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NDC Cautions Gov't On Another Financial Scam

Fri, 30 Apr 2004 Source: NDC PRESS CONFERENCE

$300 Million Loan For Ghana From Chinese Company: Scam?
Introduction
1.On Tuesday 13 April 2004, Parliament gave approval to the Kufuor Government to contract a loan of US$300 million from a private Company based in the United Kingdom but with origins and roots in Hong Kong.

2.With the experience of the ?IFC? scam loan of 2002, many Ghanaians had taken it for granted that the Kufuor administration would in future exercise greater circumspection in arranging loans for the country, especially from private international financial sources.

3.In the event, not many paid attention when the Government placed the Memorandum for the approval of the US$300 million loan before Parliament.

4.Since the approval by Parliament, however, the NDC has closely re-examined the entire 9-part documentation in respect of the loan and has concluded that once again, the Kufuor administration may have allowed itself to be conned by some international fraudsters and con men and their Ghanaian collaborators. We are convinced that we may have another ?IFC? type scam loan on our hands, thanks to the incompetence and naivet? of the NPP Government.

The CNT Loan

5.The Lenders of the present US$300 million facility are the Chinese New Techniques (CNT) Group (Holdings) Limited and the Chinese New Techniques (CNT) construction Investments Limited (CNTCI).

6.The terms of the Loan are as follows:

(a) Loan Amount ? US$300 million

(b) Loan Repayment Period ? 30 years

(d) Interest Rate ? 0.65 per cent per annum

(e) Management/Finance Fee ? 4.0 per cent.

Preliminary Observations

7. It is instructive to note that even under World Bank operations, it is only under its IDA facility that poor countries can secure loans at 0% interest with 40 years repayment period and 10 years grace period. The commitment and management fee for such IDA facility is usually about 2%.

8.The NDC is yet to come across a situation in international finance where a private limited liability company has made available to a developing country a loan facility on terms where the interest rate is below 1% and the grace period is above 5 years.

9.In our opinion, and as we stated at the time of the infamous ?IFC? loan, a private company can only offer such a loan facility if:

(a) The company is laundering the money;

or (b) The money is (hot) drugs money;

or (c) The money is ?Mafia?, in this case ?Triad? money;

or (d) The company intends to dupe the country that is borrowing the money;

or (e) The project costs will be so inflated as to make up for the very low interest rate and other unusual terms of payment.

10.We of the NDC certainly do not want Ghana to develop with laundered, ?Triad? or drugs money. We do not want dirty money being washed through our system knowing the repercussions such financing often attract.

11. We are convinced that the so-called Lenders cannot offer Ghana any genuine US$300 million loan. We believe that once they secure the Bank of Ghana Guarantee issued in their favour, they will discount it, pay themselves and their Ghanaian collaborators the 4% upfront management/finance fee, and that will be the last that Ghana will hear of them.

The Lenders

12.We are suspicious of the Lenders for the following reasons:

(a) The CNT Group Holdings Ltd, one of the lenders, is owned wholly by CNT Construction and Investment Ltd (CNTCI);

(b) CNTCI, the other lender and the so-called ?parent company? of CNT Group Holdings, is a company formed only in May 2003 with registered offices at 150 Hammersmith Road, London W6 7JZ, England, and owns the other lender, CNT Group Holdings Limited;

(c) CNTCI?s Telephone Number is given as 00-44-870-136-2693, a UK number, but their fax number is surprisingly given as 00-1-309-409-6863, a USA number. Why a UK-registered and UK-based company should have a USA fax number and no UK fax number is only one of the many puzzles in the documentation;

(d) On 12th November 2003, only six months after CNTCI had been formed, the Company entered into a Memorandum of Understanding (MOU) with the Minister of Finance and Economic Planning and the Minister of Trade, Industry and PSI on behalf of the Government of Ghana for a loan of US$200 million, even though the present Loan Agreement puts the loan at US$300 million. The other lender, CNT Group Holdings, which was also a signatory to the MOU, must certainly have been formed after May 2003, since its parent company is CNTCI which was formed in May 2003;

(e) As is the practice of such fraudsters, the Bank of Ghana is to issue a Guarantee in favour of CNTCI up to the amount of the loan facility. The Guarantee is not mentioned in the Loan Agreement but is tucked away in the MOU;

(f) The loan is to be used in part to finance infrastructure projects just as the ?IFC? scam loan was supposed to do;

(g) The construction projects to be undertaken with the loan facility will be done through the vehicle of a joint venture arrangement between CNT and the CRCC (China Railway Construction Corporation), a partner of the CNTCI;

13.According to the documents furnished to Parliament, CNTCI has an ?exclusive shareholder structure? made up of the following:

(1) Some of the largest and most prominent Chinese Corporations with expertise in construction and resource development;

(2) Columbus Newport L/C;

(3) Alberni United SA;

(4) Universal Credit Bank and Trust Limited.

14.The document purporting to be a ?due diligence report? reveals the following:

(1) The Prominent Chinese Corporations include China Railway Construction Corporation (CRCC), Liaohe Petroleum Exploration Bureau (LPEB), Shanghai Electric Group Corporation, Jilin Province Electric Power Design and Survey Institute, and CNT Hong Kong Limited;

(2) Columbus Newport Limited (CN) is a public affairs Lobby Group in the USA. It is reported to consist of a ?Secretary to 5 former USA Presidents Mr. David Wilmer, and the former Treasury Secretary to the USA?. The Company is reported to be providing ?solutions to problems at the very highest level of Government of United States of America and other International and Global Organisations?. CN has 50% equity in Alberni United SA and can best be described as a lobbyist and influence peddling Group within the US system of governance;

(3) Alberni United SA is an offshore Investment Company. The location of the Company is not stated. Even though CN holds 50% equity in Alberni SA, the President of Alberni United SA, a Mr. Edwards, holds CN?s equity in trust;

(4) Universal Credit Bank and Trust Limited (UCBT) is reported to be a Grade A Bank registered in Grenada. According to the documents, ?the Bank?s Head Office will be in Grenada, with branches planned for London, Switzerland, Johannesburg, China and Hong Kong?. Despite this futuristic description, the report states that the UCBT is ?a rapidly expanding Bank with a net asset value in excess of $4.5 Billion as of December 2003? but concludes that ?UCBT uses CNTCI?s assets as security for credit lines it provides?.

CNTCI ? Partners and Shareholders

15.The documentation list the following as the partners of CNTCI:

(1) China Railway Construction Corporation (CRCC), with a net worth of US$5 billion;

(2) Liaohe Petroleum Exploration Bureau (LPEB), with total assets of 20.83 billion Yuan.

16.The following are listed as ?the other shareholders? of CNTCI:

(1) Shanghai Electric Group Corporation, China?s biggest equipment manufacturer, with total core net assets of 6.5 billion Yuan or US$783.3 million;

(2) Jilin Province Electric Power Design and Survey Institute;

(3) The Sixth Engineering Bureau of Water Conservancy and Hydro Water;

(4) Sinocoal International Group; (5) China National Gold Corporation;

(6) China Iron and Steel Industry and Trade Group Corporation;

(7) HKFSCSA Honk Kong.

17.This is the intricate corporate conglomerate that is granting the loan to Ghana. Impressive as the list may seem, we believe that the shareholding claims of CNT Group Holdings and CNTCI require detailed investigations and scrutiny.

Management/Finance Fee

18.The NDC is convinced that there is a catch in the management/finance fee of 4% provided for under Article 8.1.3 of the Loan Agreement. The Agreement does not state whether this is 4% of the maximum permissible loan of US$300 million or of the amount to be drawn down from the US$300 million. If it is the former, then it works out to US$12 million. If it is the latter, then the amount is at present unknown.

19.It is also not stated when the 4% fee is payable, and neither does the Agreement state whether the fee is to be deducted from the loan to be granted or whether Ghana is to pay the amount upfront outside of the loan, but normally such fees are payable upfront and outside of the loan. If that is the case, and we suspect it is, then it means that in Ghana?s 2004 election year, somebody somewhere is going to pay somebody somewhere a cool US$12 million with no guarantee of performance.

20.In typical scams of this type, once the upfront fee is paid, lender and borrower split the amount and the lender vanishes and leaves the country holding the can. We warned about the possibility of this happening in the ?IFC? case, and we are certain it would have happened if the pursuit of that facility had not been aborted.

21.There is also no indication that the management/finance fee is refundable for non-performance. Thus if the US$12 million should be paid and the Company should default in advancing the loan, that money could be lost to Ghana.

22.Additionally, under Article 5 of the Agreement, the loan is to be drawn down by way of claims from time to time. The Government of Ghana is not obliged to draw down the entire US$300 million. It is therefore theoretically possible for the Government to draw down an amount less than the management/finance fee.

Bank of Ghana Guarantee

23.Paragraph 9 of the MOU of 12th November 2004 states as follows: ?The Parties further agree that CNT shall receive a Letter of Intent from the Bank of Ghana, specifying its ability and preparedness to issue a guarantee in favour of CNT Construction Investment Ltd. up to the initial amount referred to in paragraph

1. A draft format of the proposed guarantee shall be attached and when executed shall be subject to verification by a reputable European Bank?.

24.This guarantee is not mentioned in the Loan Agreement. It is this attempt to ?hide? the requirement of the guarantee that makes the whole transaction highly suspicious.

25.While the Government of Ghana through the Bank of Ghana guarantees to repay the loan, there is no such ?back-to-back? guarantee whatsoever from the CNT Group Holdings and the CNTCI. Since the Bank of Ghana guarantee will be given or has been given to the lenders upfront, the Ghana Government risks exposure if the lenders discount the guarantee, take the monies and fail to advance the loan to the country.

26.What could also happen is that the lenders are going to ?trade? in the guarantee in the expectation that they will ?find a buyer?. For now, Ghanaians need to know whether the guarantee has already been issued and if it has, when it was issued and the nature of the guarantee. We demand that a copy of the guarantee should be made public if it has been issued. If it has not been issued, then Ghanaians have a right to know when it will be issued.

27.We are of the view that if the Government can get the Bank of Ghana to issue this kind of guarantee, then the Government itself must go on the international finance market to look for such a loan with a similar Bank of Ghana guarantee.

The Drawdown

28.The drawdown period for the loan is defined meaninglessly in Article 2.1.7 of the Agreement as ?The period during which advances are to be made to the borrower in terms of this Agreement and which shall commence on the effective date of this Agreement?. In other words, the drawdown period is any period between 1-30 years.

29.Article 5.1.1 states that ?To obtain advances under the Loan as envisaged in Article 4 the Borrower may make claims on the Lender from time to time during the Drawdown Period in the manner hereinafter specified?.

30.Nowhere in the Agreement is it stated how the Lender is to treat a claim once made. Can he reject a claim when it is made? Can he advance a lower amount than the amount claimed? Can he pay a higher amount than the amount claimed? These are questions crying for answers that are neither provided in the Agreement nor in any of the other documentation.

Obligations of the Lenders

31.Article 6 of the Agreement on ?Repayment of the Loan and Payment of Interest?, Article 7 on ?General Terms of Payment?, Article 8 on ?Costs and Expenses?, Article 9 on ?Events of Default and Remedies?, and Article 10 on ?Understandings by the Borrower?, are all obligations of the Borrower, that is the Government of Ghana. Surprisingly, however, nowhere in the 12-Article Agreement is there a single obligation imposed on the Lender. What happens if the Lenders cannot advance the loan at all as promised? What happens if the Lenders cannot satisfy a particular claim when it is made? What happens if the Lenders cannot satisfy a particular claim on time? What happens if the Lenders can only satisfy a lower amount than what is applied for in the claim? What happens to the Bank of Ghana guarantee if the Lenders cannot deliver on the loan? These, and many other unanswered questions, make the entire Loan Agreement highly suspicious and questionable.

The Construction Companies

32.Under the MOU of 12th November 2003, it is stated as follows: ?Any funding provided pursuant to this MOU shall be used solely for undertaking construction projects defined in paragraph 2. The construction projects shall be undertaken through joint venture arrangements implemented by CNT and CRCC (China Railway Construction Corporation) and other Chinese Enterprises?.

33.These important and critical understandings are not mentioned anywhere in the Agreement. More importantly, the practice of sole-sourcing such contracts to ?related companies? of the financing companies instead of going for international competitive bidding (ICB) to ensure value for money has proven to be one of the ways in which the financing companies recoup what they may have lost as a result of their charging very low interest rates. Costs and rates are padded in such a way as to defeat the object of paragraph 4 of the MOU entitling the Government to carry out a ?value for money audit of all Projects undertaken pursuant to the MOU?.

The Projects 34.The projects to which the loan is to be applied comprise the following:

(a) Rehabilitation of the Eastern Rail Line (ie. Accra-Kumasi, Accra-Tema) ? US$50 million;
(b) Establishment of a PSI Garment Village at Tema ? US$53,216,000.00
(c) Establishment of 6 Starch Companies in 6 regions ? US$54,048,204;
(d) 2-Lane dual carriageway road from Achimota to Nsawam ? US$142,746,796 (e) Total ? US$300,000,000.00

35. There is some confusion about two of these projects that ought to be cleared.

36. With respect to the Accra-Tema Rail Line, the ?Daily Graphic of Thursday, 1st April 2004 reported that bids had been opened for the rehabilitation and management of the entire railway system of Ghana. The story continued: ?Three companies, United Rail and Railroad both of the United Kingdom and Sportnet of South Africa, were the only firms to subkit bids-----to rehabilitate and manage the country?s rail system?. Nothing was said about the CNT and the CRCC.

37. In the ?Daily Graphic? of Monday, April 19, 2004, the Minister of Ports, Harbours and Railways, Professor Christopher Ameyaw-Ekumfi, is reported in an interview to have stated that an OPEC loan of $5 million was expected to be approved by Parliament to enable work to take off on the Accra-Tema rail line and that a supplementary loan of $50 million from the Chinese Government was expected out of which $4.5 million would be used to replace the corroded rail line around the Sakumono Lagoon and Tema.

38.We of the NDC re wondering whether it is the Chinese Government?s supplementary loan that has now metamorphosed into the CNT/CNTCI private sector loan.

39. With regards to the Achimota-Nsawam road, the ?Ghanaian Times? of Tuesday, December 30, 2003, reported as follows: ?The President, Mr. John Agyekum Kufuor, yesterday cut the sod for the start of work on the 17.6 kilometre Ofankor-Nsawam section of the Accra-Kumasi road. The project, a two-lane dual carriageway with asphaltic concrete wearing course, is being supported by the Chinese government with an interest free loan of 28 million dollars (?252 billion).?

40. Given that the Chinese Government has granted us an interest free loan of $28 million for the Nsawam-Ofankor section of the Accra-Kumasi road, we find it difficult to understand how the Kufuor Government has sourced another loan from private CNT/CNTCI, part of which is to be used for the same Ofankor-Nsawam section of the Accra-Kumasi road..

Other Suspicious Provisions

41. There are other Articles in the Agreement that are suspicious. They include the following:

(a) The 15-year grace period for repayment is in respect of the principal loan only and not interest. Under Article 6.2.1.1 of the Agreement, the first interest will be paid as soon as the first amount is advanced, and thereafter will be payable at six-monthly intervals. It is important therefore to note that we will be paying interest during the 15-year grace period, an acceptable, though in this case a suspicious mode of payment of interest;

(b) Under Article 9.1.8 under ?Events of Default and Remedies?, it is provided that the following shall constitute an event of default on the part of the borrower: ?The borrower ceases to be a member of the IMF or fully eligible to use the resources thereof in accordance with the articles of Agreement of the IMF?.

42. The question which arises is:

Are the IMF and World Bank representatives in Ghana aware of this loan; are they comfortable with its terms; and are they convinced of its genuineness?

43. We are very concerned that neither the IMF nor the World Bank representative in Ghana has commented on this ?Loan Agreement? for we believe it has serious implications for our relationships with the Bretton-Woods Institutions and our HIPC obligations. We expect to hear from them after this Press Conference.

CNT and ?IFC? Compared

44. A comparison of the CNT and ?IFC? transactions show the following alarming common features, which could not have been coincidental:

(a) Both Companies propose to lend US$300 million and above to the Ghana Government upon the issuance of Guarantees; in the case of the CNT, a Bank of Ghana Guarantee, and in the case of the ?IFC? a ?Sovereign Guarantee?;

(b) Both Companies are to provide long-term loans with repayment periods stretching over 20 years;
(c) The loans are from undisclosed private sources in both cases;
(d) The interest rates are ridiculously low in both cases; 2.5% per annum for the IFC and 0.65% per annum in the case of the CNT;
(e) In both cases the funds are to be used for infrastructural projects;
(f) Joint venture companies nominated by the lenders are to be set up to undertake the infrastructural projects in both cases;
(g) In both cases, a one time fee of 4% is to be charged; called a Transaction Fee in the case of the ?IFC? and a Management/Finance Fee in the case of the CNT;
(h) In the ?IFC? case, reference was made to ?cooperation with the United Nations and International Companies?, and in the case of the CNT, reference is made to ?the Secretary to 5 former USA Presidents-----and the former Treasury Secretary of the USA?;
(i) In the ?IFC? case, there were rumours that the ?deal? was facilitated by a Professor Eddie Ayensu, a Ghanaian with connections to the very top of the Kufuor Administration. In this latest CNT case, the deal is rumoured to have been put together by another Ghanaian with connections to the very top of the Kufuor Administration.

The NDC Position

45. It is true that the NDC MPs also voted for this very suspicious loan. However, following concerns expressed from several quarters, including even from within the NPP itself and the ?Ghana Palaver? publication of Friday, April 23 ? Monday, April 26, 2004, and in line with our belief in the cherished Ghanaian philosophy of ?sankofa?, we find nothing wrong in going back to do the right thing when you realise you may have been wrong.

46. I wish to repeat what I stated on behalf of the Party at our Press Conference of 8th July 2002 on the ?IFC? scam loan: ?The NDC must not be misunderstood to be seeking to thwart the effort of the NPP Government to secure a loan for infrastructural and development projects. Far from it. On the contrary, we are seeking, through this exposure, to protect the sovereign interest of Ghana from the schemes and scams of international fraudsters and crooks. The so-called loan agreement is not at all in the interest of Ghana. It is a ?scam?, and somebody somewhere is out to dupe the country?.

47.That remains our position on this CNT loan.

Conclusion

48. Once again, we call on the Institute of Economic Affairs (IEA), Centre for Policy Analysis (CEPA), Ghana Institute of Management and Public Administration (GIMPA), the Economics Departments of our Universities, the Law Faculties of our Universities, the School of Administration of the University of Ghana and other research institutions of economics and finance to undertake a dispassionate review of the loan agreement and the supporting documentation and advise the NPP Government accordingly.

49. This is not about partisan politics. This is about what is in the supreme interest of Ghana. Even though Parliament has approved the Loan, it is not too late to recall it for review. We are convinced that the deal is a ?419 scam? very similar to the infamous? IFC loan scam?.

50. Finally, we call on President John Agyekum Kufuor to act by suspending the loan transaction before it is too late.