated at US$0.15/kWh compared to an average cost of production of US$0.10/kWh; the US$0.05/kWh differential represents the implicit cost of reliability absorbed by consumers through backup coping mechanisms.

### B. Recent policy initiatives and reform progress
- GNEC (adopted in 2025) targets:
  - Total energy sector investment of US$4.4 billion over 2025–2030, of which US$2.6 billion is expected from private sources.
  - 99 percent electricity access rate by 2030 (89 percent in 2024).
  - Increase in the share of renewables in installed generation capacity from approximately 4 percent to 10 percent.
- Reforms under the Extended Credit Facility (ECF)-supported program showed progress in 2025:
  - Resumption of tariff adjustments.
  - Strengthened implementation of the Cash Waterfall Mechanism (CWM).
  - Steps toward arrears reduction.
- Continued reform effort required to durably restore financial viability and reposition the sector as a platform for growth.

### C. How Ghana’s electricity sector operates (value chain and entities)
- Generation sources:
  - Thermal generators (primarily natural gas; liquid fuels as backup).
  - Hydropower (output dependent on rainfall and reservoirs; not expandable on demand).
- Value chain overview:
  - Upstream: natural gas produced from three offshore fields (TEN, Jubilee, Sankofa) and supplemented by imports from Nigeria via the West African Gas Pipeline (WAGP).
  - Midstream: raw gas processed at Atuabo and delivered to thermal generators concentrated in Tema and Takoradi enclaves.
  - Generation: state-owned Volta River Authority (VRA) and Bui Power Authority (BPA) plus Independent Power Producers (IPPs) accounting for about 44 percent of installed capacity under long-term PPAs.
  - Transmission: Ghana Grid Company Limited (GRIDCo).
  - Distribution and retail: Electricity Company of Ghana (ECG) in southern/central zones and Northern Electricity Distribution Company (NEDCo) in the northern zone.
- Public entities and roles:
  - GNPC: equity holder in producing fields and national gas aggregator.
  - GNGC: operates gas processing and domestic gas transport.
  - CWM: rules-based framework to pool and distribute sector revenues according to a priority sequence.

### D. Sector financial flows and centrality of distribution collections
- Consumer payments to ECG and NEDCo constitute the primary source of sector liquidity; these revenues are pooled and allocated through the CWM.
- ECG accounts for approximately 88 percent of all electricity sold in the regulated market and is the central determinant of the sector’s financial position.
- CWM mechanics:
  - Operates through a single designated collection account with a fixed priority disbursement sequence (fuel first, then Level-A IPP capacity charges, VRA, GRIDCo transmission, legacy debt service contributions).
  - Compliance is monitored by ECG Revenue Validation Reports and CWM Validation Reports published by PURC.
- Collection gap example (2024):
  - ECG declared GH¢10.4 billion to the CWM against independently validated collections of GH¢15.5 billion — a gap of GH¢5.1 billion (roughly one-third of actual collections).

### E. Why the sector generates fiscal risks — structural features and transmission channels
- Structural exposures:
  - Significant state ownership and limited financial ringfencing across the value chain mean losses at any stage propagate rather than being absorbed or resolved via insolvency.
  - Long-term PPAs with IPPs contain fixed payment obligations (capacity charges, take-or-pay), so costs do not decline when demand weakens or collections fall short.
- Cost structure and key drivers:
  - Generation costs largely insulated from global gas price volatility for domestically produced gas but highly sensitive to international oil prices and the exchange rate.
  - WACOG (weighted average cost of gas) is largely unresponsive to global gas price movements because most domestic gas is not indexed to international gas hub benchmarks.
  - Brent crude price and exchange rate affect generation costs via:
    - Indexation of certain gas contracts (e.g., Sankofa and some WAGP imports).
    - Fuel switching: when domestic gas is constrained or unavailable, thermal plants switch to liquid fuels procured at spot prices, transmitting oil price changes immediately into generation costs.
  - Exchange rate movements are the fastest-acting source of cost pressure because many sector costs (fuel procurement, IPP capacity charges, debt service) are denominated in U.S. dollars while ECG revenues are in cedis.
- Illustrative contract and price points:
  - Jubilee and TEN associated gas sold at an administered price of approximately US$2.90/MMBtu.
  - Sankofa non-associated gas nominally contracted at approximately US$8.72/MMBtu (estimated net cost to Ghana less than US$4.5/MMBtu after accounting for GNPC's participating interest, royalties, and taxes); Sankofa is Brent-indexed.
  - Nigerian gas (WAGP) contracted at approximately US$8.75/MMBtu and has been an intermittent source (force majeure since 2011).
- Transmission of financial stress to the government balance sheet (sequence):
  - 1) Distribution weaknesses (technical/commercial losses, incomplete bill collection, underreporting to the CWM) reduce cash available at ECG.
  - 2) Reduced collections lead to shortfalls in CWM allocations to suppliers; CWM is not designed to eliminate financing gaps when total revenues are insufficient.
  - 3) Unpaid obligations accumulate as arrears to IPPs, gas suppliers, and fuel suppliers.
  - 4) Accumulated arrears affect operations (e.g., constrain gas deliveries), prompting fuel switching to higher-cost liquid fuels, further widening the financial gap.
  - 5) Financing shortfalls are ultimately absorbed by the government via budget transfers or the buildup of public liabilities; absent containment mechanisms, sector stress becomes sovereign exposure even without explicit guarantees.
- Additional amplifying factors:
  - GNPC’s dual role as equity partner and gas aggregator creates tensions: unpaid receivables to GNPC’s IOC partners can require government settlement and compound upstream exposure.
  - Late payments by Ministries, Departments, and Agencies (MDAs) contributed unpaid balances accounting for approximately 16 percent of total sector outstanding payables at end-2025.
  - At its peak, the Eni/OCTP letter of credit, backed by a World Bank guarantee, amounted to US$500 million and accounted for a substantial share of total sector payables.

### F. Implications for policy and reform (as documented)
- Recurrent deviations from the regulatory framework—particularly in tariff adjustments and payment discipline—have converted temporary cost pressures into persistent fiscal liabilities.
- Reforms under the ECF-supported program (resumption of tariff adjustments, strengthened CWM implementation, arrears reduction steps) have begun stabilizing the sector’s financial position, but key vulnerabilities remain and sustained efforts are essential to restore financial viability and enable the sector to support growth.

### Three structural gaps driving financial imbalances (Section 14)
- Tariff gap:
  - Tariff gap defined as difference between cost of supplying electricity and revenue implied by the approved tariff schedule.
  - Tariff adjustments uneven, particularly around election cycles; quarterly structural benchmarks under the IMF-supported program have supported more regular adjustments since 2025.
  - Tariff-setting instruments:
    - MYTO set baseline tariffs; most recent MYTO established tariffs for 2026–2030 with a 9.86 percent increase effective January 2026.
    - AAF adjusts tariffs quarterly for GHS/USD exchange rate, domestic inflation, hydro/thermal mix, and WACOG; the latest quarterly AAF change reduced tariffs by 4.81 percent.
  - Tariff dynamics:
    - Tariff gap is self-reinforcing: under-recovery accumulates as arrears to generators and gas suppliers, adding financing costs and penalties to the cost base that future tariffs must cover.
    - Additional under-recovery arises when PURC uses a lagged reference exchange rate for tariffs while utilities procure fuel and service debt at prevailing exchange rates.
    - Electricity tariffs have increased by about 40 percent since March 2025 on a cumulative basis.
- Distribution gap:
  - Technical losses from aging infrastructure, overloaded transformers, inadequately maintained low-voltage networks.
  - Commercial losses from illegal connections, meter bypassing, billing errors, and insufficient metering coverage.
  - Distribution losses remained at 27 percent at end-2024.
  - World Bank PforR targets: bring losses to 23.8 percent by December 2025 and 19.2 percent by December 2027; GNEC targets 23 percent by 2030.
  - Northern areas (NEDCo) show distribution losses of 31.3 percent.
- Collection gap:
  - Collection rate approximately 86 percent in 2024.
  - Non-payment by public sector entities accounts for a significant share of unpaid billed electricity.

### Interaction of the three gaps
- The three gaps reinforce each other multiplicatively:
  - Tariff gap lowers revenue per unit sold.
  - Distribution gap reduces billable volume.
  - Collection gap reduces the share of billed revenues actually received.
- Examples and amplification:
  - Positive tariff gap and positive distribution gap can create a sector imbalance even if collection gap is zero.
  - Cost-reflective tariffs can still coincide with financial imbalances if customers do not pay.
  - Delays in adjusting tariffs and weak enforcement of payment obligations, especially from public sector consumers, have converted temporary shocks into persistent financial imbalances.
  - Between 2016 and mid-2022, tariffs increased only modestly despite significant exchange rate depreciation and rising fuel costs; adjustments were suspended ahead of the 2024 elections.

### The sector’s recent financial position and scale of shortfalls
- Annual shortfalls:
  - Energy sector shortfall approximately US$1.4 billion in 2025 or 1.2 percent of GDP.
  - US$1.6 billion or 1.4 percent of GDP in 2024.
  - Shortfalls estimated at approximately 1–1½ percent of GDP in recent years.
- Drivers of the 2024–2025 narrowing in shortfall:
  - Resumption of tariff adjustments supported cost recovery.
  - Narrowing primarily driven by improved macroeconomic conditions, a stronger cedi (lowering GHS cost of USD-denominated obligations), and reduced reliance on liquid fuels—not structural operational or collection improvements.
  - Positive revenue growth (below 10 percent in real terms) mainly reflected demand growth rather than efficiency gains.
- Accumulation of payables and arrears:
  - Stock of outstanding payables peaked at about US$2.2 billion (1.9 percent of GDP) in early 2025, declining to about US$1.7 billion at end-2025 (1.5 percent of GDP), mainly reflecting clearance of arrears with fuel suppliers (FS).
  - ECG’s stock of arrears to the energy sector reached a peak of US$3.5 billion in 2025Q2, later declining to US$2.8 billion at end-2025 on improved ECG revenue collection and CWM compliance.
  - Outstanding payables remain substantial and continue to generate penalties, financing charges, and strained supplier relationships.
- Fiscal interventions and government transfers:
  - Government transfers to the energy sector amounted to about US$2 billion in 2025 (US$1.5 billion in 2024).
    - Approximately half of transfers covered current invoices; the remainder reduced legacy debt stock.
  - NGC credit notes to gas suppliers totaled approximately US$1 billion in 2025 form US$0.4 billion in 2024.
  - Government payments often occur outside the CWM and include budget transfers, off-budget credit notes, and payments to IPPs, gas suppliers, and FS to settle ECG obligations.
- Macro-economic and distributional impacts:
  - Financial weaknesses impose macroeconomic costs that fall disproportionately on households and firms least able to absorb them.
  - World Bank analysis: majority of Ghanaian manufacturing firms report power outages that disrupt production; firms unable to afford backup diesel generators absorb output losses directly.
  - Reliability weakest where incomes are lowest and backup generation least accessible, reinforcing poverty and deterring private investment.

### ECF-supported reforms: progress and remaining gaps
- Program focus areas (building on the Energy Sector Recovery Program, ESRP):
  - Restore cost recovery.
  - Strengthen ECG revenue collection.
  - Improve ECG operational efficiency.
  - Advance private sector participation (PSP) in distribution.
  - Renegotiate onerous PPAs.
  - Address legacy debt.
- World Bank PforR (approved June 2024) complements reforms with results-based financing for economic dispatch, ECG collection efficiency, energy accounting, customer services, financial management transparency, IPP invoicing, and clean cooking access.
- Achievements:
  - Resumption of quarterly tariff adjustments in 2025 and implementation of new MYTO for 2026–30.
  - Increased use of domestic gas reduced reliance on liquid fuels:
    - ENI's July 2025 expansion of OCTP gas processing capacity to 270 MMcfd increased domestic gas availability.
  - Strengthened implementation of the CWM in 2025, including improved monitoring, enhanced compliance, and periodic independent validation of ECG collections (a program structural benchmark).
- Remaining implementation challenges:
  - Distribution losses remain high at 27 percent end-2024; smart meter deployment and billing system upgrades have been slow.
  - Durable progress requires coordinated technical and commercial actions, and political economy risks remain (e.g., suspension of tariff adjustments ahead of the 2024 elections).

### Box 2 — Energy Sector Reform Slippages in 2024: slippages, fiscal impact, and reform status
- Reform slippages and fiscal impact:
  - Implementation of Ghana’s ERSP reforms weakened markedly in the run-up to the 2024 general elections.
  - Notable slippages:
    - Suspension of quarterly tariff adjustments.
    - Sharp deterioration of CWM compliance with ECG's declared collections falling well below independently validated actual collections.
    - Worsening of ECG distribution losses to 27.1 percent in 2024 (26.9 percent in 2023).
  - Combined fiscal impact:
    - Government transfers increased from about US$0.7 billion in 2023 to approximately US$1.2 billion in 2024.
- Progress in arrears reduction and remaining risks:
  - Reduction in the stock of arrears through increased government transfers and renegotiation of PPAs and legacy debt contributed to a decline in arrears from their peak levels.
  - Remaining risk: sector requires a fully financed and credible medium-term resolution strategy to ensure clearance of arrears over the medium term.
- Institutional reform status and bottlenecks:
  - Recent steps:
    - Adoption of a framework for PSP in ECG distribution.
    - Adoption of a legislative instrument (LI) mandating competitive procurement for new generation capacity.
  - Implementation bottlenecks:
    - Delays in operationalizing reforms, including issuance of implementing guidelines and appointment of a transaction advisor (MEFP paragraph 50).
    - Absence of strong institutional safeguards to ensure consistent application of tariff adjustments and payment discipline remains a key vulnerability.
- Overall assessment:
  - ECF-supported reforms have helped stabilize the sector’s financial position and address key structural weaknesses.
  - Progress remains incomplete: persistent tariff gaps, elevated distribution losses, collection challenges, and a significant stock of arrears indicate vulnerability to renewed financial stress.

### Policy priorities: From stabilization to transformation
- Near-term priorities: Lock in Financial Stabilization
  - Ensure consistent tariff adjustment:
    - Regular application of the AAF is critical to maintaining cost recovery.
    - Strengthen institutional safeguards, including PURC’s operational independence.
  - Strict enforcement of the CWM:
    - Full and transparent implementation of the CWM, including regular independent validation of collections and timely publication of compliance reports.
  - Deliver on a credible and fully financed arrears resolution strategy:
    - Diligently implement the arrears clearing agreement reached in 2025 with IPPs and FS, while avoiding accumulation of new obligations.
- Medium-term priorities: Strengthen Operational and Financial Performance
  - Reduce distribution losses:
    - Accelerate rollout of smart meters, strengthen energy accounting systems, and improve oversight of technical and commercial losses.
  - Improve revenue collection, particularly from public sector entities:
    - Strengthen enforcement of payment obligations, expand use of prepayment arrangements, and implement structured repayment plans for large consumers.
    - Enhance transparency through regular independent audits of billing and collection systems.
  - Advance PSP in distribution:
    - Objective: transfer defined operational areas within ECG to private concessionaires to introduce commercial discipline, performance accountability, and private capital.
    - Operationalizing PSP requires Cabinet approval of a strategy identifying a clear definition of the commercial model and envisaging structured engagement with prospective private operators.
- Structural priorities: Strengthen Governance and Prevent Recurrence of Fiscal Risks
  - Institutionalize tariff-setting and regulatory processes:
    - Strengthen independence and operational credibility of PURC.
  - Enhance transparency and financial governance across sector entities:
    - Timely publication of audited financial statements of all energy sector public enterprises, improved monitoring of sector-wide financial flows, and strengthened disclosure of contingent liabilities and quasi-fiscal operations.
  - Ensure competitive and transparent procurement of new generation capacity:
    - Effective implementation of the LI requiring competitive procurement of PPAs.
- Expected outcomes:
  - A financially sustainable sector characterized by a creditworthy off-taker (ECG), predictable tariff adjustments, and disciplined procurement will support investment in generation and distribution and reduce reliance on costly emergency interventions.
  - Improvements in domestic gas supply will further enhance gains by reducing dependence on liquid fuels and improving cost stability.
  - Note on gas supply:
    - The OCTP project already supplies approximately 70 percent of Ghana's domestic gas for power generation.
    - The July 2025 expansion of gas processing capacity to 270 MMcfd and the US$1.5 billion investment commitment by ENI and its OCTP partners for further field development are expected to markedly increase gas supply over the medium term.
    - Jubilee and TEN partners have separately committed approximately US$2 billion to sustain and increase oil and gas output.

### Key sector entities and financial performance (2024)
- GNPC
  - Stage/Primary function: Upstream/midstream; Field equity; gas aggregation and on-selling
  - Ownership: 100% GoG
  - Total assets FY2024 (GHS'm): 26,535
  - Revenue FY2024 (GHS'm): 20,234
  - Net profit/(loss) FY2024 (GHS'm): +662
  - Accounts status: Management accounts
- GNGC
  - Stage/Primary function: Midstream; Gas processing (Atuabo) and domestic transport
  - Ownership: 100% GoG
  - Total assets FY2024 (GHS'm): 21,668
  - Revenue FY2024 (GHS'm): 7,261
  - Net profit/(loss) FY2024 (GHS'm): +228
  - Accounts status: Draft
- BPA
  - Stage/Primary function: Generation; Bui hydropower (404 MW installed)
  - Ownership: 100% GoG
  - Total assets FY2024 (GHS'm): 26,125
  - Revenue FY2024 (GHS'm): 2,073
  - Net profit/(loss) FY2024 (GHS'm): +1,040
  - Accounts status: Draft
- VRA
  - Stage/Primary function: Generation; Akosombo and Kpong hydro; thermal plants
  - Ownership: 100% GoG
  - Total assets FY2024 (GHS'm): 92,835
  - Revenue FY2024 (GHS'm): 11,259
  - Net profit/(loss) FY2024 (GHS'm): -570
  - Accounts status: Audited
- GRIDCo
  - Stage/Primary function: Transmission; National transmission system (6,472 km)
  - Ownership: 100% GoG
  - Total assets FY2024 (GHS'm): 15,785
  - Revenue FY2024 (GHS'm): 2,662
  - Net profit/(loss) FY2024 (GHS'm): -91
  - Accounts status: Audited
- ECG
  - Stage/Primary function: Distribution/retail; Power distribution, southern/central Ghana
  - Ownership: 100% GoG
  - Total assets FY2024 (GHS'm): 76,250
  - Revenue FY2024 (GHS'm): 36,177
  - Net profit/(loss) FY2024 (GHS'm): -8,256
  - Accounts status: Audited
- NEDCo
  - Stage/Primary function: Distribution/retail; Power distribution, northern Ghana
  - Ownership: VRA subsidiary
  - Accounts status: Consolidated within VRA

*Source: IMF staff report, “Ghana’s Energy Sector: From Fiscal Vulnerability to a Platform for Sustained Growth” (selected issues paper), July 10, 2026.*

### 1. Ghana's Regulatory and Tariff Framework __________________________________________ 10

### 1. Ghana's Regulatory and Tariff Framework

### A. Key findings on the sector’s role and fiscal impact
- Reliable and affordable electricity is central to Ghana’s industrialization, digitalization, job creation, and inclusive growth, reflected in policy initiatives such as the authorities’ 24-Hour Economy Strategy and Ghana's National Energy Compact (GNEC).
- The energy sector has been a persistent source of fiscal pressure and macroeconomic vulnerability:
  - Financial shortfalls estimated at about 1–1½ percent of GDP in recent years.
  - Significant arrears accumulated to independent power producers (IPPs) and fuel suppliers (FS), requiring recurrent government intervention through budget transfers and arrears clearance.
- Unreliable electricity supply imposes direct costs on firms and deters private investment:
  - Approximately 95 percent of Ghanaian manufacturing firms report power outages that affect their productivity (World Bank Enterprise Survey).
  - Willingness-to-pay for reliable grid electricity estimated at US$0.15/kWh compared to an average cost of production of US$0.10/kWh; the US$0.05/kWh differential represents the implicit cost of reliability absorbed by consumers through backup coping mechanisms.

### B. Recent policy initiatives and reform progress
- The GNEC (adopted in 2025) targets:
  - Total energy sector investment of US$4.4 billion over 2025–2030, of which US$2.6 billion is expected from private sources.
  - 99 percent electricity access rate by 2030 (89 percent in 2024).
  - Increase in the share of renewables in installed generation capacity from approximately 4 percent to 10 percent.
- Reforms under the Extended Credit Facility (ECF)-supported program showed progress in 2025:
  - Resumption of tariff adjustments.
  - Strengthened implementation of the Cash Waterfall Mechanism (CWM).
  - Steps toward arrears reduction.
- Nonetheless, sustained reform efforts are required to durably restore financial viability and reposition the energy sector as a platform for growth.

### C. How Ghana’s electricity sector operates (value chain and entities)
- Generation sources:
  - Thermal generators (primarily natural gas; liquid fuels as backup).
  - Hydropower (output dependent on rainfall and reservoirs; not expandable on demand).
- Value chain overview:
  - Upstream: natural gas produced from three offshore fields (TEN, Jubilee, Sankofa) and supplemented by imports from Nigeria via the West African Gas Pipeline (WAGP).
  - Midstream: raw gas processed at Atuabo and delivered to thermal generators concentrated in Tema and Takoradi enclaves.
  - Generation: state-owned Volta River Authority (VRA) and Bui Power Authority (BPA) plus Independent Power Producers (IPPs) accounting for about 44 percent of installed capacity under long-term PPAs.
  - Transmission: Ghana Grid Company Limited (GRIDCo).
  - Distribution and retail: Electricity Company of Ghana (ECG) in southern/central zones and Northern Electricity Distribution Company (NEDCo) in the northern zone.
- Public entities and roles:
  - GNPC: equity holder in producing fields and national gas aggregator.
  - GNGC: operates gas processing and domestic gas transport.
  - CWM: rules-based framework to pool and distribute sector revenues according to a priority sequence.

### D. Sector financial flows and centrality of distribution collections
- Consumer payments to ECG and NEDCo constitute the primary source of sector liquidity; these revenues are pooled and allocated through the CWM.
- ECG accounts for approximately 88 percent of all electricity sold in the regulated market and is the central determinant of the sector’s financial position.
- CWM mechanics:
  - Operates through a single designated collection account with a fixed priority disbursement sequence (fuel first, then Level-A IPP capacity charges, VRA, GRIDCo transmission, legacy debt service contributions).
  - Compliance is monitored by ECG Revenue Validation Reports and CWM Validation Reports published by PURC.
- Collection gap example (2024):
  - ECG declared GH¢10.4 billion to the CWM against independently validated collections of GH¢15.5 billion — a gap of GH¢5.1 billion (roughly one-third of actual collections).

### E. Why the sector generates fiscal risks — structural features and transmission channels
- Structural exposures:
  - Significant state ownership and limited financial ringfencing across the value chain mean losses at any stage propagate rather than being absorbed or resolved via insolvency.
  - Long-term PPAs with IPPs contain fixed payment obligations (capacity charges, take-or-pay), so costs do not decline when demand weakens or collections fall short.
- Cost structure and key drivers:
  - Generation costs largely insulated from global gas price volatility for domestically produced gas but highly sensitive to international oil prices and the exchange rate.
  - WACOG (weighted average cost of gas) is largely unresponsive to global gas price movements because most domestic gas is not indexed to international gas hub benchmarks.
  - Brent crude price and exchange rate affect generation costs via:
    - Indexation of certain gas contracts (e.g., Sankofa and some WAGP imports).
    - Fuel switching: when domestic gas is constrained or unavailable, thermal plants switch to liquid fuels procured at spot prices, transmitting oil price changes immediately into generation costs.
  - Exchange rate movements are the fastest-acting source of cost pressure because many sector costs (fuel procurement, IPP capacity charges, debt service) are denominated in U.S. dollars while ECG revenues are in cedis.
- Illustrative contract and price points:
  - Jubilee and TEN associated gas sold at an administered price of approximately US$2.90/MMBtu.
  - Sankofa non-associated gas nominally contracted at approximately US$8.72/MMBtu (estimated net cost to Ghana less than US$4.5/MMBtu after accounting for GNPC's participating interest, royalties, and taxes); Sankofa is Brent-indexed.
  - Nigerian gas (WAGP) contracted at approximately US$8.75/MMBtu and has been an intermittent source (force majeure since 2011).
- Transmission of financial stress to the government balance sheet (sequence):
  - 1) Distribution weaknesses (technical/commercial losses, incomplete bill collection, underreporting to the CWM) reduce cash available at ECG.
  - 2) Reduced collections lead to shortfalls in CWM allocations to suppliers; CWM is not designed to eliminate financing gaps when total revenues are insufficient.
  - 3) Unpaid obligations accumulate as arrears to IPPs, gas suppliers, and fuel suppliers.
  - 4) Accumulated arrears affect operations (e.g., constrain gas deliveries), prompting fuel switching to higher-cost liquid fuels, further widening the financial gap.
  - 5) Financing shortfalls are ultimately absorbed by the government via budget transfers or the buildup of public liabilities; absent containment mechanisms, sector stress becomes sovereign exposure even without explicit guarantees.
- Additional amplifying factors:
  - GNPC’s dual role as equity partner and gas aggregator creates tensions: unpaid receivables to GNPC’s IOC partners can require government settlement and compound upstream exposure.
  - Late payments by Ministries, Departments, and Agencies (MDAs) contributed unpaid balances accounting for approximately 16 percent of total sector outstanding payables at end-2025.
  - At its peak, the Eni/OCTP letter of credit, backed by a World Bank guarantee, amounted to US$500 million and accounted for a substantial share of total sector payables.

### F. Implications for policy and reform (as documented)
- Recurrent deviations from the regulatory framework—particularly in tariff adjustments and payment discipline—have converted temporary cost pressures into persistent fiscal liabilities.
- Reforms under the ECF-supported program (resumption of tariff adjustments, strengthened CWM implementation, arrears reduction steps) have begun stabilizing the sector’s financial position, but key vulnerabilities remain and sustained efforts are essential to restore financial viability and enable the sector to support growth.

*Source: IMF staff report, “Ghana’s Energy Sector: From Fiscal Vulnerability to a Platform for Sustained Growth” (selected issues paper), July 10, 2026.*

### 14. The sector’s financial imbalances originate from three interrelated structural gaps

### 14. The sector’s financial imbalances originate from three interrelated structural gaps

### Three structural gaps driving financial imbalances
- Tariff gap: difference between the cost of supplying electricity and the revenue implied by the approved tariff schedule.
  - Tariff adjustments have been uneven, particularly around election cycles, resulting in prolonged deviations between tariffs and underlying costs.
  - Quarterly structural benchmarks under the IMF-supported program have supported more regular adjustments since 2025.
  - Tariff-setting instruments:
    - MYTO (Multi-Year Tariff Order) sets baseline tariffs; most recent MYTO established tariffs for 2026–2030 with a 9.86 percent increase effective January 2026.
    - AAF (Automatic Adjustment Formula) adjusts tariffs quarterly for GHS/USD exchange rate, domestic inflation, hydro/thermal mix, and WACOG; the latest quarterly AAF change reduced tariffs by 4.81 percent.
  - Tariff dynamics:
    - Tariff gap is self-reinforcing: under-recovery accumulates as arrears to generators and gas suppliers, adding financing costs and penalties to the cost base that future tariffs must cover.
    - Additional under-recovery arises when PURC uses a lagged reference exchange rate for tariffs while utilities procure fuel and service debt at prevailing exchange rates; this is especially significant during rapid cedi depreciation.
    - Electricity tariffs have increased by about 40 percent since March 2025 on a cumulative basis.
- Distribution gap: technical and commercial losses that reduce the amount of electricity billed to consumers.
  - Technical losses from aging infrastructure, overloaded transformers, inadequately maintained low-voltage networks.
  - Commercial losses from illegal connections, meter bypassing, billing errors, and insufficient metering coverage.
  - Distribution losses remained at 27 percent at end-2024.
  - World Bank PforR targets: bring losses to 23.8 percent by December 2025 and 19.2 percent by December 2027; GNEC targets 23 percent by 2030.
  - Northern areas (NEDCo) show distribution losses of 31.3 percent.
- Collection gap: incomplete payment of billed electricity.
  - Collection rate approximately 86 percent in 2024, implying a significant fraction of billed electricity by ECG is not recovered, with non-payment by public sector entities accounting for a significant share.

### How the gaps interact
- The three gaps reinforce each other multiplicatively, not additively:
  - Tariff gap lowers revenue per unit sold.
  - Distribution gap reduces billable volume.
  - Collection gap reduces the share of billed revenues actually received.
- Examples:
  - Positive tariff gap and positive distribution gap can create a sector imbalance even if collection gap is zero.
  - Cost-reflective tariffs can still coincide with financial imbalances if customers do not pay (positive collection gap).
- Inconsistent implementation and weak enforcement of the regulatory framework amplify these interactions:
  - Delays in adjusting tariffs and weak enforcement of payment obligations, especially from public sector consumers, have converted temporary shocks into persistent financial imbalances.
  - Between 2016 and mid-2022, tariffs increased only modestly despite significant exchange rate depreciation and rising fuel costs; adjustments were suspended ahead of the 2024 elections.

### The sector’s recent financial position and scale of shortfalls
- Annual shortfalls:
  - Energy sector shortfall approximately US$1.4 billion in 2025 or 1.2 percent of GDP.
  - US$1.6 billion or 1.4 percent of GDP in 2024.
  - Shortfalls estimated at approximately 1–1½ percent of GDP in recent years.
- Drivers of the 2024–2025 narrowing in shortfall:
  - Resumption of tariff adjustments supported cost recovery.
  - Narrowing primarily driven by improved macroeconomic conditions, a stronger cedi (lowering GHS cost of USD-denominated obligations), and reduced reliance on liquid fuels—not structural operational or collection improvements.
  - Positive revenue growth (below 10 percent in real terms) mainly reflected demand growth rather than efficiency gains.
- Accumulation of payables and arrears:
  - Stock of outstanding payables peaked at about US$2.2 billion (1.9 percent of GDP) in early 2025, declining to about US$1.7 billion at end-2025 (1.5 percent of GDP), mainly reflecting clearance of arrears with fuel suppliers (FS).
  - ECG’s stock of arrears to the energy sector reached a peak of US$3.5 billion in 2025Q2, later declining to US$2.8 billion at end-2025 on improved ECG revenue collection and CWM compliance.
  - Outstanding payables remain substantial and continue to generate penalties, financing charges, and strained supplier relationships.
- Fiscal interventions and government transfers:
  - Government transfers to the energy sector amounted to about US$2 billion in 2025 (US$1.5 billion in 2024).
    - Approximately half of transfers covered current invoices; the remainder reduced legacy debt stock.
  - NGC credit notes to gas suppliers totaled approximately US$1 billion in 2025 form US$0.4 billion in 2024.
  - Government payments often occur outside the CWM and include budget transfers, off-budget credit notes, and payments to IPPs, gas suppliers, and FS to settle ECG obligations.
- Macro-economic and distributional impacts:
  - Financial weaknesses impose macroeconomic costs that fall disproportionately on households and firms least able to absorb them.
  - World Bank analysis: majority of Ghanaian manufacturing firms report power outages that disrupt production; firms unable to afford backup diesel generators absorb output losses directly.
  - Reliability weakest where incomes are lowest and backup generation least accessible, reinforcing poverty and deterring private investment.

### ECF-supported reforms: progress and remaining gaps
- Focus areas under the ECF program (building on the Energy Sector Recovery Program, ESRP):
  - Restore cost recovery.
  - Strengthen ECG revenue collection.
  - Improve ECG operational efficiency.
  - Advance private sector participation (PSP) in distribution.
  - Renegotiate onerous PPAs.
  - Address legacy debt.
- Complementary World Bank support:
  - WB PforR approved June 2024; provides results-based financing to improve economic dispatch, ECG collection efficiency, energy accounting systems, customer services, financial management transparency, IPP invoicing, and clean cooking access.
- Achievements:
  - Strengthened implementation of tariff-setting mechanisms:
    - Resumption of quarterly tariff adjustments in 2025.
    - New MYTO for 2026–30 implemented.
    - These measures, alongside reduced ECG revenue underreporting and exchange rate movements, have contributed to an apparent narrowing of the tariff gap.
  - Increased use of domestic gas reduced reliance on liquid fuels and helped contain generation costs:
    - ENI's July 2025 expansion of OCTP gas processing capacity to 270 MMcfd increased domestic gas availability.
  - Measures to improve revenue collection and payment discipline:
    - Strengthened implementation of the CWM in 2025, including improved monitoring, enhanced compliance, and periodic independent validation of ECG collections (a program structural benchmark).
    - Partial recovery in sector liquidity resulted.
- Remaining gaps and implementation challenges:
  - Distribution losses remain high at 27 percent end-2024; smart meter deployment and billing system upgrades have been slow.
  - Durable progress requires coordinated technical and commercial actions: network infrastructure upgrades, enforcement against illegal connections, improved metering and billing systems.
  - Recovery gains remain fragile and depend on continued reform implementation and institutional safeguards.
  - Political economy risks: past delays/suspensions in tariff adjustments (e.g., suspension ahead of the 2024 elections) highlight the risk of future under-adjustment that can convert temporary cost shocks into persistent deficits.

*Source: sipea2026086 - 14. The sector’s financial imbalances originate from three interrelated structural gaps (IMF Staff / Ghana authorities, as provided in the source content).*

### Box 2. Energy Sector Reform Slippages in 2024

### Box 2. Energy Sector Reform Slippages in 2024

### Reform slippages and fiscal impact
- Implementation of Ghana’s ERSP reforms weakened markedly in the run-up to the 2024 general elections.
- Notable slippages:
  - Suspension of quarterly tariff adjustments.
  - Sharp deterioration of CWM compliance with ECG's declared collections falling well below independently validated actual collections.
  - Worsening of ECG distribution losses to 27.1 percent in 2024 (26.9 percent in 2023).
- Combined fiscal impact:
  - Government transfers increased from about US$0.7 billion in 2023 to approximately US$1.2 billion in 2024.

### Progress in arrears reduction and remaining risks
- Progress:
  - Reduction in the stock of arrears through increased government transfers and renegotiation of PPAs and legacy debt contributed to a decline in arrears from their peak levels.
- Remaining risks:
  - The sector continues to carry a substantial stock of debt and requires a fully financed and credible medium-term resolution strategy to ensure its clearance over the medium term.
  - Absent such a strategy, arrears-related costs will continue to weigh on the sector’s financial position and risk undermining recent gains in stabilization.

### Institutional reform status
- Recent steps:
  - Adoption of a framework for PSP in ECG distribution.
  - Adoption of a legislative instrument (LI) mandating competitive procurement for new generation capacity.
- Implementation bottlenecks:
  - Delays in operationalizing reforms, including issuance of implementing guidelines and appointment of a transaction advisor (MEFP paragraph 50), have limited immediate impact.
  - Absence of strong institutional safeguards to ensure consistent application of tariff adjustments and payment discipline remains a key vulnerability.

### Overall assessment
- ECF-supported reforms have helped stabilize the sector’s financial position and address key structural weaknesses.
- However, progress remains incomplete: persistent tariff gaps, elevated distribution losses, collection challenges, and a significant stock of arrears indicate vulnerability to renewed financial stress.
- Sustained and coordinated implementation across all reform areas is critical to achieving durable improvements.

### Policy priorities: From stabilization to transformation

Near-term priorities: Lock in Financial Stabilization
- Ensure consistent tariff adjustment:
  - Regular application of the AAF is critical to maintaining cost recovery and preventing re-emergence of tariff gaps.
  - Strengthen institutional safeguards, including PURC’s operational independence, to ensure compliance with existing tariff-setting framework and insulate tariff-setting decisions from ad-hoc intervention, particularly during periods of political pressure.
- Strict enforcement of the CWM:
  - Full and transparent implementation of the CWM—including strict adherence to CWM guidelines, regular independent validation of collections, and timely publication of compliance reports—will enhance accountability and help prevent re-accumulation of upstream arrears.
- Deliver on a credible and fully financed arrears resolution strategy:
  - Diligently implement the arrears clearing agreement reached in 2025 with IPPs and FS, while avoiding accumulation of new obligations, to reduce penalty costs, restore supplier confidence, and improve fuel supply reliability.

Medium-term priorities: Strengthen Operational and Financial Performance
- Reduce distribution losses:
  - Achieve sustained reductions in technical and commercial losses via coordinated progress in metering, billing systems, and enforcement.
  - Priorities include accelerating rollout of smart meters, strengthening energy accounting systems, and improving oversight of technical and commercial losses.
- Improve revenue collection, particularly from public sector entities:
  - Strengthen enforcement of payment obligations, expand use of prepayment arrangements, and implement structured repayment plans for large consumers.
  - Enhance transparency through regular independent audits of billing and collection systems.
- Advance PSP in distribution:
  - Objective: transfer defined operational areas within ECG to private concessionaires to introduce commercial discipline, performance accountability, and private capital.
  - Operationalizing PSP requires Cabinet approval of a strategy identifying a clear definition of the commercial model and envisaging structured engagement with prospective private operators.
  - Successfully concluding a concession arrangement would drive sustained reductions in distribution losses, improve billing and collection performance, and strengthen accountability in service delivery.

Structural priorities: Strengthen Governance and Prevent Recurrence of Fiscal Risks
- Institutionalize tariff-setting and regulatory processes:
  - Strengthen independence and operational credibility of the regulator (the PURC), particularly in consistent application of tariff adjustments, to reduce risk of policy slippages.
- Enhance transparency and financial governance across sector entities:
  - Timely publication of audited financial statements of all energy sector public enterprises, improved monitoring of sector-wide financial flows, and strengthened disclosure of contingent liabilities and quasi-fiscal operations.
- Ensure competitive and transparent procurement of new generation capacity:
  - Effective implementation of the LI requiring competitive procurement of PPAs to avoid accumulation of costly contractual obligations and improve value for money.
- Expected outcomes:
  - A financially sustainable sector characterized by a creditworthy off-taker (ECG), predictable tariff adjustments, and disciplined procurement will support investment in generation and distribution and reduce reliance on costly emergency interventions.
  - Improvements in domestic gas supply will further enhance gains by reducing dependence on liquid fuels and improving cost stability.
  - Note on gas supply: The OCTP project already supplies approximately 70 percent of Ghana's domestic gas for power generation. The July 2025 expansion of gas processing capacity to 270 MMcfd and the US$1.5 billion investment commitment by ENI and its OCTP partners for further field development are expected to markedly increase gas supply over the medium term. Jubilee and TEN partners have separately committed approximately US$2 billion to sustain and increase oil and gas output.

### Key sector entities and financial performance (2024)
- GNPC
  - Stage/Primary function: Upstream/midstream; Field equity; gas aggregation and on-selling
  - Ownership: 100% GoG
  - Total assets FY2024 (GHS'm): 26,535
  - Revenue FY2024 (GHS'm): 20,234
  - Net profit/(loss) FY2024 (GHS'm): +662
  - Accounts status: Management accounts
- GNGC
  - Stage/Primary function: Midstream; Gas processing (Atuabo) and domestic transport
  - Ownership: 100% GoG
  - Total assets FY2024 (GHS'm): 21,668
  - Revenue FY2024 (GHS'm): 7,261
  - Net profit/(loss) FY2024 (GHS'm): +228
  - Accounts status: Draft
- BPA
  - Stage/Primary function: Generation; Bui hydropower (404 MW installed)
  - Ownership: 100% GoG
  - Total assets FY2024 (GHS'm): 26,125
  - Revenue FY2024 (GHS'm): 2,073
  - Net profit/(loss) FY2024 (GHS'm): +1,040
  - Accounts status: Draft
- VRA
  - Stage/Primary function: Generation; Akosombo and Kpong hydro; thermal plants
  - Ownership: 100% GoG
  - Total assets FY2024 (GHS'm): 92,835
  - Revenue FY2024 (GHS'm): 11,259
  - Net profit/(loss) FY2024 (GHS'm): -570
  - Accounts status: Audited
- GRIDCo
  - Stage/Primary function: Transmission; National transmission system (6,472 km)
  - Ownership: 100% GoG
  - Total assets FY2024 (GHS'm): 15,785
  - Revenue FY2024 (GHS'm): 2,662
  - Net profit/(loss) FY2024 (GHS'm): -91
  - Accounts status: Audited
- ECG
  - Stage/Primary function: Distribution/retail; Power distribution, southern/central Ghana
  - Ownership: 100% GoG
  - Total assets FY2024 (GHS'm): 76,250
  - Revenue FY2024 (GHS'm): 36,177
  - Net profit/(loss) FY2024 (GHS'm): -8,256
  - Accounts status: Audited
- NEDCo
  - Stage/Primary function: Distribution/retail; Power distribution, northern Ghana
  - Ownership: VRA subsidiary
  - Accounts status: Consolidated within VRA

*Source: sipea2026086 - Box 2. Energy Sector Reform Slippages in 2024*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2026/english/sipea2026086.pdf_