‘Road Bond’ Issuance To Improve Bad Road Network In Ghana

Whilst in the United States of America for holidays in June 2019, I decided to travel by road from Maryland to New York and specifically to tour the famous Times Square. While in the ‘VIP-type double-decker bus, I asked myself a lot of questions. I spoke to myself quietly, asking what we did wrong in Ghana. I was astounded on seeing a highway with an 8-lane dual carriage road all the way to my destination.

What amazed me most was the beautiful 655m Delaware memorial twin suspension bridge connecting Delaware and New Jersey. In spite of these thoughts, I still encourage myself that there is hope for Ghana but this is subject to our ability to get the fundamentals right with our leaders and a mindset change to improve the bad road network in Ghana.

Indeed, Hon. Ken Ofori-Atta, the Minister for Finance alluded to this during his presentation to parliament on 13^th November 2019 on the 2020 budget statement and Economy policy that ‘’All over the world, road infrastructure development has been the bedrock for economic development and an avenue for wealth creation’’.

However, the challenges in the road sector in Ghana remain a major headache for all successive governments. It is therefore a step in the right direction to opt for Public Private Partnerships (PPP) programme for financing, construction and management of road infrastructure which I believe is progressing steadily. From the budget statement read, four major projects are currently at different stages of preparation:

• Accra – Takoradi PPP Project (208Km): The proposed project consists of the dualization of the road including provision of interchanges and by-passes at urban sections of the road. I understand the Transaction Advisor has submitted a Route Report for the project and recommended a greenfield alignment for a section of the corridor.
• Accra – Tema Motorway PPP Project (31.7Km): Request for Proposals has been issued to four pre-Qualified Bidders. Submission is scheduled for January 2020 which will be followed by bid evaluation and contract award.
• Accra – Kumasi Expressway Project (245Km): Feasibility studies are currently underway, which are expected to be submitted by the end of December 2019.
• Dualization of Tema Arterial Roads: Feasibility study of the project is expected to be completed by end year. The first phase of the Meridian Road/Beach road junction was commissioned and opened to traffic in July 2019.

I cannot address this subject without mentioning the Sinohydro Corporation Limited (Sinohydro) transaction where Government has engaged Sinohydro on a barter arrangement, leveraging on proceeds from refined bauxite for various infrastructural projects in Ghana. There are several schools of thought on this transaction, but in my view the Sinohydro transaction is a step in the right direction considering the road sector development gap. On that basis, there is no point in holding on to these unrefined resources when they could be used to serve the greater good of the country and the citizenry. However, to ensure maximum benefit there must be proper value for money audit on all the proposed road and infrastructural developments for which funds have been earned.

The legacy energy sector debt which nearly crippled the banks in Ghana remains one of the most structured transactions aimed at defraying a portion of the energy sector debt through a bond issuance. Government through the Ministry of Finance in 2015 passed the Energy Sector Levies Act (E.S.L.A), Act 899 through a Special Purpose Vehicle (SPV) mechanism aimed at raising a Ghs10bn bonds through a programme. Reports from the Central Securities Depository (CSD) suggest that over Ghs6.5bn was issued to clear the debt and this was on the back of securitizing a portion of the Levies approved by parliament.

That is not the end, I read with must interest a publication in the 3^rd December 2019 edition of the Business and Financial Times and Daily Graphic respectively that the Ghana Education Trust Fund (GETFund) is securitizing a portion of their 2.5% levies approved and allocated by Parliament to raise over Ghs5.6bn ($1bn) from the domestic market to support educations and other educational infrastructure.

In view of above, questions have been asked about what the road toll and road fund levies allocated in the Energy Debt Recovery Levy (EDRL) have been used for. You drive around the country and you would appreciate the deplorable state of the road network. That notwithstanding, we have also seen how dear lives and beloved ones have been lost through road accidents.

What the government can do through the Road Fund Secretariat is that, using the case study of E.S.L.A. PLC and GETFund, Road Fund Secretariat, appointing an Administrator can securitize portions of their Ghp48p allocations from the EDRL to raise alternative medium-to-long-term funding from either the domestic and/or international capital market to support critical road development.

For this to work successfully, there should be commitment from Road Fund Secretariat, sufficient cash flows into various Debt Service Account (DSA) and Debt Service Reserve Account (DSRA), undertakings, top up clauses in documentations and support by various parties to the transaction such as Ministry of Roads and Highways, Ministry of Finance, Bank of Ghana, Controller and Accountant General etc.

Picture 1: Quality road view
Globally, China has remained the second largest green bond market in 2018 with over USD30 billion issued, accounting for 18 percent of total global issuance, according to a report by Climate Bonds Initiative, an international, investor-focused nonprofit organization. The United States topped first place with USD34.2 billion issued last year, while France ranked third. Ghana can take a place in the should we consider road bond issuance to improve the road network.

Over the years, cocoa growing areas have witnessed most deplorable roads. The current government has made attempts to improve the road network in these areas in order to ease cocoa evacuation from the hinterlands to the takeover centers and improve livelihoods in the cocoa farming areas. In 2017/2018, a total amount of Ghs497m worth of vetted and approved certificates were paid to various contractors. COCOBOD continues to honour the payment of certificates as and when vetted and approved. For the 2018/2019 crop year, a total amount of Ghs550m was paid by COCOBOD for various cocoa road projects. Government, in conjunction with COCOBOD, allocated an amount of Ghs456m to continue with the Cocoa Roads Improvement Programme in 2019/2020. Though this effort is laudable, there is more government can do bridge the gap and bring economic development.

Potential challenges and recommendations.

• Historically, the challenges we have seen in Ghana road`s sector over the last decade is the shoddy work some road contractors deliver, to extent that roads completed in few months see portholes overnight. There should be some form of punishment to contractors to serve as deterrent to others
• Monitoring and control of road projects need to be enhanced to ensure that there is value for money in the various projects
• All parties involve in the deal structuring must also ensure that, the assigned receivables to support the ‘road bond’ programme is strictly adhered to avoid any potential overdue of coupon payments on principal and interest payments.

Road financing must continue to be a priority of every government. As seen elsewhere, socio-economic development is function of economic growth. The more we expand road network to deprived areas, the better lives are changed with development at door steps.

Credit: 2020 budget statement and Economic policy document. Miriam Amoako

Disclaimer: The views expressed are personal views and don’t represent that of the institution the writer work for or mentioned.

About the writer
Carl Odame-Gyenti is a third year PhD (Financial Management) candidate, a Finance and Telecom enthusiast, managing local and global Investors, Intermediaries, Non-Bank Financial and Financial Institution relationships with an international bank in Ghana. Contact: [email protected] , Cell: +233-204-811-911