Ghana’s Opposition New Patriotic Party (NPP) members of parliament were up in arms when the governing National Democratic Congress (NDC) used its slim parliamentary majority to push through approval of a US$3 billion credit line from the China Development Bank.
The NPP’s abstention and the party’s subsequent criticism of the shape of the agreement was based on a perception that the Master Facility Agreement (MFA) had been laid before the House without details of the subsidiary projects to be funded.
While the opposition is still dissatisfied with the outcome, Ghana’s multiparty democracy has produced more transparency in Chinese financing deals than has been seen in any other African resources-for-infrastructure deal. Unlike the opposition, Vice-President John Dramani Mahama is confident of Ghana’s ability to repay the loan, which will increase the country’s total public debt to nearly $25 bn.
The debt figures do not take into account the fact that the Ghanaian government will have to finance 15% of each of the projects. Finance Minister Kwabena Duffuor argued that the CDB deal was less expensive than issuing a eurobond but less beneficial than World Bank or International Monetary Fund concessional financing.
The MFA calls for subsidiary agreements to detail the terms of the works to be financed by the two tranches of the $3 bn. credit line.
Deputy Finance and Economic Planning Minister Seth Tekper vigorously defended the variability of project estimates, claiming that these would be finalised once feasibility studies had been completed, and that flexibility was needed to tailor individual projects to precise local needs. The NPP appears, for the time being, to have lost its battle for all the details to be brought before parliament for approval. Some feasibility studies have already been financed and conducted by partners such as the Japan International Cooperation Agency (for the Takoradi Port), South Korea’s Samsung C&T Corporation (for the Jubilee gas projects) and Beijing Everyway Traffic and Lighting Technology (for the Accra transportation project).
When the NDC came to power in December 2008, external debt stood at $8 bn. By the end of August 2011, this figure had reached $14 bn. Also, it does not take into account the floating of a second eurobond in July worth 300 mn. euros, with repayments fixed at 14% per annum. At the same time, domestic debt stood at $10.4 bn. In addition, there is an unknown sum of government arrears on payments to suppliers and contractors, which has stalled work on four vital arterial trunk road projects (AAC Vol 4 No 10, Highway to development).
According to the MFA, a minimum of 60% of contract work will go to Chinese companies. That figure could rise, given the constraints on local capacity in heavy construction activities such as roads, railways and gas plants. Good-governance campaigners are already calling on the government to ensure that bidding procedures are as transparent as possible and open to wide international bidding. However, Article 17 of the framework agreement with the CDB allows the Bank to ‘recommend competent Chinese companies as the cooperating partner for projects’.
The government is promising staggering job numbers: Deputy Energy Minister Kofi Buah said that the projects linked to the Sekondi Free Zone would create upwards of 50,000 jobs. The project is being developed by China Hasan International Holding Group, a Hong Kong-based company founded in 2009. China Hasan is developing a $300 mn. housing project with Jiangsu International Group in Angola, which signed a memorandum of understanding with the Ghanaian government during President John Atta Mills’s September 2010 trip to Beijing (AAC Vol 3 No 12, A consensual affair).
China Hasan says that it plans to invest $4 bn. in the industrial estate that will include an aluminium-processing complex but has not mentioned where it intends to source the funding. The company is also in talks with First Sunergy about setting up manufacturing plants for renewable energy equipment such as solar panels. The Sekondi Free Zone development does not appear to have been subject to competitive bidding procedures.
The opposition has raised additional concerns about the method of repayment for the CDB loan, which will be backed by Ghana’s 13.75% share of crude oil from the offshore Jubilee Field. Jubilee is currently producing about two-thirds of its anticipated peak production level of 120,000 barrels per day. But Vice-President Mahama says the receipts from the Western Region Oil Enclave alone will allow that part of the loan to be amortized within two years. No price has been specified in the off-taker agreement, which will be signed by the Ghana National Petroleum Corporation and the CDB. NDC defenders argue that NPP reached a similar collateralisation agreement when it borrowed $562 mn. from China, to be offset against cocoa export revenues.
Meanwhile, World Bank officials in Accra have voiced concerns about the NDC’s apparent preference for commercial rather than concessionary borrowing, such as the two eurobonds issued so far this year, even though both were oversubscribed. On 2 September, the IMF offered assistance to Accra and said that it would help the government to analyse the underlying projects to ensure that they will generate the returns to justify such spending. The government has requested that the African Development Bank or World Bank provide transaction advisors for the Ghana National Gas Company so that it can negotiate public-private partnerships with companies interested in oil and gas infrastructure projects.
Figures released in early September show that the Ghanaian economy is exceedingly slow in absorbing World Bank funds. Of the $2.1 bn. available, less than $500 mn. had been drawn down by the middle of this year. The possibility of a sudden drop in the international price of crude oil could also affect Ghana’s ability to repay the CDB within 20 years, as planned. If successful, the projects will facilitate transport across the country and lay the groundwork for Ghana’s own industrial revolution.
• Takoradi-Kumasi railway line upgrade, estimated cost $500 million;
• Takoradi Port rehabilitation, $150 mn.;
• Sekondi Free Zone, $100 mn.;
• Accra Plains Irrigation Project, $100 mn.;
• Fishing harbours project, $150-$250 mn.;
• Eastern Corridor Multi-Modal Transportation scheme, $150-$500 mn.
• Western Corridor Oil and Gas Infrastructure, $850 mn.;
• Takoradi Petroleum Terminal, $200 mn.;
• Western Corridor Oil Toll Road, $150 mn.;
• Western Oil Enclave security, $150 mn.;
• Accra Traffic Management Programme, $150-$200 mn.;
• Small- and Medium-Sized Enterprises Incubation Facility, $100 mn.