twitterfacebookyoutubemail

Government Spokespersons Breeds Confusion on CDB Loan

Government Spokespersons Breeds Confusion on CDB Loan

January 4th 2012

 

We were completely taken aback by the reaction of a number of Government Spokespersons to our recent comment on the China Development Bank (CDB) loan facility for infrastructure development.

 

Most of the reactions were hasty, over-generalised, and in some instances frantic. More worryingly, nearly all of them were also wrong.

Said reactions tended to skirt around the vital points we had made to focus on non-essentials.

 

At no point did we denigrate the source, objectives or motives behind the loan.

 

We had not sought to perform any critical analysis on the agreements governing the loan facility. Since Parliament has shown clear interest in examining these matters, our approach has been to leave the legal scrutiny in their hands until we had cause to believe something was amiss.

 

At no point did we suggest that no portion of the loan will materialise or that the CDB was incapable or disinterested in fulfilling their side of the agreement.

 

What we set out to do was to examine one dimension of the loan process: actual amounts of disbursement from the point of view of the lender, the China Development Bank. This is something that had not been done to date and having discerned some of the patterns behind their lending strategy, we felt it was important to share our findings with the general public, especially with regard to how such a strategy is likely to align or misalign with the short-term policy vision of the government.

 

This led naturally to an analysis of government’s capacity to manage the alignment between the likely disbursement schedule for the loan and the pace of the activities government needs to undertake to secure the release of funds.

 

Why was it important to do this?

 

1.      Firstly, a misconception was gaining ground that 2012 will see massive infrastructure development owing directly to this $3 billion facility.

 

2.   Secondly, the government’s track record in facilitating the disbursement of loans by undertaking the activities required of it over the years has not been encouraging. It is reasonable to worry that government’s lack of efficiency might slow the flow of funds from the facility.

 

3.       Lastly, even a cursory look at the most optimistic disbursement timeline of the loans shows that in the short-term the funds most likely to come in will go to highly specialised projects that will be dominated by Chinese contractors so that the trickle-down effect of the loan will be minimal.

 

The combined effect of all these points showed that the massive infrastructure boom that is expected this year to transform the economic fortunes of this country CANNOT PRIMARILY materialise on the back of the CDB loan.

 

Indeed, government itself agrees that we shall not see $3 billion in 2012.

Government moreover concedes that the $3 billion will be disbursed over 5 years and that there is currently only one agreement before Parliament that can release even one cent of the money to Ghana, and that this agreement concerns one billion dollars, not all of which is guaranteed to be disbursed immediately or indeed within 2012.

Therefore, government, if indeed it is looking to boost infrastructure development for accelerated growth in 2012 – 2013, SHOULD AS A MATTER OF URGENCY FOCUS ON SALVAGING THE MORE THAN 200 SIGNIFICANT PROJECTS AND PROGRAMS that are stalling because of lack of attention from the respective ministries and departments.

If government managers are struggling to supervise efficient disbursement of billions of dollars already committed to fully designed projects then by what magic are they hoping to perform better with yet to be released money for yet to be commenced, and in many cases yet to be designed, projects?

 

What was government’s problem with IMANI’s comment then?

1.       Firstly they accused IMANI of “confusing” the foundation agreement with a superseding one. We have dealt with that inaccurate point here: http://www.imanighana.com/wordpress/?p=198

2.     Secondly, they accuse IMANI of saying that the “availability period” of the loan is 3 years when in fact it is 5 years. We never discuss any availability period in our original comment. Readers can check for themselves here: http://www.imanighana.com/wordpress/?p=189

3.  Thirdly, they accuse IMANI of wrongly suggesting that the loan agreement is not binding on the CDB. This is a point to which we shall return.

4.   Fourthly, they deny that they have circumvented a number of important processes in awarding the gas infrastructure contract to Sinopec. Many people will agree that such an important contract should have been subject to competitive tendering. As this was not done, it is remarkable that government would argue that it followed due process. We will make further remarks shortly.

5.      Fifthly, government accuses IMANI of belittling the CDB’s overseas lending program. Nowhere in our report do we do this. We point out the wholly accurate fact that the CDB’s spends 82.5% of its funds domestically only to highlight the fact that even after a 10-fold expansion of its overseas portfolio it is still only now venturing forcefully into foreign lending, and so one would expect caution on the Chinese bank’s part.

6.      Lastly, they advise IMANI to contact the Finance Ministry in the future for any clarifications we may seek in connection with any matter. This is surprising considering that IMANI’s last letter to that Ministry seeking explanations for frightening discrepancies in the budget document was not even acknowledged. Readers may judge the contents for themselves here: http://www.africanliberty.org/content/clarification-needed-respect-budget-allocationsrequested-23rd-july-still-no-response

 

Some independent observers, while admitting that the ground underneath government’s accusations was shaky, felt nevertheless that had IMANI made reference to the so-called, “Master Facility Agreement” (MFA-2) in its original report the analysis would have been more comprehensive.

 

Seeing as the points we were intending to make had little bearing on the legal contents of these agreements and were premised on the commercial practices of CDB, on the one hand, and the government’s track record in delivering on project milestones (a subject we shall address more fully in the near future), on the other hand, we had not considered these contents as immediately critical.

 

To demonstrate that the omissions of the strict legalities were far from fatal to any of our positions, we will proceed, quickly, to address the one issue where the MFA-2 has been depicted by the government as “debunking” our assertions.

 

In preparation for this effort, we have managed to secure a copy of the MFA-2 after some stress. We will pass a number of important remarks before addressing the so-called “omission” we have been accused of. We have sought specialist opinions on sections of the agreement in the narrow respect we intend to utilise the MFA-2 in this public memorandum.

 

Sadly, the relevant provisions of the MFA-2 do not back the government’s claims. If anything they leave us in grave doubt about the comportment of certain government spokespersons who have been striving to discredit our work.

A.    Government states in its “rejoinder” of 3rd January 2012 (“IMANI Got it Wrong on CDB”) that the availability period for the loans is 5 years. In section one of the MFA-2 (interpretations), it is stated clearly that the availability period is 6 (SIX) years. Is government mistaken or recoiling from the fact that if indeed the period is 6 years, as it is, then the average annual disbursement is $500 million (the exact disbursement-figure in the short-term reached by IMANI through alternative analysis)?

 

B .     Government states that it had sought pre-approval of Sinopec, presumably under the MFA-2, and was therefore justified in awarding it the contract. This is problematic since “approved contractors” are clearly designated in connection with “approved projects”, and approved projects can only be so determined under an effective subsidiary agreement (MFA-2 sections 3:5.2.1(D) read together with the definition of “approved project” in section 1). Unfortunately, the first subsidiary agreement is yet to be approved by parliament, leaving this action open to charges of illegality.

 

B.      A major condition for the successful execution of the first subsidiary agreement is an “offtaker agreement “ (Item 4 of schedule 1 in MFA-2) in which a government-designated “exporter” (for ordinary purposes the GNPC) must show evidence that it has secured supplies of crude oil in the right quantities and types sufficient to cover payments due under the relevant agreements. Read together with section 2:4.2.2(B) and 2:4.2.2(C), this can only mean that government must have at this material moment in time pledged a quantity of oil sufficient to cover payments for the $1billion it is seeking under tranche B1 FOR A PERIOD OF 10 YEARS. Since the agreement requires budgetary accommodation (MFA-2: item 3.3 of schedule 1) of this pledge in the 2012 budget, and seeing as the Ministry of Finance has failed so far to properly educate the people of Ghana about this arrangement we can only conclude that government has failed to meet the transparency and accountability test.

 

C.      We kept the most contentious issue for last. The only point made in our original comment of 2nd January 2012 for which corroboration from one legal agreement or the other was necessary was the one dealing with the binding nature or otherwise of the $3 billion commitment by CDB.

 

Government holds that the MFA-2 is binding on the CDB. The truth is that the binding provisions of the agreement are clearly spelt out for the avoidance of doubt in section 7 of the agreement, under items 16.2 and 16.3 (i.e. “binding obligations” and “non-conflict with other obligations”). The problem is that they exclusively refer to the borrower (government of Ghana) and not the lender (CDB).

 

In summary, it is clearly the spokespersons of the government of Ghana that by their omissions and commissions have misinformed and mis-educated Ghanaians, not IMANI. As a patriotic think tank, fearlessly standing up for the national and public interest, we wish the government of Ghana and His Excellency the President very well in their endeavours.

 

But our foremost loyalties are to the good people of Ghana. Our credibility is intact.

 

Issued by IMANI Center for Policy & Education (www.Imanighana.org) and syndicated through: www.Africanliberty.org.

Written by iselorm

Leave a Reply