General News of 2014-07-22

CDB loan cut heightens fear of diplomatic row

The decision by the government to cap the Chinese Development Bank (CDB) loan from US$3 billion to US$1.5 billion may ruffle some diplomatic feathers if not managed well, experts have warned.

Research Coordinator of the University of Professional Studies, Accra (UPSA), Dr Joseph Tuffour, said although the decision to abandon the chase for the remaining US$1.5 billion was a mark of assertiveness, it could also have some diplomatic implications.

Finance Minister Seth Terkper announced during the presentation of the mid-year review and supplementary estimates to Parliament on July 16, that the government would not draw the remaining US$1.5 billion tranche of a US$3 billion loan agreed with China in 2011 due to disagreements over the terms of the deal.

The loan, split into two equal tranches and approved by Parliament in 2011, was intended to finance infrastructure projects including the development of the oil and gas sector.

Mr Terkper said tranche B, which includes funding for the construction of a gas processing plant, would be fully disbursed.

The cancellation of the loan comes as Ghana is struggling to restore stability to its economy, hit by rising inflation and a widening budget deficit.

But Dr Tuffour said though the decision was a bold one, it might affect future negotiations with the Asian tiger.

“This can have diplomatic implications if the situation is not managed well both within Ghana and the Ghana mission in China,” Dr Tuffour said.

The UPSA research coordinator, however, said the decision to abandon the chase for the remaining loan was also an indication that the government was listening to public concerns.

A Chartered Economist, Mr John Gatsi, told the Graphic Business in an interview that the capping of the loan lower than expected would only spark a diplomatic row if the commercial loan agreement would only inure to China.

Mr Gatsi has, therefore, discounted any fear of a diplomatic row due to the cancellation of the remaining loan.

The remaining loan will not come

Ghana’s chances of accessing the CDB loan facility remains elusive, according to a financial analyst, even though the government has indicated the amount would soon be slashed from US$3 billion to US$1.5 billion.

Mr Sydney Caseley-Hayford told Accra-based Joy FM that he doubts the loan would come although the Finance Ministry intends to access only the second tranche of what the country should have received more than two years ago.

He adds that the reasons given by the ministry for accessing only US$1.5 billion instead of the initial US$3 billion are sketchy – a sign that accessing the revised amount of a loan facility that was signed in 2011 will still be a wild goose chase.

He said, “at this stage we don’t even know the reasons for the other $1.5 billion being dropped except that he [Seth Terkper] says that because of the temporary challenges that we have been through, we cannot access the previous US$3 billion."

Breakdown of Master Facility Agreement

As of June this year, only two out of the 12 projects anticipated under the facility had been financed by CDB, three years after the Master Facility Agreement (MFA) and other finance documents had been signed.

Giving a breakdown of the Chinese loan disbursed so far, Mr Terkper said US$800 million had been released for the Western Corridor Gas Infrastructure Project (WCGIP) and US$150 million for the ICT enhanced Surveillance Project for the Western Corridor Oil and Gas enclave.

The facility was to be disbursed under two tranches: A and B, of US$1,500 million each. The projects that are currently underway are the tranche B facility projects.

New condition

According to Mr Terkper, “CDB has introduced a new condition precedent to the effectiveness of the subsidiary agreement for the two additional projects”.

The CDB wants a “side agreement to amend some of the terms of the MFA, the Five Party Agreement and the Account Agreement," he said.

According to the minister, officials of CDB want the loan facility to be recognised as an oil-backed transaction, contrary to the agreed position between CDB and the government of Ghana (GoG) during the initiation of the transaction.

“Cabinet in June 2014 approved GoG’s capping of the facility at US$1,500 million to accommodate three additional projects. It also authorised the submission of the Side Agreement to Parliament for approval.”

Source: citifmonline
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