Ghana hikes utility tariffs despite inflation risks

ACCRA (Reuters) - Ghana's utility regulator raised power and water prices on Wednesday by 79 percent and 52 percent respectively as the government seeks to curb its budget deficit. The fast-growing economy, a cocoa and gold producer which discovered oil in 2007, has attracted foreign investors with its rapidly growing middle class and reputation for political stability. But the government is under pressure to bring down its budget overshoot in order to hold down its borrowing costs. Ghana's Public Utilities Regulatory Commission (PURC) said the price rises, effective October 1, would enable providers to recover their costs and undertake capital investments. "The last time they had a major tariff adjustment was in June 2010 and the situation was taking a toll on their operations," Samuel Sarpong, PURC's executive secretary, told a news conference. "It was also to ensure the appropriate return on investments to satisfy the interests of investors," he said. He cited the example of Ghana's main power utility Volta River Authority, which was currently buying more expensive light crude oil to run its thermal plant due to an inadequate supply of natural gas. Analysts, who had anticipated the hike, said it showed the government's determination to control spending after overshooting its 2012 deficit target by almost 100 percent. "Given expectations that Ghana's utility price adjustment may have been more piecemeal, this news will be positively received by investors," said Razia Khan, head of Africa research at Standard Chartered Bank. But Sampson Akligoh of the Accra-based Databank Financial Research said while the tariff hikes were inevitable, they would hurt industry and put employers under pressure to raise pay. Inflation has been running at around 11 percent.