BLOWS OVER $3BN CHINESE LOAN

Franklin Cudjoe in a leader of IMANI Ghana.

Posted on: www.dailyguideghana.com

By William Yaw Owusu

Wednesday January 4, 2011.
IMANI Ghana, a data and policy analysis think tank and the ruling National Democratic Congress (NDC) government are at each other’s throat over the $3 billion loan secured by the government from their Chinese counterparts.

According to IMANI, its research has shown that “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.”

However, the government, through a Deputy Minister of Information, Samuel Okudzeto Ablakwa and presidential staffer Stan Dogbe have reacted angrily over IMANI’s claims describing it as ‘regrettable’ and ‘misleading the public’ with its analysis of the situation.

IMANI said it suspects “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.”

“In keeping with this opinion, which we shall back up with analysis in this report, we are worried that government’s over-reliance on this facility to prosecute its 2013 economic program, especially in the infrastructure area, could lead to dislocations in the economy and frustrations on the part of its managers,” IMANI said.

“In his New Year address, the President of the Republic left all of us in no doubt about how central the $3 billion facility has become to the government’s overall economic agenda. According to a Ghana News Agency report of the speech, President Mills was therefore confident that government’s infrastructural development will receive a boost this year following the approval of the 3 billion dollar Chinese loan.”

IMANI said it was 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).

Rather, IMANI said what had been approved was a Master Framework Agreement (MFA) suggesting in very loose language that CDB is interested in discussing whether and how it may be viable to invest $3 billion in Ghana’s oil and gas infrastructure.

“Per article 26 of the MFA: ‘Except for the provision of Article 22, this Framework Agreement shall be deemed to be a letter of intent and understanding of the Parties and is not intended to create any legal relations or obligations on either Party.”

“The only binding clause, article 22 states that: “The Parties agree that no Party shall disclose the content of this Framework Agreement or any other agreements or documents generated or communicated between the Parties pursuant to this Framework Agreement without the express written consent of the other Party except where such disclosure is required by the laws of PRC and/or Ghana,” IMANI added.

“Let us bear in mind that Chinese financial institutions are adopting global standards of credit and risk evaluation and have therefore increasingly little propensity to pump money into half-baked or unready projects. Increasingly, their expectations of quality and rigour, and in particular profitability, are as high and as tough to meet as those of any financial institution anywhere on the globe.”

After an in-depth analysis of the situation, IMANI advised the government not to neglect the optimization of “all its other revenue sources in a frenzied pursuit of the CDB loan.”

“We are saddened by the continued slow disbursement of already committed money that has led to many infrastructure projects languishing in various stages of abandonment all over the country,” it noted.

In the government’s response, Okudzeto Ablakwa said IMANI was confusing the Framework Agreements signed with the Chinese authorities (CDB and China EXIM Bank) in September 2010 during President Mills’ visit to China with the Master Facility Agreement (MFA) which Parliament approved in August 2011.

He said, “it is regrettable that IMANI confuses the two documents and is misleading the public. Indeed, IMANI refers to a Master Framework (not Facility) Agreement in its analysis. While the Framework Agreements are Memoranda of Understanding (MOUs), the MFA is a firm and binding Agreement with CDB.”

The deputy Minister said availability period for drawing down on the two Tranches (US1. 5 billion each) under the MFA is five years, not three years as IMANI sought to portray to the public.

“This is because government is aware that it is asking for a Facility to finance major infrastructure projects (e. g. oil/gas pipeline and processing plant; Takoradi harbor and Volta basin/ coastal landing sites; Accra Plains Irrigation; and Takoradi to Kumasi railway line) that cannot be completed within one (1) fiscal year.”

“In placing the projects within the GSGDA, government was not looking at short-term gains only, as IMANI sought to portray. The feasibility studies for the projects are very clear on this point that they are medium-to-long term projects,” he said.

“As noted IMANI quotes Article 26 of the Framework Agreement and not Section 26 of the binding MFA. Had it referred to the MFA, IMANI would have seen that Section 26 of the MFA (Partial Invalidity) is part of Part 9 of the Agreement, which deals with elaborate processes for administering the loan.”

He said the Government was on course to submit the Subsidiary Agreements (which specify the Projects to be financed) to Parliament, as it promised during the Parliamentary debates between June and August 2011 and it was surprising that IMANI was making an issue of the agreements again.

The deputy Minister said “it is surprising for IMANI to belittle the amount that CDB lends for foreign operations. Government does not view 17. 5 percent of US$800 billion (or US$140 billion) as an insignificant amount in terms of development bank, multilateral or bilateral financing. It is prudent for Ghana to tap this source of financing to diversify its traditional sources of financing infrastructure development, notably commercial projects”.