Privatising ECG: A two birds, one stone approach

0

Currently ongoing is the wrangling among the Public, Employees of the Electricity Company of Ghana (ECG), and the Government, on the matter of Private Sector Participation (PSP) in the running of the ECG. However, from all indications, it appears nothing will deter government from embarking on the second phase of the Millennium Challenge Compact, which involves this PSP.

While the debate rages, Ghanaians however seem oblivious of the possible outcomes of the dogged commitment of the government to this process. The debate has been largely in simple black and white terms; “Bring In Private Sector” and “Leave ECG for Public Management”.

While the proponents of the above arguments may all have their reasons for doing so, the crux of my submission in this article focuses on what should be the optimum approach if we are to go the road of Private Sector Participation; judging from the posturing of government.

The PSP process can be put into Four(4) broad categories;

  • Divestiture: Actual sale of public assets to the private sector.
  • New investment projects: (BOT, BOOT, DBOT, BOO, also ROT).
  • O & M: Private operator manages the operation and maintenance of the project (2-5 years)
  • Concession contracts (or franchises): Long term contracts (15-30 years): O&M+ Investment+ risks.

It is apparent Ghanaians never had the option to debate the merits or otherwise of the four approaches above regarding the preferable option of PSP for the ECG. Most likely because we were more caught up in the two-shades argument of “go” and “no go” or the public was never really informed enough on the matter to engage in such a debate. In any case, the decision of which option to go with has already been made for Ghanaians; and it happens to be the fourth option; which involves giving out a Concession Contract, in this instance for a period of 25 years, to a successful bidder.

The rationale for this PSP process, many posited, is because the private sector will deliver better value to consumers and manage ECG more efficiently. But it has also been the case that a number of state run businesses have been handed over to the private sector before; and no radical improvements in performance were availed, if not total collapse of such entities; others have argued.

A classic example of the failure of private sector to run a utility successfully in Ghana is that of Aqua Vittens Rand (AVRL) and Ghana Water Company Ltd (GCWL). The Five year management contract of AVRL with respect to managing the GWCL came to a disappointing end in 2011; with The National Coalition Against Privatisation of Water (NCAP), calling for sanctions from government against the AVRL, because of their failure to deliver on the terms of engagement. Some of the issues cited included; deterioration in water quality in all ten regions; low distribution pressure coupled with water rationing; high level of non-revenue (unaccounted) water; high consumption of electricity even though 37% of plants cannot be assessed; and failure to increase access to piped water. In the end, GWCL reverted back to public management.

The question many fail to ask is why the private sector seems to fail or doesn’t produce remarkable outcomes after taking over our hitherto publicly managed assets. From where I stand, the reason central to this development is the manner in which the switch from Public to Private Sector Participation is done. The central dogma underpinning great performance by the private sector is not hinged solely on the fact that such entities are privately owned; but rather on the element of Competition. Without competition, the private sector has no more motivation to continually improve quality of delivery to consumers anymore than the public sector. As such, Ghana’s practice of replacing our public monopolies with private ones has yielded similar if not worse outcomes of deteriorating performance over the years. But it appears none is really taking cognisance of this development and effecting the relevant changes in policy. Many leap to the high heavens at the simple mention of the private sector, as though that in itself is an automatic indication of performance and efficiency.

Returning to the subject of ECG and the current PSP, the approach being adopted is to give over the national power distributor to a single successful concessionaire. This approach, as I explained above, will amount to replacing one monopoly with another. Save this time, they have different names; Public and Private, respectively. If the motivation of this PSP is to improve the quality of service delivery to consumers, then it is clear delivering all the Nine (9) operational regions and subsequently all eighty (80) operational districts of the ECG to a single concessionaire will not be the best thing to do.

I believe after the market failure with AVRL and GWCL, we should adopt a competitive approach, as well as a progressive elaboration of private sector participation in the utility sector. By this, I mean the following approach could be adopted:

  1. The Eighty (80) Operational Districts of ECG could be divided among at least Three(3) or more (Concessionaires), with the current management of ECG maintaining the less problematic operational districts.
  2. The PURC monitors the performance of the various concessionaires based on their delivery on certain KPIs over certain milestones/timelines (within the concession period); and gradually elaborate the number of districts for better performing concessionaires, by weaning off the public management of those other districts maintained by public sector management; i.e. if they radically outperform the public sector managers in those districts.
  3. The reverse should be the case in (b) above; if the private sector managers are failing to deliver on the KPI’s. Thus systematically reverting ECG to the State.

The upsides of the approach above are that;

  1. It engenders competition and the motivation to deliver.
  2. It prevents the Concessionaire from solely focusing on how to recoup their investments, without recourse to continual improvement in the quality of service delivery
  3. It also gives government the leg room to maneuver, and not be saddled with a poor performing concessionaire for over two decades
  4. It gives the public sector managers an opportunity to prove or measure their efficiency against the private sector participants – This can provide a good case study for public/private operations occurring in parallel; which will inform greatly future decision making processes on models that work better within our development paradigm

I believe strongly that the approach above will better serve Ghana, if we are to bring in the private sector in the first place. There’s no good reason to expect a radical change in fortunes simply by handing a public monopoly to a private one. It was just five years with GWCL; hence Ghana was able to recover after the contract termination. Here, we are looking at 25years. This calls for more caution and introduction of “contractual safety valves” from the side of government into the transaction framework of the ECG concessionairing process.

There must be a reason why the countries that encourage the private sector as the engine of their growth have strong anti-trust laws. But Ghana seems to be the stranger in town who always gets fed the head of the blind chicken anytime the matter of the private sector and privatization comes up. This time, we have the opportunity to do it right, if it must be done.

Source: Jason Tutu

Do you have more to share about this story - photos or video etc - you can send them to: (newsghana101@gmail.com)