FROM THE FILE OF THE DEFUNCT MINISTRY OF FISHERIES (3)
…Of Patrol Boats, Anti-Pair Trawling/Drug Trafficking, etc. & The Chinese Connection (B)
MINUTES OF SERIES OF MEETINGS BETWEEN GHANA DELEGATION WITH REPRESENTATIVES FROM MINISTRY OF DEFENCE, MINISTRY OF FISHERIES AND MINISTRY OF FINANCE (THE GHANAIAN PARTY) AND POLY TECHNOLOGIES, INC., BEIJING, CHINA (THE CHINESE PARTY) (NOVEMBER 26, 2007)
With a view of finalizing a deal of procuring two patrol boats (46M) from the Chinese side, a delegation from Ghana, headed by Rear Admiral Nuno, Chief of Naval Staff, paid a visit to Poly Technologies, Inc. headquarter Beijing and its shipyard in Dalian from 11 November to 26 November (2007).
The two parties held series of detailed discussion on the technical and commercial proposal based on the Chinese side’s offer submitted in the middle of last year (2006) and the prevailing current situation. The key points are highlighted as follows:
*1. Technical Aspects: The Ghanaian delegation visited the shipyard and discussed all the technical points in length with the Chinese experts. Through rounds of technical meetings and revision, both parties reached consensus on all the technical points. It is confirmed that the fresh technical proposal of the Chinese side is in line with the requirements of the Ghanaian side.
*2. Price Adjustment: Due to appreciating of Chinese currency RMB and price hiking of raw materials (averaged at 24% in last two years), the Chinese party will surely run into big loss if the boats are to be supplied at the last quoted prices). The Chinese side requested 15% price increase on FOB value of the gunboat and the remaining loss arising thereof will be digested by the Chinese side. The Ghanaian side considered 15% on the higher side and suggested 10%. Finally, the Chinese side settled on 12.5% price increase, for which the Chinese side is grateful if it is accepted. As a formality, the Ghanaian side will report to its Government for final approval of the 12.5% price increase.
The fresh quotation of the Chinese side is based on fixed exchange rate of USD1/RMB7.45, and it is very likely that the RMB will be further appreciated. In order to guarantee that the Chinese side will not again run into loss and the contracted boats can be supplied smoothly, the Chinese side requests that it will bear the loss arising from 2% RMB further appreciation against USD, and the loss of going over 2% will be compensated by the Ghanaian side through negotiation. However, the Chinese side also suggests that if RMB is depreciated beyond 2% against USD, it will offer compensation to the Ghanaian side. The Ghanaian party agrees to report to its Government.
*3. Validity Of The Current Price: Due to the fast appreciation of RMB and the continuous cost increase of raw materials, the Chinese side request that the validity of the current price be four months from the date of signing this Minutes and any deal beyond the period shall be re-negotiated. The Ghanaian side agrees to take actions to get approval from its Government within the time frame.
*4. Interest Rate: According to the international practice and the Chinese Government regulations, Chinese Governmental concessional loans cannot be granted to military or military related project. Therefore, the Chinese Side can only provide semi-Governmental and semi-commercial loan for the deal.
As the credit is on middle/long-term basis, the Chinese side suggested the floating interest be applied, i.e. Libor + 1 while the Ghanaian side felt the floating interest might cause difficulty in calculation at the time of payment. The Chinese side proposes to use the present LIBOR (approximately 4.9%) and fix the rate at 5.9% (LIBOR + 1) per annum, which is already 0.5-1% lower than the prevailing USD loan interest in China. Given the unforeseeable economic situation in the world in coming four years, this is the best the Chinese side can do.
It is also the policy of Chinese Government that the guarantees from both the borrowing party’s Government and its Central Bank should be provided before approval of the loan.
*5. Credit Insurance: According to the Chinese Government rules on foreign loan, all the export credit shall be guaranteed by China Export & Credit Insurance Cooperation. For most of the African countries including Ghana, the prevailing insurance rate is 5.4%. As a gesture of goodwill, the Chinese side requests that only 5% be borne by the Ghanaian side and the remaining 0.4% will be digested by the Chinese side.
*6. Deferred Payment Period: The Chinese side requests that 80% of the contract CIF value plus interest rate shall be paid within four years (with one year grace period) after the date of the Seller’s receipt of advance payment. The Ghanaian side requests that the payment be made within five years (with one year grace period), which the Chinese party will not get approval from Chinese Government as the total amount is not very big. Four years period is the best the Chinese side can do.
*7. Freight Charges: In last year’s offer, the freight charges for two boats was USD1,329,800.00 with USD664,900.00 each. But now both Chinese and European shipping companies offer the freight charges for each boat at USD1,250,000.00 (2,500,000.00 for two), given the fact that each boat is about 5200 cubic meters in size and 230 metric tons in weight and it has to be shipped on special ship (with large self-loading crane).
The Chinese side agrees to cover USD900,000 for the total increase and fix the freight charge at USD800,000.00 for each boat while the remaining USD270,200.00 is requested to be covered by the Ghanaian side.
Based on the results of contract negotiation and technical discussion, the Chinese party submits A REVISED DRAFT CONTRACT INCLUDING TECHNICAL SPECIFICATIONS TO THE GHANAIAN PARTY (AS ATTACHED). THE GHANAIAN PARTY WILL CONSULT WITH RELATING GOVERNMENTAL DEPARTMENT FOR THE APPROVAL OF THE CONTRACT IMMEDIATELY AFTER THE DELEGATION GETS BACK TO GHANA AND WILL ADVISE THE CHINESE PARTY OF THE RESULTS AT THE EARLIEST POSSIBLE TIME.
This Minutes is signed in two originals in English on 26 November, 2007 in Beijing, China by both parties.
