Business News of 2014-01-14

Go back and renegotiate $3bn Chinese loan - Akoto Osei

Former Finance minister Anthony Akoto Osei has asked that President John Dramani Mahama goes to his Chinese counterpart to seek a renegotiation of the US$3billion China Development Bank (CDB) loan, of which only some US$600m has so far been disbursed.

The president, he said, should seek a total cancellation of the commitment fee attached to the loan and also seek a cutback on the “complicated” disbursement mechanism. “I think the commitment fee should be completely cancelled,” Dr. Akoto Osei said. “It is not typical for commercial loans. They need to also renegotiate the conditions for disbursement.

For example, if you go to the capital market to raise money, as soon as the transaction is completed, within two days the money is available. In this case it has not come. The conditions for disbursement are too complicated. They need to renegotiate it, otherwise we are in trouble.”

He also worried that government's capital expenditure plans for 2014 will be derailed if the loan's disbursement mechanism is not reviewed.

“If you look at our domestic expenditure, over US$4billion or so is foreign-financed, and the majority is coming from the Chinese loan. So if it does not come, those investments will not happen,” the Minority MP for Tafo in the Ashanti Region told the B&FT.

“And if you look at the experience for the past two years, only US$600million has come and Ghana is expecting about US$1.6billion to come from the Chinese loan this year. Any delay means that all those projects cannot materialise. It does not help us,” he added.

Only “a head-of-state to head-of-state negotiation”, he believes, is the way out for the country. A Deputy Minister of Finance, Kweku Ricketts-Hagan, however told the B&FT that much as things could have been better with the benefit of hindsight, “the negotiators [of the CDB loan] did the best they could at the time”, and that the country will have to honour its side of the bargain.

“I agree that we need to expedite the loan, but I don’t think renegotiating the agreement is what needs to happen. What we need to do is tie-off the necessary loose-ends. It is part of the reason the Chinese Foreign Minister was here last week, and he met with the President and the Minister of Finance on the issue,” the Deputy Minister said.

“It's true that having signed the agreement a couple of years ago, we would expect that by now we should have drawn down a significant amount. But after the main agreement, there were some consequential agreements that had to be signed.

We have to understand that the projects also require project preparation before we can draw down the facility. If you don't undertake the project preparation, you can't draw down the loan," he added.

The country is said to have paid some US$54million already as commitment fee when only US$600million of the US$3billion loan has been secured since the agreement was signed in 2011.

Delays in releasing a US $75million component of the project in the Western region has forced contractors to postpone the date of completion a number of times.

The situation forced President Mahama to ask the Finance minister a couple of months back to explore other sources of funding for the gas project, which is needed to boost gas supply to the power sector.