Mining companies in Ghana are negotiating with the government to seek a reduction in a 100 percent power rates increase resulting from an official move to cut electricity subsidies, the mines chamber said on Tuesday.

Ghana's government announced last week it would cut electricity subsidies for mining companies from July 1, as record oil prices threaten to eat into the country's budget and growth rate. Finance Minister Kwadwo Baah-Wiredu said the measure went into force on Tuesday as scheduled.

The government had informed companies operating in the country, Africa's second-biggest gold producer after South Africa, that they would from now on be paying an average 22 cents per kilowatt hour, up from the current 11 cents.

But Ghana's mining industry, which includes major miners AngloGold Ashanti and Newmont Mining Corp, while it accepted companies would have to pay higher power tariffs than before, was pressing for a reduced increase.

We are still negotiating. The issues are serious and delicate, so we need time to negotiate, Chamber of Mines Chief Executive Joyce Aryee told Reuters in Accra.

Aryee declined to give details of proposals discussed on Monday at a meeting between the chamber and the Volta River Authority power utility. We will come out at the appropriate time with the details as we deem necessary, Aryee said.

Finance Minister Baah-Wiredu told Reuters he was aware the mining companies were seeking a reduced increase in power rates, but said the government was sticking with its plan.

We haven't changed the implementation date, neither have we revised the proposed rate, he said.

We will continue to dialogue with them and let them come to terms with the fact that we can no longer subsidise their operations, the minister added.


One mining sector representative said the new electricity tariff level proposed by the government would have a major cost impact on operations, particularly for those companies with underground activities which consumed a lot of power.

It's serious ... our operations will suffocate. Jobs will be on the line if this happens, the official, who asked not to be named, told Reuters.

We have all agreed on the general principle that we should pay a little more than we are doing now, but the margins being proposed are what we want to negotiate, he added.

Justifying the government proposal, Finance Minister Baah-Wiredu cited the example of a power plant provided by a consortium of mining companies to augment the national supply.

He said this private plant was producing electricity at a cost of 32 cents per kilowatt hour, far higher than the 22 cents being demanded by the government.

We believe they (the mining companies) will come to terms with the situation and together we'll all move ahead, he added.

Economists have cited utilities subsidies as a factor in a weakening cedi currency which has lost 12.5 percent of its value against the dollar in the past three months.

Ratings agency Fitch mentioned subsidies as a factor in Ghana's growing fiscal deficit when it downgraded its outlook for the country to stable from positive in February.

Last month, Ghana's government bought Alcoa's 10 percent stake in the inactive 200,000 tonne/year VALCO aluminium smelter and said it planned to relaunch the industry with a new bauxite mine and alumina refinery.

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