Explainer: What is the Cash Waterfall Mechanism?

The Cash Waterfall Mechanism was implemented in April 2020 as part of the Energy Sector Recovery Programme (ESRP) to ensure fairness and transparency in distributing energy revenues among electricity distribution companies.

Its goal was to equitably distribute monthly revenue collections by ECG based on beneficiaries' invoices and their share of the PURC tariff.

This initiative was essential for the government's efforts to reduce the energy sector deficit and prevent future shortfalls.

Before implementing this mechanism, a financial analysis conducted by the Ministry of Energy (MoEn) with support from the Power Africa Transactions and Reforms Program (PATRP) highlighted a significant "revenue shortfall" within the power sector, projected to exceed USD 12.5 billion by 2023.

ECG was instructed to use CWM as the sole payment mechanism for customer revenues and operate a single holding account for collections.

PURC would validate revenue collections and payments according to CWM guidelines and reconcile quarterly with MoF and the CWM team to identify any payment shortfalls to be covered by the Finance Ministry.

Read also: Dumsor: Finance ministry failed to pay power generators over GH₵1.2 billion under the CWM – PURC report

The Government restructured the CWM into two payment levels – Level A for six IPPs and Level B for local SOEs and other generators.

Under ECG's renegotiation with IPPs, a monthly payment of US$43 million to six IPPs was agreed upon, with the remaining ECG collections distributed to SOEs and other generators using the CWM formula.

The CWM payments were to be made by ECG from the single holding account established for this purpose.

ECG collections will be audited to show payments being made under CWM (monthly, etc.) and the balance to be catered for by MoF, which is expected to be the balance after the ECG/CWM payment of the flat rates on IPP invoices.

Process of transferring payables from ECG to MoFIPPs send invoices to ECG.ECG verifies the invoices and sends them to the CWM implementation committee.The CWM team assesses the invoices using a formula to determine payment to IPPs.

ECG then notifies the Ministry of Finance (MoF) of any outstanding balances.MoF validates IPP invoices according to PFM Regulation 78, including checking for a validated invoice, agreement documentation, ministry cover letter, and budget provision.Approved payment requests undergo internal approval processes within MoF to ensure compliance with legal and regulatory requirements before disbursement.Arrangement of Payment to IPPs and SOEs

The Electricity Company of Ghana pays Independent Power Producers (IPPs) and State-Owned Enterprises (SOEs) in Ghanaian cedis.