Ghana’s energy sector required an additional GH¢12.9 billion in government financial support in 2025, even after the introduction of an increased Energy Sector Shortfall and Debt Repayment Levy (ESLA), according to a recent report from the Ministry of Finance. This indicates that revenue generated from the levy was insufficient to cover the sector’s substantial financial obligations for the year.
Context of Levy Consolidation and Increases
In April 2025, Parliament moved to streamline energy sector levies by consolidating several existing charges, including the Energy Debt Recovery Levy, Energy Sector Recovery Levy, Sanitation and Pollution Levy, and the Price Stabilization and Recovery Levy. These were merged into a single Energy Sector Shortfall and Debt Repayment Levy.
The stated aim of this consolidation was to enhance transparency, simplify administration, and improve revenue collection for the energy sector. Shortly after this consolidation, in June 2025, the government further increased the levy from 95 pesewas to GH¢1.95 per litre.
Finance Minister Dr. Cassiel Ato Forson highlighted that this GH¢1 increase was intended to address energy sector shortfalls, clear legacy debts, and contribute to a more stable electricity supply across the nation.
Revenue vs. Expenditure Gap
Despite these measures, the Ministry of Finance’s 2025 report reveals a significant disparity between revenue collected and expenditures incurred by the energy sector. The total revenue generated from the ESLA levy in 2025 amounted to GH¢8.66 billion.
However, the total payments made within the energy sector during the same year reached GH¢22.67 billion, equivalent to approximately US$1.9 billion. This substantial deficit necessitated significant intervention from the government’s main treasury.
Key Expenditure Areas
Major components of the energy sector’s expenditure in 2025 included GH¢5.46 billion for outstanding gas invoices to suppliers like Eni and Vitol, crucial for power generation. Additionally, GH¢4.54 billion was allocated to settle legacy debts owed to Independent Power Producers (IPPs).
A significant sum of GH¢6.94 billion was used to reinstate the World Bank Partial Risk Guarantee, a facility that had been previously drawn down. Furthermore, GH¢5.73 billion was spent on procuring liquid fuel and gas essential for maintaining electricity generation capacity.
Treasury Intervention and Debt Repayment
To bridge the considerable funding gap, the Treasury disbursed an additional GH¢12.85 billion through the Controller and Accountant General’s Department. Of this amount, GH¢5.16 billion was directed towards financing ongoing energy sector shortfalls.
The remaining GH¢7.69 billion was specifically earmarked for the repayment of legacy debts, underscoring the persistent challenge of historical financial obligations within the sector.
Favorable Conditions Masking Deeper Issues
These findings are particularly noteworthy given that the period saw improved compliance with the Cash Waterfall Mechanism by the Electricity Company of Ghana (ECG), meaning revenue was no longer being under-declared. The stability of the Ghanaian Cedi during this time also helped mitigate one of the primary drivers of energy sector shortfalls.
Historically, currency depreciation has significantly contributed to shortfalls, as a substantial portion of energy sector costs, particularly for fuel and gas, are dollar-denominated, while electricity tariffs are set in Cedis. The reduction in this exchange rate volatility would typically ease financial pressures.
Potential for Future Reductions
Some of the expenditures recorded in 2025 may not be recurring. The restoration of the World Bank Partial Risk Guarantee was a one-time necessity due to its previous drawdown. As compliance with the Cash Waterfall Mechanism continues to improve and legacy debts are progressively cleared, some of the accumulated financial burdens on the sector could diminish over time.
Government initiatives, including exploring private sector participation in ECG’s distribution operations and implementing operational reforms to reduce technical and commercial losses, also aim to improve the sector’s financial health.
Analysis of Treasury Support Allocation
A closer look at the Treasury support reveals that a larger portion was allocated to addressing historical issues rather than immediate operational deficits. Approximately GH¢5.16 billion of the GH¢12.85 billion provided by the government covered current shortfalls, while GH¢7.69 billion was dedicated to clearing legacy debts.
This suggests a strategic effort to tackle long-standing financial obligations alongside managing current operational needs. Despite these efforts, the 2026 Budget projects an increase in energy sector shortfall financing requirements to GH¢15.2 billion, up from approximately GH¢12 billion in 2025.
Structural Challenges Persist
The increased levy, while narrowing the financing gap, has not resolved the fundamental issues plaguing the energy sector. As acknowledged by Finance Minister Dr. Cassiel Ato Forson, the core challenges are structural. These include inefficiencies in revenue collection, systemic losses, weaknesses in the implementation of financial management mechanisms like the Cash Waterfall Mechanism, costly power purchase agreements, and broader inefficiencies across the energy value chain.
While the additional levy has provided some breathing room, the Ministry of Finance’s own data implies that sustainable solutions will necessitate comprehensive structural reforms beyond tax adjustments alone. The path forward will likely involve a continued focus on debt resolution, operational efficiencies, and potentially renegotiating unfavorable contracts.
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