There is no clarity over $3b China loan to Ghana
There is no clarity over the China Development Bank (CBD) $3 billion loan to Ghana. It is not clear what is happening, as there are different parts of the story being told about the loan that do not seem to piece together into one simple straight forward story.
In September 2010, the Late President John Atta Mills went to China on a visit. During the visit he signed a framework agreement for the $3 billion loan facility with the CBD.
Subsequently, the expected loan was made a major part of the country’s budgetary projections.
The loan facility which is the biggest that the country has ever negotiated is in two tranches of $1.5 billion each, with different terms.
The first tranche has a five year grace period, 15 years re-payment period; a commitment fee of 1% flat, an interest rate of 2.95% and six months LIBOR (London Inter-Bank Offer Rate) and an upfront fee of 0.25% flat.
The second tranche of $1.5 billion has a grace period of five years, 10 years tenure interest rate of 2.285% and six months LIBOR, 0.25% upfront fees per annum and a commitment fee of 1% annum.
After debates, some of which were acrimonious, the country’s Parliament approved the loan, Friday August 26, 2011 with the opposition boycotting.
Think Tank, IMANI Ghana raised questions about the loan, suggesting that it will be difficult for the government to access the loan as there are likely stringent credit requirements attached .
“It is highly doubtful that, in the short term, Government of Ghana shall be able to satisfy the strict credit requirements of the China Development Bank in order to secure the entire $3 billion mentioned in the government’s framework agreement with the state-owned Chinese bank,” IMANI wrote in an article.
“W e suspect that the maximum facility available to Ghana shall not exceed $1 billion over the timeframe of 2012 –2013. And even this $1 billion shall not come on a silver platter,” IMANI feared.
The Think Tank said it was worried that the government’s over-reliance on this facility to prosecute its 2013 economic programme, especially in the infrastructure area, could lead to dislocations in the economy and frustrations on the part of its managers, warning that “it is important to stress that the said $3 billion loan facility has NOT been approved by the authority that matters – the board of the Chinese Development Bank (CDB).”
The government however, has been adamant, insisting that the loan will be secured.
The loan facility the government says would be used to finance projects such as the Accra Plains Irrigation Project Phase 1, covering 5000 hectares, Coastal Fishing Harbours and Landing sites projects, East Corridor Multi-modal projects with the Volta Lake facility components, the Western Corridor gas infrastructure project, Phase one of the Takoradi Petroleum Terminal project and the Western Corridor oil Enclave Toll Road development project.
In September 2011, The International Monetary Fund (IMF), indicated that it will assess the projects to be undertaken with the loan facility, explaining that the Fund wants to know the impact of the financing on the country’s macroeconomic stability and the sustainability of public debt.
“A large financing package has been secured on non-concessional terms, and it is important to assess carefully the costs and benefits of the financial arrangement and underlying projects. IMF staff has offered to work closely with the government on assessing the projects’ impact on macroeconomic stability and the sustainability of public debt,” the IMF said in a statement September 2, 2011.
It adds “This assessment will also hinge on the government’s policy commitments in other areas, both in the 2012 budget and the medium term.”
Meanwhile, Chinese firm, Sinopec International Petroleum Service Corporation says it will be pre-financing the construction of Ghana’s first gas infrastructure scheduled to be completed by end of 2012 after it signed an agreement with the Ghana National Gas Company (Ghana Gas).
Officials said November 24, 2011 that the gas infrastructure, including a gas processing plant to be sighted in the Western Region, is fully funded from a $3 billion loan provided by the China Development Bank (CDB) to the Ghana government but the start of work will be pre-funded by Sinopec.
As the country waits to receive the funds from China, Sinopec says it is pre-financing one of the projects to be funded under the loan facility.
While there is no clear signal as to when the first disbursement of the loan would be made by the Chinese, President John Mahama had said according to a Ghana News Agency report that the first tranche of the $3 billion Chinese loan from the CDB was ready for immediate draw-down.
“With regard to the $1 billion facility; draw-down can start immediately, actually the day after the signing, there was a meeting between our Deputy Minister of Finance and the CDB to agree on the schedules for the draw-down, there’s nothing obstructing it,” the GNA quoted him as saying on arrival at the Kotoka International Airport from China where he led a Ghanaian delegation to sign the initial subsidiary agreement for the release of the first part of the facility amounting to one billion dollars – he was then the Vice President.
And Ms. Hannah Tetteh, the Minister of Trade was cited by a GNA report of August 22, 2012 to have said that about $500 million out of the $3 billion from the loan had been channeled to fund the upgrading of the Takoradi Harbour to reduce pressure on Tema Harbour.
The Deputy Minister of Finance, Seth Terkpe has also urged Ghanaian businesses to access a financing facility under the CDB loan to enhance their operations.
He has been reported to have said that the second phase of the $3 billion master facility agreement, which has 12 subsidiary agreements, will be private sector oriented.
Among the 12 eligible projects identified for financing under the facility is a $ 100 million SME Projects Incubation Facility, he was cited as saying at the launch of the ‘Africa Means Business’ initiative in Accra.
The President and the Ministers in their talks are creating the impression as though the funds have been released.
Meanwhile, a report by a Chinese publication, The China Daily on July 17, 2012 had cited Mr. Terkpe as saying that the CBD will release another $1.2 billion to Ghana by the end of August 2012 as part of the $3 billion loan agreement.
But Mr. Terkpe has denied the Chinese publication’s report saying, he was “quoted out of context”. He told ghanabusinessnews.com on the phone that the publication wrote what it did for the news, but he did not say what was attributed to him.
He however, told ghanabusinessnews.com that the “disbursement is being discussed and will start soon.”
He explained that the funds for the 12 subsidiary projects to be covered under the loan will be released as and when a project is completed.
According to him, two projects for the oil sector have been submitted, indicating that the two have been signed and there are three “in the pipeline.”
Mr. Terkpe also said the agreements have conditions to be satisfied by the Ghana government without stating them.
Dr. Anthony Osei Akoto, a former Minister of Finance in the Kufuor Administration who is now a Member of Parliament and a Ranking Member on Finance says from all indications, Ghana won’t be getting the CBD loans any time soon.
He confirmed to ghanabusinessnews.com on the phone that so far only two subsidiary agreements have been signed, but the Ghana government has not been able to fulfill its part of the obligation in the co-financing agreement, particularly for the oil sector projects and therefore, he believes the Chinese will not be in a hurry to release the funds.
He said the Ghana government is expected to raise $150 million to co-finance the oil sector project, and “that will take a while to absolve,” he said.
He also said he has been told by a source at the Attorney-General’s Department that someone has taken the matter to the Supreme Court over the 10 to 15 years period of the loan agreement.
The former Attorney-General and Minister of Justice, currently a member of Parliament, Joe Ghartey has argued that section 18 (7) of the Petroleum Revenue Management Act, 2010 (Act 815) stipulates that the nation’s oil cannot be “collateralized for more than 10 years.”
Dr. Osei-Akoto also believes that this is an election year and the Chinese will not be in a rush to disburse the funds.
“I think it will take some time for the funds to be disbursed,” he said.
From all indications, the discourse over the loan is unclear, and it is difficult for citizens on whose behalf the loan is being contracted to understand the exact situation.
By Emmanuel K. Dogbevi