US$10 Billion Korea Deal Questioned

By Sebastian R. Freiku,

THE DANQUAH Institute in collaboration with Imani

Centre has condemned moves by Parliament to approve a US$1.5 billion Supplier's

Credit Financing Agreement between STX Engineering and Construction Ghana

Limited as Lender and the Government of Ghana in relation to the financing of

the 30,000 housing units under the Security Services Housing Project.

The project is emanating from anagreement signed on the December 9, 2009, between STX

Korea and the Ghanaian government for a joint venture to build 200,000

residential units across all 10 major regional capitals of Ghana at a cost of

US$10 billion.

Ghana's construction industry was the worst hit last

year and that contrary to a 10% growth projection, it experienced a negative 2%

growth in 2009.

OnMarch 4 this year, Vice President, John Dramani Mahama, led a

Government delegation to South Korea to complete agreement formalities on the

housing project and signed another MOU on an infrastructure establishment

project with STX, targeting Ghana's oil.

Per the off-taker agreement signed in Seoul on December 9 which is

before Parliament, the Ghana Government has agreed to off-take (or purchase

outright) 90,000 units, representing 45% of the 200,000 homes which the Koreans

intend to build in Ghana by 2015.

Government is required to pay the Korean company, STX Engineering and

Construction Ghana Ltd, a 45% advance purchase payment of US$4.5 billion and

also mortgage our oil assets.

Under the agreement for the US$1.5 billion credit facility STX is to

build 200,000 houses at $50,000 each at a total cost of $10 billion for which

the Government of Ghana has committed to an off-take agreement for 90,000 units

at a total cost of $4.5 billion.

The first 30,000 units would be constructed at a cost of $1.525,

443,468.00 (including an insurance premium).

The terms for the agreement according to a press statement by the

Danquah Institute are 2% Interest Rate, Grace Period five years which does not

apply to interest, Repayment in 15 years and Grant Element of 36.93%, among

others.

According to the agreement, STX would be exempt from tax for its imports

of materials and machinery and corporation tax while STX’s expatriate employees

will be exempt from income tax.

The Government of Ghana will be required to provide land and all permits and also be

responsible for STX costs and expenses in executing the project under the “Financing

Documents” (including legal, accounting, travel expenses, and other out of

pocket expenses) and any VAT on those expenses.

It was also spelt out that STX

has option to convert debt into oil on execution of the contract.

But the Danquah Institute says“We don’t need

Koreans to do this if this really is the deal. WE CAN DO IT! Ghanaian charity

should not begin in Korea. The Government of Ghana should be more Ghanaian in

its apparent efforts to offer charity to the private sector.”

It added “We see this deal as a little more than a

generous stimulus package from poorer Ghana for a Korean company which has

posted cash-equivalent assets of some $2.3 billion and debts of $6.6 billion.”

The Institute has therefore called on Parliament to

pull the brakes on this deal and for the Government to sit down with the local

stakeholders and explore with patriotic sincerity and commitment the viable

option of offering similar incentives to our local industry players to

undertake such a project.

At an emergency meeting of stakeholders on June 3,

2010 the forum indicated that on May 4, 2010 the

Government of Ghana sought to push through several loan agreements under a

certificate of urgency when Parliament was on recess.

According to

the Institute, STX Group of Korea is a company in liquidity distress and in

need of a stimulus package for solvency. The Government of Ghana claims to be

hard on funds and cannot therefore rescue local companies in distress. Yet, it

can still enter into a credit facility of US$1.5 billion to rescue a Korean

firm.

The Institute says the Suppliers Credit Financing Agreement between the

Government of Ghana and STX Engineering and Construction Limited (subsidiary of

the STX Group, Korea) for an amount of US$1,525,443,468.00 to construct 30,000

housing units for the security services - with 20,000 units for the Police

Service (including 10,240 units), and the remaining 10,000 to spread among the

other security agencies, including the Military and the Prison Service is so bad

that it requires nothing but a ruthless

administering of the final nail in its coffinesque state.

The forum welcomed the intention

of Government to undertake this huge project to deal significantly with the

gross housing deficit in Ghana, estimated at 1 million, with Imani estimating

that some 6.5 million Ghanaians are lacking in decent housing but feared the

deal was dogged with serious questions and that it seemed to be more an agenda

for a better Korea than a better Ghana.

It indicated that next month, the President of the

Republic of Korea (or South Korea), Lee

Myung-bak is scheduled to visit Ghana, as part of an investment-promotion tour

to selected African countries. He is coming to Africa as part of his manifesto

pledge to build a better Korea which suffered a US$8 billion current account

deficit in 2008.

But the forum has questioned the capability of STX to raise the $10 billion since

available records

indicate that STX is facing a major liquidity crisis and does not have the

balance sheet for this level of exposure.

The Institute’s major concern is premised on the unavailability of a

clause in the agreement what the source of funding is even though the

transaction is a supplier’s credit agreement.

The Institute said the cost of $50,000 per house is inordinately high

considering that the Government of Ghana is providing the land, permits, tax

exemptions for imported materials and machinery, corporate tax exemptions, and

paying for the costs and expenses of STX saying with these incentives it is

clear that these houses can be constructed for a fraction of the cost.

Frank Tackie, the President of the Ghana Institute of Planners,

representing also the Ghana Institute of Architects, the Ghana Institute of

Engineers and the Ghana Institute of Surveyors, said alternative local building

materials, local expertise and better value for money can be achieved if

Government had focused on Ghanaian firms, materials and expertise rather than

Korea.

Sammy Amegayibor, representing GREDA, also lamented

how Government has refused to sit down with them to explore the option of

getting the Ghana Real Estate Developers' Association to undertake the project

because local contractors are more than capable. GREDA says, "We don't

need foreign firms to do this deal. If Government is providing all these

incentives, including tax and VAT exemptions, free land then why can't

Government do the same for us?"

According to GREDA, the private sector is already

providing two-to-three bedroom buildings at $50,000. "The real challenge

is how to provide affordable housing for the majority of Ghanaians."

Also at the forum, Robert Ahomka Lindsey, the former CEO of the Ghana

Investment Promotion Corporation, made the point that foreign direct investment

is to supplement local initiatives rather than as substitute. He charged local

industry players to come together and offer a viable option to both Parliament

and Government so that they have a practical alternative to look at.

Franklin Cudjoe of Imani stressed on the need to get local players to

drive this project.

As Kofi Bentil of Imani points out, Ghana has basically agreed to

subsequently pledge it’s yet to be produced crude oil in exchange for the debt

when the country is yet to agree on how the oil revenues are to be spent.

The head of the Danquah Institute, for instance points

out that at an average cost of $50,000 per unit, the STX project is "a

very, very expensive deal for such a mass construction project.”

By breaking the project down you see how scandalously

over-priced it is for a country where you can pick up a 3-bedroom bungalow for

$45,000. Half of the 30,000 units - 15,240 specifically - comprise of one

bedroom apartments; 9,356 two-bedroom apartments; 5,217 three-bedroom

apartments; plus 122 three-bedroom and 65 four-bedroom bungalows for senior

officers. it?"