Bagbin contradicts himself on STX Funds

Bagbin: Yes, we have secured STX funds, from Stanchart, no, I mean, Barclays…

In May 2011, Alban Bagbin, the Minister of Water Resources, Works and Housing, announced to Ghanaians that syndicated funds had been secured from three international banks for the controversial $1.5 billion STX housing project. He named UK-based Standard Chartered Bank, as the lead bank of a consortium of three banks, with the other two being American.

Yesterday, however, the story changed. When the Minority Leader posed a similar question to Mr Bagbin in Parliament, the Minister named Barclays Capital, the investment banking division of Barclays Bank PLC of UK, as the lead bank of a consortium of banks. However, an analyst at Barclays PLC, who spoke to the New Statesman, has raised doubts about the Minister’s claim, adding that Barclays may only be able to raise “some money” for the project if terms and conditions are “favourable and realistic.”

This appears to support calls for Government to return the STX deal to Parliament to ensure that whatever is being negotiated now is consistent with what was controversially approved by the House last August.

The Barclays source said, “going by existing interest rates, it would not be possible for any credible bank here to offer a credit facility of over a $1 billion to be repaid in 15 years, after a grace period of 5 years, and all at a charitably discounted interest rate of 2%.”

The source said that he was aware of moves by STX to raise money in both the United Kingdom and the United States, but that the best rate for such a facility currently on the market is hovering around 3.250%.

When the Minister made a similar claim in May about Stanchart, the bank refused to confirm that it had any such arrangement with STX.

According to another City of London source, banks are willing to provide that kind of money for any such ambitious government project but the terms and conditions must be negotiated with the banks right from the start and that “the facility must not attract this kind of controversy.”

That view falls in line with those who believe that Government and STX have hit a brick wall in their attempts to source funding for the controversial STX deal, which the opposition party in Ghana has threatened not to honour if elected into office in 2013.

The Minority Leader has described STX as “dubious” and stinking of “corruption.” The opposition New Patriotic Party has questioned the provision of $265 million political risk insurance for the $1.6bn suppliers’ credit facility for the provision of 30,000 barracks-like apartments for Ghana’s security personnel.

Members of Parliament yesterday descended heavily on Mr Bagbin, questioning even the credibility of the answers he gave.

MPs wondered why construction had not began, 11 months after the loan was approved and 6 months after President JEA Mills cut the sod for work to begin.

In response, the Minister said, 15 sites have been secured and handed over to STX Engineering & Construction (Gh) Ltd on March 16, 2011.

“The Ministry of Finance & Economic Planning has issued the Sovereign Guarantee and made the necessary arrangements for the transfers of the money,” he told the House.

Mr Bagbon then gave Parliament the assurance that work will begin this month. “In the meantime,” he said, to groans of skepticism, “STS E&C per their programme of implementation will start land preparation this July and are currently mobilizing to send equipment to the sites.”

The Minister, who just the night before was denying on Citi FM that the programme had delayed, yesterday admitted to the House that the project has faced delays due to challenges, including, he claimed, long and winding bureaucratic processes.

He mentioned some of the sites allocated to STX for the housing project as Atomic Energy, Burma Camp, Air force Station and Tesano Police Depot, all in Accra, and Nagoyam in Tamale, the Northern Region.

The Minority Leader then went on to find out from the Minister who was to benefit from the unusually high $266m political risk insurance premium. The Minister responded that an insurance company would receive the money which would come out of the first tranche of syndicated funds.

The policy think tank, Danquah Institute has described the fees and insurance premium for the facility as “a total rip-off”. It has described the 17.34% insurance premium covering the credit facility as “very fishy”, which should not have any place in any credible and important financing agreement with a developing, democratic nation like Ghana.

It argued that Government can save the nation more than $200 million if it opts for the kind of political risk insurance cover offered by MIGA, a member of the World Bank Group, for developing states like Ghana.

The policy think tank said, “We are amazed by the insistence of STX and the willy-nilly compliance of Government that STX must receive an upfront payment from Government of 17.34% of the contract sum of some $1.5 billion to arrange political risk insurance.

This will mean an upfront payment of $264.5 million (i.e. 17.34% of $1.52 billion) as part of the first disbursement of the loan.”

The Danquah Institute does not understand why Government and STX have not considered the MIGA option. The World Bank’s Multilateral Investment Guarantee Agency is the pre-eminent agency in the world for the provision of political risk insurance for projects in a broad range of sectors in developing countries.

According to DI, the insurance premiums charged by MIGA range from 0.45% to 1.75%, payable annually and not upfront like STX. On the basis of the MIGA insurance premiums, the rates charged by MIGA for this project will range from US$1.01 million- US$2.62 million annually.

Over a 20 year period (i.e. as the terms of the STX loan stipulate), DI estimates that the total sum payable will range between US$20.2 million and US$50.5 million.

This puts the difference between the STX insurance premium per the agreement and what will be charged by MIGA between US$210- 240 million.

“This means that Ghana could save over $200 million in insurance costs alone if STX rather obtained political risk insurance from MIGA,” the Danquah Institute says.