Ghana’s GH¢1 Fuel Levy: A Temporary Fix or a Long-Term Burden?

The New GH¢1 Fuel Levy

On June 3, 2025, Ghana's Parliament passed the Energy Sector Levy (Amendment) Bill, 2025, introducing a GH¢1 levy on each litre of petroleum products. This decision aims to generate additional revenue to address the nation's escalating energy sector debt and ensure a stable power supply. The Finance Minister, Dr. Cassiel Ato Forson, emphasized that the energy sector's total indebtedness stood at US$3.1 billion as of March 2025, with an estimated US$3.7 billion required to fully clear this debt and an additional US$1.2 billion needed to procure essential fuel for thermal power generation throughout the year . Read about the potential of alternative forms of energy that may help reduce Ghana's over-dependence on thermal plants

 Duration and Sustainability of the Levy

The levy is projected to generate an additional GH¢5.7 billion annually. While the government assures that the impact on ex-pump prices will be mitigated by the Ghana Cedi's strong performance, the sustainability of relying on such levies is questionable. Historical precedents suggest that without structural reforms, such measures may offer only temporary relief.

 Historical Inefficiencies and Mismanagement

Ghana's energy sector has long grappled with inefficiencies. Previous levies, such as those established under the Energy Sector Levies Act, 2015 (Act 899), were intended to consolidate existing energy sector levies and promote prudent utilization of proceeds. However, challenges in implementation and utilization have persisted. Reports indicate that despite the introduction of these levies, the energy sector continues to face issues like accumulation of arrears to Independent Power Producers (IPPs), operational inefficiencies within state-owned enterprises like the Electricity Company of Ghana (ECG) and lack of transparency in fund utilization. Read about procurement inefficiencies by ECG

IMF's Stance and the Need for Structural Reforms

The International Monetary Fund (IMF) has expressed concerns over Ghana's energy sector deficits, emphasizing the need for swift reforms. As of December 2023, energy sector arrears, including legacy debts, stood at USD 2.1 billion, equivalent to 2.8% of GDP. The IMF's position underscores that while revenue measures like fuel levies can provide temporary relief, they are insufficient without accompanying structural reforms to address the root causes of inefficiencies and financial mismanagement in the energy sector. Read about a historical timeline on Ghana's energy sector debt. Another key factor remains IMF's imposition of quarterly electricity tariffs in order to balance cost of power generation as against revenue. Read about the IMF's imposition of quartely electricity tariffs from 2023 to 2026. There are existing mechanisms such as the above that is already addressing a key challenge in the energy sector.

 Addressing ECG's Operational Challenges

A significant contributor to the energy sector's financial woes is the operational inefficiency of the Electricity Company of Ghana (ECG) and GRIDCo. Issues such as high distribution losses, ineffective billing and revenue collection systems and inadequate infrastructure maintenance have plagued the ECG, leading to substantial financial losses and undermining the effectiveness of levies intended to stabilize the sector. Addressing these challenges requires implementing robust operational reforms within ECG, enhancing transparency and accountability mechanisms, and investing in infrastructure upgrades and maintenance. Prosecution of former leaders of the ECG with harsh punishments could a key contributor to ensure efficient operations

Conclusion: Beyond Temporary Measures

While the introduction of the GH¢1 fuel levy aims to address immediate financial shortfalls in Ghana's energy sector, it is imperative to recognize that such measures are temporary fixes. Sustainable solutions necessitate comprehensive structural reforms, improved operational efficiency and enhanced transparency within key institutions like the ECG. As stakeholders and policymakers, the focus should shift from short-term revenue generation to long-term strategies that ensure the financial and operational sustainability of Ghana's energy sector.

EXTRAS

 (Accessing the Official Document)

For a comprehensive understanding of the legislative changes, you can access the full text of the Energy Sector Levy (Amendment) Bill, 2025, through the official Parliament of Ghana website or the Ministry of Finance's portal. These documents provide detailed insights into the provisions and intended applications of the new levy.