Business News of Tue, 11 Sep 201818
Stop the confusion; $2bn bauxite deal is a loan – Minority insists
The Minority in Parliament is insisting that the $2 billion bauxite deal is a loan despite attempts by the government to make Ghanaians believe it is barter and won’t bloat the country’s debt stock.
According to the Minority, the agreement is similar to the $3 billion petroleum-based China Development Bank (CDB) loan agreement the country went for when it wanted to build a gas infrastructure.
The Minority insists that the mode which was supposed to be used to service the CDB loan is a similar model being used by the Akufo-Addo government for the current $2 billion bauxite deal adding that “if CDB arrangement is a loan arrangement, what makes Sinohydro arrangement a barter agreement?”
“The attempt to confuse the issues is understandable since the NPP vociferously rejected this structure while in opposition,” Ranking Member on the Finance Committee of Parliament, Cassiel Ato Forson argued in a statement issued on Tuesday.
The government has sealed an agreement with the Chinese government to sell Ghana’s bauxite to China’s Sinohydro Group Limited and in return receive $2 billion to undertake infrastructural projects in the country [Ghana].
However, some economists and Minority in Parliament are opposed to the deal calling on the government to classify it as a loan.
The Minority subsequently petitioned the International Monetary Fund (IMF) over the issue seeking clarification as to whether the facility is a loan or not.
However, speaking at the 2018 edition of the Economic Forum last week, Vice President Dr. Mahamudu Bawumia insisted that the agreement is not a loan but barter.
He went on to give further information on how the agreement will be implemented.
Dr. Bawumia said Sinohydro wouldn’t be the same company mining the bauxite, “and they are not taking our raw bauxite.”
“I know Sinohydro is not a mining company. Rather the government, in our plans, has set up a holding company by an Act of Parliament, the Ghana Integrated Aluminum Development Authority, which will soon enter into joint venture arrangements with potential mining and aluminum refinery companies. The takers will establish bauxite mines and a refinery. We are going to have a situation where it will not be Sinohydro. Sinohydro will be providing the infrastructure, but Ghana will choose its partner to set up the Integrated Aluminum Development Industry in Ghana. The partners could be from the US, Australia, Canada or China,” Dr. Bawumia said at the forum.
“After mining and refining, the government of Ghana will then use her share of the refined bauxite to pay off whatever cost of the infrastructure provided by Sinohydro Corporation after a period of three years, on condition that Sinohydro would have completed the infrastructure projects that the people of Ghana have asked them to do. So it’s a quite different arrangement. We want to add value to our bauxite reserves which are around 900 million metric tons, worth about $50 billion in the market. If we refine this bauxite it could be worth almost $400 billion, and we are talking of using a two billion dollar facility to unlock all of this potential,” the Vice President added.
President Akufo-Addo who was also in China last week re-echoed the same thing about government’s position about the $2 billion agreement not being a loan.
Ato Forson who is also the Member of Parliament for the Ajumako/ Enyan/ Essiam Constituency and former Deputy Minister of Finance maintained in his statement that the deal is a loan because per the agreement brought to Parliament, “Sinohydro is borrowing from International Commercial Bank of China (ICBC) to fund the infrastructure projects for GoG [Government of Ghana] adding that “Sinohydro, therefore, requested for a Letter of Support from the Government of Ghana as a Sovereign Guarantee.”
“With the letter of support, Sinohydro then assigns all its rights and obligations under the arrangement to ICBC. Is Ghana so unattractive in the capital market as to fall on a Chinese company to front for us in borrowing from the International Commercial Bank of China (ICBC) which we have done business with in the past?”
“Mr. Vice President, you and I know that in conventional practice, a Letter of Support as a Sovereign Guarantee is only required in loan transactions and not in barter arrangement.”
The MP noted that per the terms of the $2 billion agreement, the Ghana government is supposed to open an escrow account into which all future proceeds from the refined bauxite (our natural resources) will be paid into for the purposes of servicing the $2 billion debt.
“Also, the Government of Ghana is mandated to ensure that the escrow account has enough balances to settle debt service and repayment when due. The Government of Ghana is to top up any short fall for debt service and repayment. This totally contradicts the Vice Presidents claim that the government of Ghana will use her share of the refined bauxite to pay off whatever cost of the infrastructure provided by Sinohydro Corporation. Mr. Vice President, this is simply a supplier’s credit and cannot be so complex to comprehend,” Ato Forson added.
Click here for Ato Forson’s full statement/a>