Why NDC Says $2b Chinese Deal Is A Loan And Not Barter
In July, Parliament approved a $2 billion Master Project Support Agreement (MPSA) between Ghana and Sinohydro Corporation Limited for construction of priority infrastructure projects.
However, just a couple of months after the ratification of this agreement between Ghana and China, it has raised a lot of controversies, especially from the Minority in Parliament.
They contend that the deal is a loan and not a barter trade as explained by the Minister of Information designate, Kojo Oppong Nkrumah and the Vice President Dr. Mahamudu Bawumia .
'What this arrangement does basically, is to say that we agree with Sinohydro that they provide us our choice of infrastructure worth $2 billion. The Sinohydro Corporation which is going to provide the infrastructure is not the company that is going to mine the bauxite and they are not taking our raw bauxite. In other words, Sinohydro is not a mining company,' Dr. Bawumia explained.
The agreement basically allows the Chinese engineering firm to mine bauxite in the Atiwa forest and return the gesture by building infrastructure for the Ghanaian government, the explanation indicates.
But the minority members in Parliament thinks the deal is a sham and it's a cover up for a loan from the Chinese government.
They claim it will add to the country's debt stock which currently stands at $120 billion, 69% of GDP.
Minority spokesperson on Finance, Cassiel Ato Forson explains this position by the NDC below:
1. during the 2018 Economic Forum on 5th September 2018, the Vice President of the Republic, Dr. Bawumia, when engaging the business community, shed some more light on the arrangement between the Government of Ghana and Sinohydro of China as stated below:
2. 'What this arrangement does basically is to say that we agree with Sinohydro that they provide us our choice of infrastructure worth two billion dollars ($2bn). We should note that some people misunderstand this deal and this is why it's important. The Sinohydro Corporation which is going to provide the infrastructure is not the same company that is going to mine the bauxite and they are not taking our raw bauxite. I know Sinohydro is not a mining company. Rather the government, in our plans, has set up a holding company by an Act of Parliament, the Ghana Integrated Aluminum Development Authority, which will soon enter into joint venture arrangements with potential mining and aluminium refinery companies. The takers will establish bauxite mines and a refinery. We are going to have a situation where it will not be Sinohydro. Sinohydro will be providing the infrastructure but Ghana will choose its own partner to set up the Integrated Aluminum Development Industry in Ghana. The partners could be from the US, Australia, Canada or China. Wherever we are confident of the capacity of the potential partners we can enter into partnerships with them to mine. We are talking about refining the bauxite, we are not taking raw bauxite outside Ghana. After mining and refining, government of Ghana will then use her share of the refined bauxite to pay off whatever cost of the infrastructure provided by Sinohydro Corporation after a period of three years, on condition that Sinohydro would have completed the infrastructure projects that the people of Ghana have asked them to do. So it's a quite different arrangement. We want to add value to our bauxite reserves which are around 900 million metric tons, worth about $50 billion in the market. If we refine this bauxite it could be worth almost $400 billion and we are talking of using a two billion dollar facility to unlock all of this potential' - Dr. Mahamudu Bawumia, 5th September, 2018.
(3) Clearly, the Sinohydro Corporation of China is playing no role in mining the bauxite, refining it into Aluminum, and finding an off-taker to buy the aluminium.
(4) Basically, Sinohydro is only a contractor coming in to build infrastructure to be paid for with the proceeds from the refined Bauxite.
5) From the structure of the arrangement presented to us in Parliament, Sinohydro is borrowing from International Commercial Bank of China (ICBC) to fund the infrastructure projects for GoG. Sinohydro, therefore, requested for a Letter of Support from the Government of Ghana as a Sovereign Guarantee. With the letter of support, Sinohydro then assigns all its rights and obligations under the arrangement to ICBC. Is Ghana so unattractive in the capital market as to fall on a Chinese company to front for us in borrowing from the International Commercial Bank of China (ICBC) which we have done business with in the past?
(6) Mr. Vice President, you and I know that in conventional practice, a Letter of Support as a Sovereign Guarantee is only required in loan transactions and not in barter arrangement.
(7) Furthermore, the terms of the transaction also mandate Government of Ghana to open an escrow account into which all future proceeds from the refined bauxite (our natural resources) will be paid into for the purposes of servicing the $2 billion debt.
Also, the Government of Ghana is mandated to ensure that the escrow account has enough balances to settle debt service and repayment when due. The Government of Ghana is to top up any shortfall for debt service and repayment. This totally contradicts the Vice Presidents claim that the government of Ghana will use her share of the refined bauxite to pay off whatever cost of the infrastructure provided by Sinohydro Corporation.
(8) Mr. Vice President, this is simply a supplier's credit and cannot be so complex to comprehend.
(9) As was stated in the Midyear Budget Statement, the infrastructure deficit of Ghana is $30 billion. How can a country with an infrastructure deficit of $30 billion give out his whole bauxite concession worth about $40 billion for $2 billion barter/loan arrangement?
(10) I will like to point out that the structure of this arrangement is similar to the petroleum-based CDB loan arrangement for the gas infrastructure. First, under the CDB Loan, the GoG is tasked to sell crude oil, which is a natural resource, to an off-taker and then pay 49 per cent of proceeds into an Escrow Account which is used for debt repayments for the gas infrastructure. Second, Government of Ghana is to ensure that 1.5 times of all debt service due is always kept in the escrow account. Third, GOG is to engage Chinese contractor's to build those infrastructure approved as part of the subsidiary agreement. It has the escrow and debt service accounts that have become innovative to the Veep.
(11) So if CDB arrangement is a loan arrangement, what makes Sinohydro arrangement a barter agreement?
(12) The attempt to confuse the issues is understandable since the NPP vociferously rejected this structure while in opposition.