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GHANA'S PERPETUAL PROBLEMS WITH IPPs AND HOW THE INCUMBENT ADMINISTRATION IS DEALING WITH IT




Ghana's energy sector has been in dire crisis over the years with various policies failing to meet the requisite needs of the ailing sector.

Until recently, Ghana’s energy sector was plagued by chronic liquidity and payment delays. The Electricity Company of Ghana (ECG) collected revenue but lacked a transparent system to distribute it across fuel suppliers, IPPs, GRIDCo, VRA and other stakeholders. Resulting issues included:

  • Delayed payments: IPPs waited months for receipt of full payment, severely impacting their ability to maintain operations.

  • Mounting debts: Outstanding invoices ballooned into the billions of dollars, with ECG accumulating arrears to IPPs and fuel suppliers alike.

  • Unpredictable supply: The lack of regular payments triggered power interruptions and unreliable generation.

Various governments attempted fixes, but the root cause remained ECG’s weak revenue collection and the absence of a structured fund distribution system. The Energy Sector Recovery Programme (ESRP), launched in 2019, addressed this through multiple innovations but ultimately payments to IPPs remained inconsistent.

Defining the Cash Waterfall Mechanism (CWM)

The Cash Waterfall Mechanism is a monthly revenue allocation system designed to ensure transparent, prioritized distribution of ECG’s electricity sales revenue. Key features:

  • Single holding account: All revenue is centralized into one account (now held at a state bank like Ghana Commercial Bank).

  • Automated prioritization: Revenue flows downstream, first to fuel suppliers and IPPs, before reaching other utilities (e.g., GRIDCo, VRA, MDAs).

  • Flat monthly payment: A guaranteed minimum payment (e.g. $43 million per month) is remitted to IPPs regardless of generation volume.

Initially rolled out in April 2020 under ESRP but with limitations, as ECG often paid only a fraction of what it owed. By late 2022, CWM paid around 20% of invoices, generating frustration and arrears.

What Changed Under the New Administration (Past 6 Months)

The new energy minister, Honorable John Jinapor, has been a long time advocate for the implementation of the CWM  in the energy sector. He ensured the following immediately after assuming office:

With a new government in office, reforms accelerated:

  • Full compliance enforced: In February 2025, Minister John Jinapor directed ECG to fully comply with CWM rules and consolidate bank accounts.

  • Single account operation adopted: This increased transparency and traceability of funds.

  • Guaranteed payments to IPPs: No longer dependent on delayed revenue collections fuel suppliers and IPPs receive their monthly due first.




How Fuel Provision and Waterfall Distribution Solve the IPP Problem

1. Guaranteed Payment Ensures Operations Continue

IPPs receive consistent cash to purchase fuel (often expensive liquid fuels), ensuring power generation continues reliably thus avoiding shutdowns and supply gaps.

2. Fuel Costs Are Covered Promptly

By paying fuel suppliers ahead of time, IPPs are not forced to rely on ECG advances or IOUs, which previously delayed generation and resulted in outages. The government now fully supplies fuel to the IPPs limiting the IPPs work to just generation of power. This has long term benefits for the government in terms of debt accumulation, debt restructuring etc.

3. Predictability Enhances Planning

With known monthly payments, IPPs can plan maintenance, procure fuels competitively, and service debts reducing financial risk and improving liquidity.

4. Improved Sector Confidence

Other downstream sector players such as GRIDCo and VRA though still underpaid can forecast cash flows and secure loans to invest in the grid and infrastructure.

5. Reduction of Arrears & Debt Overhang

Structural reforms and regular monthly IPP payments help curb new arrears and contain legacy debt, particularly with support from the Ministry of Finance.

Remaining Challenges & VRA Concerns

While IPPs benefit, some concerns remain:

  • VRA and other utilities underpaid: Senior staff at VRA reported that, despite producing 67.5% of national power, they were disadvantaged by fixed IPP payments.

  • Persistent ECG revenue shortfall: Inadequate tariff recovery and revenue collection still limit payments to Tier‑B players.

  • Calls for reform: PURC and stakeholders are demanding revisions to the CWM to make it more equitable.

Conclusion

In the first six months of the new administration, Ghana’s strict enforcement of the Cash Waterfall Mechanism, combined with payments covering fuel provision, has begun to solve key IPP payment issues. The predictable cash flow has:

  • Resumed regular operations of IPPs

  • Reduced generation interruptions

  • Enhanced visibility and accountability in fund allocation

To sustain progress, greater attention must now be given to improving ECG revenue collection, revising mechanisms to be fairer for state-owned facilities, and aligning fuel procurement with least-cost, cleaner options like natural gas.

Ghana’s energy sector is on a more stable path and regularizing these payments is a core component of the reform success story.


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