The Electricity Company Of Ghana Action Plan Finance Essay

The Electricity Company Of gold coast Action Plan Finance EssayElectricity gene symmetryn, transmission and distribution in gold coast mainly shoot three institutions that work in an interrelated manner. Volta River Authority (VRA) gene range the electric power through hydro and thermal plants and, until recently, as well as had responsibility for the high voltage transmission system. The Ghana Grid Company (GRIDCO), created as part of reforms in the power sector, now has responsibility for the high voltage transmission so as to befuddle that disconnected from generation entities. It is the least known of the institutions. The Electricity Company of Ghana ( electrocardiogram) distributes the energy produced to most consumers through low voltage transmission lines. It is the institution that is in place contact with most of the public. Figure 1 below shows the main processes of the power distribution in Ghana.The ECG is a limited liability fraternity possess completely by the Government of Ghana and has the responsibility of supplying and distributing electrical power in the southern part of Ghana. It was established in November 1997 as formulate Stock Company based on the companies code in accordance with the 1993 Corporate Act (Act 461) of Ghana. The company has its headquarters in Accra, a total hands of 5,281 with a customer base of 1.7 million (ECG annual report 2008).VisionThe ECGs vision is to be among the leading electricity distribution companies in Africa in damage of property, safety and reliability.Mission StatementThe mission statement of the company is to provide quality electricity services to support sparing growth and wearment in Ghana.The primary objective of the company is to supply electrical energy to people in its atomic number 18as of operation. In discharging its various duties, the company has executed a number of guinea pig electrification programmes on behalf of the government. The ECG is a monopoly in the electricity di stribution sub sector of Ghana. The tariffs that clients pay for the supply of electricity services are regulated by the state owned company called Public Utility Regulatory Commission. The ECG charges commercial rates to its clients which are subsidized by government.Organizational structureThe company is run by the circuit board of Directors, Principal Officers and Advisors. The companys display board of Directors are appointed by the Government of Ghana. The Principal Officers and Advisors control and run the eight directorates of the Company. These directorates are engineer, trading operations, guest Services, physicals Transport, Finance, Audit, Legal Services and Human Resources. Figure 2 below depicts the disposalal structure of the ECG.Fig.2 The Organizational Chart of ECGBoard of DirectorsManagingDirectorrectordivisional Managers (3)divisional Managers (6)Director Legal ServicesDirector Customer servicesDivisional Managers (3)EmployeesEmployeesDirector Human Resourc eDirector Customer servicesDirector Material and TransportDirector Material and TransportDirector AuditDirector FinanceDirector designDirector operationsDivisional Managers (6)Divisional Managers(3)Divisional Managers (2)Divisional Managers (2)Divisional Managers (3)Divisional Managers (3)Divisional Managers (5)Divisional Managers (3)Lower managemt EmployeesLOwerManagemt EmployeesLowerManagemt employeesEmployeesLowerManagemt EmployeesLowermanagemt EmployeesLower managemt EmployeesLowerManagemt EmployeesLowerManagmtEmployeesBoard of DirectorsThe Board of Directors as at 29th June, 2009 was composed of the following personsIng.Sqn. Ldr. Clend Sowu (Rtd.) The chairman of the Board. He is a Consultant Engineer and a Retired Military Officer.Mr. Cephas Gakpo The Managing Director of the companyMr. Bernard Allotey Jacobs A Media PractitionerBarimah Kwame Nkyii XII Omanhene Assin Aimanim Traditional Area, Tax Ecpert.Dr. Kwaku Osafo Economist/EngineerMr. Samuel M. Codjoe LawyerMr. Anthony Gyampo EducationistMr. Kwabena Adjei Businessman, Communication ProfessionalHon. Dr. Nii Oakley Quaye-Kumah Member of Parliament for Krowor Constituency, Veterinary SurgeonMr. Jake Kofi Anre A Lawyer and Secretary to the BoardDirectorates of ECGThe Engineering Directorate is responsible for the planning and designing of the distribution net income. The directorate is overly responsible for the procurement and death penalty of investment projects.The Operations Directorate is responsible for delivering quality reliable and safe supply of electricity to customers, maintain the network regularly in graze to cut down the number of interruptions and outages, respond quickly to faults and use modern technology to operate the distribution systemMaterials Transport Directorate has responsibilities of managing all activities regarding materials received for projects and other ECG operations. In addition, the department has to manage all operations regarding Transport (Vehicles).Custom er Services Directorate has responsibilities of gathering all information about forefinger Purchases, Power Sales, Average End-User-Tariff (EUT), System Losses, Revenue Collection, debtors position at the end of each year and customer population.Audit Directorate is responsible of operational, commercial and financial activities of ECG. With practiced Audits, physical inspections and reconciliation of materials usage are carried out. The directorate is also responsible of Audit investigations on fraud and corruption. Lastly, it support Management about operational activities and break down directives to address them.Legal Services provides legal services to the ECG. The Director is the Secretary to the Board of Directors and maintains a Board Secretariat to provide secretarial services to the Board of Directors. He is involved in the prosecution of people involved in the illegal activities against the ECG to take down system blemishes.Finance Directorate has responsibilities of analyzing and reviewing financial data, inform financial performance, preparing budgets and monitoring expenditures and appeals for the ECG as a whole.Human Resources Management Directorate has responsibilities in the following areas Staffing (Employment and Recruitment, Personnel records, Compensation) Training and Development and industrial Relations (Health and Safety).The ECG is a Strategic Enterprise in the sense that it is the only electricity distribution company that supplies electricity to the whole of Ghana. Secondly it offers exercise to over 5,000 Ghanaians, making it the largest employer in Ghana.SITUATIONAL ANALYSISThe analysis of the performance of ECG as described below is based on available information up to year 2008.The Impact of Global and National Forces on ECGs OperationsThe worldwide economic recession (Credit Crunch) affected both the economy of Ghana and ECGs operations. The year motto rapid hikes in crude oil and metal prices which resulted in the high cost of power generation from thermal sources and sharp increases in the cost of materials and equipment postulate for capital investment projects.The Ghana Cedi also depreciated against the major world trading currencies specially the US Dollar, the Euro, and the British Pound. Since most of the inputs for ECGs capital investment projects were imported, prices consequently change magnitude relative to energy cut-rate sales which were generally denominated in the Ghana Cedi. The cost of investment projects at that placefore increased from 12% to about 20%. The U.S dollar for shell appreciated in value against the Ghana Cedi from a rate of $1 GH0.92 in July 2007 to $1 GH1.49 in June 20091The ostentatiousness rate in Ghana also contributed to the high cost of operations and subsequently affected the companys receiptsability. The inflation rate has increased over the period from an average of 10.73% in 2007, 16.46% in 2008 to 19.86% in 2009. This resulted in increases in labor cost and other local raw material inputs. Details of the inflation rate is attached as appendix 1Financial, Operations and Human Resources PerformanceProfit and LossThe ECG has do an run profit of GH25,089,202 in 2008. Prior to this year, the company had been making losses. In 2006 and 2007 for example, the net operational losses were (GH3,429,300) and (GH8,657,716) respectively.Current additionsThe stocks direct at year 2008 was GH135,851,792. This was an increase of 99.8% over year 2007 mental image. The Accounts Receivables also increased by 50.5% to GH258,033,418 in 2008. The table below depicts the attitude of the Current Assets of the company over the three year period from 2006 to 2008.Current Assets2008 GH%age change2007 GH%age change2006 GHStocks135,851,79299.867,999,84139.348,800,300Debtors258,033,41850.5171,411,58716.2147,503,100Prepayment8,323,294184.62,924,574 48.45,665,800Short Term Investment16,358,519108.57,845,12612.07,002,600 immediate payment and Cash Balanc es49,473,76542.634,690,92916.429,796,100468,040,78864.3284,872,05719.3238,767,900The increases in the stocks and debtors depict a weak inventory management and character policy of the company.Debtor/Sales RatioThe Debtor/Sales ratio which is an expression of customer debt in days of billing was 130 days in 2008. It deteriorated from 138 days in 2006 to 162 days in 2007 representing a decrease of 17.4%. Although there was an improvement from 162 days in 2007 to 130 in 2008, the figure is still too high.Loans and Suppliers CreditThe ECG through the Government of Ghana has secured the following loans and credit from the World Bank and other suppliers for investments in its distribution network. This has increased the companys debt situation tremendously.DSUP $15m financed by IDA, ECG (2003-2007)GEDAP $94.5m financed by IDA and cooperators, AfDB, ECG, (2008-2012)GEDAP Extension $70m for Ashanti Region, financed by IDA (2010-2014)French credit Euro 65m for Tema and Kumas. pay fr om the french govt. (2008-2012)Norwegian credit Euro 60m for Greater Accra and Eastern regions. Financing from the Norwegian govt. (2008-2012)El Sewedy credit 16.5m from El Sewedy TD (2010-2011)As at December 2008, an substance of GH171.92 million was outstanding in suppliers credit.Systems LossesSystem loss is a power loss in its course from the source to end users. In 2007 the systems loss was 24.03%. This increased to 25.58% in 2008 as result of poor transmitting system and also theft through illegal connections. The ECGs performance in this area is declining and this is adding onto the cost of operations of the company. The table below shows the trend of the systems losses over a three year period from 2006 to 2008.System losses units (GWh)Year2005200620072008 replete(p) Purchases5045.45252.85145.65799.4Total sales3762.03978.43909.14315.8System losses in %24.2624.0325.58Human Resources CapacityECGs ply strength at the end of the year 2008 was 5,281. This was an increase of 6 .07% over year 2007 figure of 4,929. Staff turnover over the year period is showed in the table below.Employee turnoverYear200620072008Employee turnover3.02%3.27%3.53%The percentage of employee turnover increased from 3.27% in 2007 to 3.53% in 2008. The reasons assigned for this increase upon our investigation are lack of motivation and incentives to the employees.E military rank of ECGThis section of the Plan tries to come out with a range of evaluate fair market values for ECG incase the government find it necessary to privatize it.The main purpose of this evaluation is to give all stakeholders especially government and management of the company a fair market range of values within which the ECG can be sold.ECG, as already mentioned preceding(prenominal) is a public monopolist and as such not listed on the Ghana Stock Exchange (GSE). As a result of this, the market coincidence Method of evaluation can not be used. The only feasible formulas to use would be the Asset Appraisal M ethod and the Discounted Cash Flow Method.Asset Appraisal MethodThis method involves revising all the plus and liabilities of the company including Goodwill. Using the 2008 audited financial report of the company, we can easily get the values of the asset and liabilities of the company at Net Book cherishs (NBV) and not the Revised Values.Since we are not in a position to revalue the companys assets and liabilities we are solely relying on the NBV of these assets and liabilities. The NBV of assets and liabilities for the 2008 financial year were given as follow2008GHCurrent Assets 468,040,788Fixed AssetsPlant, Property and Equipment 1,171,197,452Goodwill 2,021,653,890Total Asset 5,008,661,390Less Current Liabilities (259,567,145)Value ECG 3,401,324,985Calculating the value of GoodGoodwill is calculated based on the Supper Profit Method. This involves determining a value for the expected future profit of the company. Here, some past profit of the collected based on the 2008 report and an average is taken. We then make adjustments to reflect future profits. Thus, expected future expenses and income are adjusted.Years Net profit/LossGH1999 17365,2592000 (7,583,807)2001 152,973,0462002 (451,974)2003 (483,609)2004 (269,686)2005 (305,425)2006 (475,200)2007 (48,836,581)2008 11,598,017Total 123,530,040Average profit for the 10 years = anticipate approaching Operating ExpensesLooking at the operating expenses of the company over the years, the average expenses over the years is around GH6,574,530. Since expenses are expected to increase over the coming years, a 10% adjustment is made to reflect future changes. This 10% was chosen based on the increasing trend of operating expenses from 1999 to 2008. This brings the total future expected operating expenses to (GH6574530 +GH657453) GH7,231,983.Expected Future IncomeAgain, looking at the operating income over the years, the average income for the 10 years is GH54,145,602. Since the expected income are expected to incre ase as a result of the stabilization of the Ghanaian Cedi against major foreign currencies, stable world price of crude oil, materials, and of course the discovery of crude oil in Ghana. Taking all these factors into consideration, a 15% adjustment is made to reflect these changes. on that pointfore the future operating income is (GH54,145,602 + 8,121,840) GH62,267,442GHThe number of years of purchase which depends on the bargaining powers of both the government who is the owner of ECG and the would-be private investor on the reputation of the company.ECG, as earlier discussed, serves both the Ghanaian Economy and other two countries in West Africa (Togo Benin). It also has the potential to expend to other countries as a result of the discovery of crude oil in Ghana. With all the above reputations and potentials, we have decided to reparation the number of years of purchase at 30 years.The Goodwill for the company would beLimitation of this methodThe value of the fixed assets u sed in the valuation might have some composition of non-productive assets and therefore would affect the fair market value of the company.Discounted Cash Flow MethodThis method takes into consideration the epoch value of money. Thus, discounted cash streams of future cash hang. Here, the first thing we do is to forecast the future cash flow by making adjustments to 2008 cash flow of the company.From the cash flow statement (2008), the net cash flow was GH15,819,658. Since cash inflows are expected to increase over the next few years ascribable to expansion and reduction in operating expenses, an upward adjustment of 15% is made to the net cash flow for the next five (5) years. Thus, from 2008 up to 2013. Expected net cash flow from 2013 upwards can not be forecasted due to uncertainty.Discount RateThe company is at the moment using a discount rate of 10%. Due to the possibility of inflation and exchange rate fluctuations, have decided to fix the discount rate between 12% 15%.Acc ording to the discounted cash flow methodFMV = Present value of cash flow up to the termination year + Present value of terminal value.YearExpected Net Cash FlowGH200918192607201020921498201124059722201227668681201331818983Using the NPV formula which is given as NPV =, we can now calculate NPV at both rates of discount (12% and 15%).NPV 12%=But Terminal =NPV =NPV (12%) = GH2,200,234,081NPV 15%=But terminal value =NPV = GH1,708,064,531InterpretationsSince the Asset Appraisal Method gave us the highest value of GH3,401,324,985 it would be considered. We are therefore concentrating on the Discounted Cash Flow Method range of values to determine the value of the company. This therefore means that the value of ECG, must be in the range of GH1,708,064,531 and GH2,200,234,081.SWOT ANALYSISThe investigations conducted on the ECG revealed the strengths, weaknesses, opportunities and threats as summarized in the table below.STRENGTHCompetent Work ForceHigh level of technical expertiseGover nment SupportA monopolist (large customer base)Facilities (i.e. warehouse)Availability of donor fundsInstallation of prepayment metersCustomer Call Center colossal Distribution network systemLow cost of production as compared to countries in the sub regionAvailability of electrical fault detection technologyWEAKNESSESHigh turnover of professional and technical staffUncompetitive conditions of services omit of rule enforcementPoor CommunicationLack of team worknot clear defined job descriptionsTalents in the company not used to the best advantageNo effective Research and Development (RD)Weak ancestry ManagementHigh network distribution lossesMismanagement of resourcesOPPORTUNITIESPotential to expand (nationwide and other countries)Potential of quality power deliveryPolitical and sparing stabilityStaff training and developmentWest Africa Gas PipelineOil discovery on the coast of GhanaTHREATSGovernment InterferencesGovernment determination of TariffsFluctuations in the exchange rate sEffects of inflationNatural Disasters (i.e. rain storms)Increasing World prices of metals, materials and equipmentWEAKNESSES OF THE THREE MAIN DEPARTMENTS THAT NEEDS TO BE RESTRUCTURING BASED ON OUR ANALYSISMATERIALS AND TRANSPORT DEPARTMENTWeak Inventory ManagementUnstructured Procurement UnitIncreases in the world prices of metals, materials and equipmentMismanagement of Company resourcesEffects of inflation on local procurementFluctuation in the exchange rateOPERATIONS DEPARTMENTNo effective research and developmentHigh network distribution lossesUnreliable and low quality of power supplyInadequate training and development of operations staffInadequate staff piece RESOURCES MANAGEMENT DEPARTMENTHigh turnover of staffTalents in the Company not organism used to the best advantagePoor CommunicationLack of team workUncompetitive conditions of serviceLack of rule enforcementNo well defined job descriptionExcess labor forcestrategic ALTERNATIVES AND RECOMMENDED STRATEGIESBased on the SWOT analysis, the following strategic alternatives are recommended to bring about turnaround for the Material and Transport Directorates Human Resource Directorate and the Operations Directorate.MATERIAL AND TRANSPORT DIRECTORATEAssets Reduction StrategiesDivesting Specific Assets Assets that are in surplus with respect to the future requirements of the company should be sold off. Unproductive and old assets such as transformers, power cables, electric conductors and meters should be sold.Reducing Inventory Material costs should be reduced through improved buying practices, snap off utilization of materials and efficient inventory management. Inventory of the company such as transformers, meters, cables, conductors and wooden poles should be managed based on Vital Few Trivial galore(postnominal) Principle. This will suspensor the company to avoid holding too much inventory, which is cost to the company and also prevent the company from holding too myopic inventory which can make the company loose customers. Not only that but also, the re value level should be fixed between the maximum order level and the minimum order level to prevent the inventory from reaching the danger level.Reducing Debtors (Accounts Receivables) There should be a credit policy to help in the effective administration of the debtors. Customers credit worthiness should be well determined. Debts should be collected within 30 days. There should also be a debt recovery plan.Reducing Cost The Company should adopt Total Cost Management (TCM) control strategy as a counseling of reducing cost. There should be intelligent optimization and not just cost cutting in the areas of direct costs overheads procurement costs production costs exchange and distribution costs inventory costs personnel costs. There should be speedy execution of contract bids and procurement processes to avoid additional costs being incurred as a result of lapse of deadlines. The introduction of e-Procurement should also be used to facilitate the procurement process. The company should also enter into forward contracts to reduce costs.Debt Restructuring Arrangements should be made for third party (government) to service the debt on behalf of the enterprise. There should be selective sale of assets and the revenue that would be realized from the sale of these assets should be used to offset the debt owed to suppliers.Legal Restructuring Specific legal steps should be taken to privatize the company.HUMAN RESORCE MANAGEMENT DIRECTORATEOrganisational Restructuring There should be a merger of the engineering and operations directorates to ensure harmonization of action plans towards the achievement of corporate objectives. Information technology should also be used to make the vertical organizational structure flat. A strategic planning unit should be created and headed by a corporate strategist to lead the process of strategically put the company towards the achievement of the companys goal.Th ere should be appropriate job descriptions, specifications and schedules matching with the qualifications, experiences and skills of employees so to get the best performance out of them. Furthermore, training and development should be a routine exercise for the company. Rules and regulations should be explicit, easily accessible and discipline enforced to ensure compliance with set standards.Labour Redundancy Management should develop a Redundancy Implementation Plan considering the economic climate and political mood of the country, since the implementation of the redundancy plan could be a complex and sequence consuming process. Staff Performance Appraisals methods such as the Balanced Scorecards should be used to identify and declare non performing staff redundant. Compensation packages should be hustling for such redundant staff, and contingency plans made for unforeseen circumstances in the event of strikes.OPERATIONS DIRECTORATEPhysical Restructuring It is recommended that this Directorate should be merged with the Engineering Directorate to bring about efficiency and effectiveness. The size of budget for Research and Development should be increased. Investments in distribution networks should be increased to improve quality and reduce losses of electric power. There is also the need to improve upon the monitoring of customers consumptions to be able to detect theft of electric power. The technical staff strength should also be augmented and given the appropriate technical know-how so to be able to cope with the growing demands of the proposed merger of the Operations and Engineering Directorates.Safety equipment should be made available for the staff to use in protecting themselves in order to reduce the rate of accidents.Proposed Timeline for implementation of Turnaround strategiess lapse STRATEGIES201020112012Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Discussions with ManagementAssets ReductionReducing CostDebt RestructuringLegal RestructuringOrganisational Restruct uringLabour RedundancyPhysical RestructuringConclusionECG plays a vital role in the socio- economic development of Ghana and there is no doubt that any Turnaround would yield enormous benefits to the Ghanaian economy. Hence, for the above recommended strategies to bring about any meaningful Turnaround, it calls for commitment and support of management of ECG and the government of Ghana. Not only that but also, for efficient and effective implementation of the strategies, there is the need for expert association and advice. It is therefore hoped that the necessary support will be given for the longingd results to be realized in ECG.Privatization OptionThe public sector in Ghana has suffered setbacks which are largely attributed to ineffective and in efficient management. When we consider the case of Ghana Electricity Company, noticing the trend of losses of the company over time and the reverse to meet the objectives or purpose of its formation, in view ,it is suggested that it wo uld be better for the ECG to involve expatriates into their operations, this can be done by private sale of there dowrys to the foreign multinationals who have got the technical and financial knowhow and experience in the distribution of energy to buy into the private share of the organization ,Government should endeavor to have multinational partnership in the operation of the privatization by giving them of shares in the enterprises. There is need for good follow up on privatized enterprises. This would make the organization to be more effective and efficient in their operation. The federal Government should encourage this multinational to participation in the distribution of power in Ghana. This would be done by establishing a power sector reforms which will allow the involvement of foreign multinationals expatriates in the distribution of power. These reforms would include the provision the necessary Infrastructures which would modify the reduction in establishment costs, rati onalization of power tariff, mobilization of private capital for power generation and transmission and lower capital-power generation ratio. In order to achieve these goals, distribution companies. A State Electricity Regulatory Commission would also be also set up to monitor the operation of the company. The desire to involve the private sector in the management and provision of infrastructure and services which will prompt multinational company to buy private share of the organization. .Private placement occurs when a company makes an offering of securities not to the public, but directly to an individual or a small group of investors. Such offerings do not need to be registered with the Securities and Exchange Commission (SEC) and are exempt from the usual reporting requirements. Private placements are generally considered a cost-effective way for small businesses to raise capital without going public through an initial public offering (IPO)The ECG should sale 49 of its shares to a multinational partner would be able to participate in the core business of energy distribution in Ghana. Also the Government should provide