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23.08.2011 Politics

Dark Clouds Over $3bn Chinese Loan

By Daily Guide
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VERIFIABLE INFORMATION gathered by DAILY GUIDE indicates that there will be fireworks and animated debate in Parliament today over a $3billion Chinese loan being contracted by the governing National Democratic Congress (NDC).

DAILY GUIDE learnt that the Minority group in Parliament would be strongly opposing the single largest credit facility by any Ghanaian government because in the long run, it would have a crippling effect on the country's economy.

The Atta Mills-led NDC has already borrowed over $9 billion in a short period of two years, the highest by any administration since independence, according to the Minority caucus.

Ghana, economic analysts envisaged, might be plunged back into Highly Indebted Poor Country (HIPC) as it would not be able to sustain the payment of huge debts being accumulated by the current administration.

Parliament has been recalled ostensibly to consider the multi-billion dollar credit facility from the world's most populous country.

The ruling NDC has indicated it would use the cash to 'finance infrastructural development products under the Ghana Shared Growth and Development Agenda (GSGDA)'.

The House could not deal with the Master Facility Agreement between the Government of Ghana and the China Development Bank (CBD) because the report of the Joint Committee on Finance and Poverty Reduction Strategy on it was not ready.

However, DAILY GUIDE gathered there had been sharp disagreements between the Minority New Patriotic Party (NPP) and the Majority NDC on the committee, with the former strongly opposing the deal.

Although members of both sides on the committee are tight-lipped on the issue, sources within have hinted the paper that the minority is not convinced with the details of the loan.

When DAILY GUIDE contacted Members of the Minority group, they declined to disclose their concerns, saying they were holding everything to their chest until the report was ready.

However, the paper gathered the group might present a different report to the House if their concerns at the committee level were not captured in the final report.

Danquah Institute (DI), a policy think tank, had already raised an alarm over what it described as the 'strange and dangerous' manner in which the Mills-Mahama led NDC administration was trying to secure the Chinese loan facility.

The DI said, 'This $3 billion omnibus loan facility is a very strange one which, in a very dangerous way, takes away the constitutional power of the legislature to scrutinise financial agreements presented to it for approval.'

A release issued and signed by Asare Otchere-Darko, Executive Director of DI, noted that this was the first time that a long list of project financial deals had been boxed under one agreement and presented without any details of the specific projects involved, with parliament being asked to endorse them for the Executive to go and negotiate the details with the lender.

'We think it is a dangerous precedent which parliament ought not to allow. What parliament is being asked to do is to simply give its approval to a Chinese credit line of $3 billion and leaving the rest, the essential details that would determine the financial prudence of the transactions, for the Executive to handle,' the release pointed out.

Although DI said it was not challenging the importance of some of the projects listed, including the Accra Plains Irrigation Project and the Coastal Fishing Harbours and Landing Sites, the policy think tank believed it was a 'dangerous departure and watering down of parliament's important constitutional role of financial scrutiny, for the $3 billion to be presented and approved in its omnibus form'.

DI therefore urged Government to withdraw 'this omnibus $3 billion facility from parliament and, instead, present to parliament for specific approval of each of the projects involved with requisite details in order to allow the House to do proper financial and technical scrutiny to each project'.

According to DI, the facility was being secured with crude oil sales proceeds, which would be paid directly into an escrow account to be established offshore, against the established legal arrangement which stipulates that Ghana's 100 percent income from oil and gas should go into the Petroleum Holding Fund at the Bank of Ghana.

'Linked to this agreement are commercial off-take contracts with China for direct access to Ghana's share of oil from the Jubilee Field,' it added.

'However, whilst the Chinese are under no obligation to agree to finance any of the specific projects contained in this omnibus $3 billion credit facility, we are still bound to supply them oil under the oil off-take agreements,' the release explained.

It added that 'Under the escrow arrangement, the relevant permissible portion of the proceeds of crude oil sales under commercial contracts with the Chinese off takers will be used to repay the $3 billion facility, which carries a total repayment cost, exceeding $4.2 billion.'

According to the release, the $3 billion credit facility was a commercial loan divided into two tranches of $1.5 billion each.

The first tranche has a repayment period of 15, with the second tranche giving Ghana 10 years to repay the $1.5 billion and also at a commercial interest rate. Both facilities attract an interest rate of 6 months Libor + 2.95%, upfront fees of 0.25 percent per annum (or $7.5 million) and a commitment fee of 1percent per annum ($30 million).

By Awudu Mahama