By Commissioner Andrew Quayson Chairman, Technical Committee

1. REGULATORY FRAMEWORK FOR ENERGY INFRASTRUCTURE INVESTMENT – GHANA’S EXPERIENCE (PURC).ABUJA – NIGERIA MAY 1, 2008 By Commissioner Andrew Quayson Chairman, Technical Committee Public Utilities Regulatory Commission (PURC-GHANA)

2. Presentation Outline • Background to Establishment • PURC-The Commission Act 538 • Tariffs • PURC Tariff Responsibilities • Tariff Decision Process • Composition of tariff • Key Tariff Considerations • Challenges • PURC’s Experience to date • Conclusion

3. 1.0 PURC – Background to establishment • Independent regulatory institution • Established by an Act of Parliament (Act 538) • To regulate and oversee the provision of utility services • Created out of power sector reform recommendation • Chronic lack of investment in Energy Sector • Poor Quality of Service • Low Tariffs • Poor Financial Performance by Utilities • Recommendation by the World Bank to Reform Sector • Power Sector Reform Committee (PSRC) - 1994 • Recommendations by PSRC • Unbundling of System • Establish Regulatory Framework • Restructure the Distribution System • Attract private Investment

4. PURC – Background to establishment -Contd • Goals of Power Sector Reform • Increase access to electricity to all sectors of the economy • Ensure efficiency in delivery of power to consumers • Specific Objectives • Enhance the management and accountability of the public utilities • Promote private sector participation in the Generation and Distribution Sectors • Ensure an effective regulatory environment • Energy Commission: Technical Standards and Licensing • PURC: Economic Regulation Quality of Service Regulation

5. 2.0 PURC - The Commission Act 538 Functions • Provide guidelines for rates to be charged by utilities. • Examine and approve rates to be charged by utilities for services provided • Monitor standards of performance for provision of utility services • Protect interest of both consumers and providers of utility services • Promote fair competition.

6. 3.0 Tariffs History of Electricity Tariffs in Ghana • Previously determined by Government (both as Regulator and operator) • Tariff structure was not cost reflective (Tariff levels too low to cover cost of production) • Low tariffs resulted in chronic lack of investment and poor quality of service • PURC constituted as an independent body to take charge of regulatory functions including tariffs setting • 2000 PURC developed and issued Electricity Rate Setting Guidelines

7. History of Electricity Tariffs in Ghana Continued • Transitional plan for gradual tariff adjustment also developed in 2001 • PURC has carried out two major tariff reviews since its inception in 1997.(1998-2003) • Quarterly Automatic Adjustment Formula implemented from March 2003 to August 2006 • PURC carried out a third major tariff review in 2006

8. 4.0 PURC Tariff Responsibilities • Develop tariff setting mechanism which is fair and predictable. • Ensure transparency in the tariff making process. • Set efficient economic tariffs, based on efficient production costs • Provide opportunity for utilities to earn a fair risk-adjusted return • To enable utilities to improve quality of service

9. 5.0 Tariff Decision Process • Submission of tariff proposals by utilities to PURC • Submission of tariff proposals to key institutions • Publicise proposals – through electronic & print media • Organise Public hearings • Consultation with key stakeholders • Utilities • Consumers – all major classes • Government

10. 6.0 Composition of Tariff • Bulk Generation Tariff – weighted average of all generation sources • Imports • Combined cycle thermal • Simple cycle thermal • Hydro • Renewables • Fair RoR on investment

11. Composition of Tariff cont’d • Transmission Service Charge • Cost of transmission, • Transmission losses • Reasonable RoR • Distribution Service Charge • Cost of distribution, • Distribution losses • Energy purchase • Fair RoR on Investment

12. Composition of Tariff cont’d • Bulk Supply Tariff – sum of the Bulk Generation Tariff and Transmission Service Charge • Average End User Tariff: Sum of the Bulk Supply Tariff and Distribution Service Charge

13. Trend of Bulk Supply Tariff (BST), Distribution Service Charge (DSC) and Average End-User Tariff (AEUT) in cents/kwh for the Period 1998-2007

14. 7.0 Key Tariff Considerations 7.1 Objectives of tariff • Ensure full Cost recovery of reasonable and efficient costs • Encourage efficiency through performance targets • Provide incentives for operational efficiency • Ensure financial viability of utilities 7.2 Tariff structure • Structure inherited contained cross subsidies • Too many bands for residential consumers

15. Key Tariff Considerations (cont’d) • Compound house effect/multi tenanted dwellings • Low collection rate and high system losses • Subsidy • Life line tariff – subsidy was enjoyed by all consumers 7.3 Tariff Decisions • Reduced cross subsidies and band • Gradual move to economic tariff • Rebalance of max demand and energy for industry • Lifeline tariff targeted at low income consumers • Efficiency benchmarks for system losses and collection rate • Customer outage duration and frequency targets per year

16. 8.0 Challenges • Regulatory Independence Determined by: • Level of discretionary decision making power • Staffing autonomy, own procedures, determine own salaries • Funding mechanism • Accountability • Regulators must be able to justify decisions • Regulatory decisions can be subjected to public scrutiny

17. 9.0 PURC’S EXPERIENCE TO DATE • First decade devoted to addressing tariffs • Bold tariff decisions taken to restore viability of utility (from 4.2 cents US in 1998 to 13.4 cents in 2008) • Increasing access of electricity from 40% in 2000 to 54% in 2005 • Generation capacity increased by over 60% from 1072MW (1997) to 1730MW (2005) • No significant improvement in quality of Service delivery (load shedding 1998, 2003, 2006-7) • Energy Commission has developed a Strategic National Electricity Plan 2006-2020 • Generation separated from transmission • Independent System Operator set up (GRIDCO – 2007)

18. PURC’S EXPERIENCE TO DATE cont’d • Encouraging private sector participation in Generation • TICO 2002 220MW Simple Cycle • Since 2007, 12 IPPs showed interest to generate a total of over 1500MW. • Construction of first phase of 540MW combined cycle 2008 • Government sourced funds for investment in Power Sector • Retrofit of Akosombo generation plant at a cost of US$130M increased capacity from 912MW to 1020MW • US$ 622M Chinese loan for 400MW Hydro Electric Dam at Bui ( 2007 ) • US$ 250M from Eurobond market for investment in Transmission and Distribution (2007)

19. 10.0 Conclusion • Opportunities for investors • Political Stability • Planned accelerated economic growth of 8% • Established Regulatory Institutions • 20% supply gap • Establishment of WAPP • Fair risk adjusted RoR for investors • Oil/Gas find in Ghana