CDB loan: To be or not to be

It’s been over two weeks now since representatives of the Chinese Development Bank (CDB) arrived in Ghana to renegotiate the US$3billion loan deal.

The team has since left, but there is still a complete silence on whatever transpired between them and the Government of Ghana officials they met with.

But it is reported that the Chinese are asking for an additional 2,000 barrels of crude oil over the earlier 13,000 barrels a day agreed between them and government.

China initially got Ghana to use part of its share of crude from the Jubilee Oil Field as collateral for the US$3billion loan. But they now want an upward adjustment of the daily quota from 13,000 barrels to 15,000 barrels. This is because of on-going downward pressure on international oil prices and thus the value of the amount of oil originally agreed. Besides the fall in both Ghana’s gold revenues and its cocoa revenues [leading to US$1.3 billion in foregone foreign exchange revenues in 2013] has made the loan riskier than the Chinese originally thought.

It is still unclear whether Ghana would agree to the additional demands by the Chinese. Another problem delaying the disbursement of the bulk of the loan is that out of the 12 projects to be funded by it, only two have fully completed feasibility studies that confirm their economic viability. As one source close to the Chinese lenders puts it: “We want to be sure the money will be put to good use.”

Parliament gave its assent to the agreement in February 2012 under the leadership of the then Deputy Speaker and now Speaker Right Honourable Edward Doe Adjaho.

Only US$600million has so far been released and Ghana is still expecting about US$1.6billion to come from the Chinese loan this year at least to fund infrastructural projects planned in this year’s budget.

Former Finance Minister in Ex President Kufuor’s Administration, Dr Anthony AkotoOseihas called for the renegotiation of the US$3billion China Development Bank (CDB) loan as well as the cancellation of the commitment fee attached to the facility.

He has called for a cutback on what he terms the “complicated” disbursement mechanism. “I think the commitment fee should be completely cancelled,” Dr. Osei tells Business Finder “It is not typical for commercial loans. They need to also renegotiate the conditions for disbursement.

“If you look at our domestic expenditure, over US$4billion or so is foreign-financed, and the majority is coming from the Chinese loan. So if it does not come, those investments will not happen,” he observed. According to the former finance minister, “any further delay means that all those projects cannot materialise. It does not help us.”

Ghana is reported to have paid some US$54million already as commitment fee when only US$600million of the US$3billion loan has been secured since the agreement was signed in 2012. However proponents of the still-awaited loan accuse Dr Akoto of politicking, pointing out that the loan, which incorporates a long grace period before repayments start, also carries a well below market interest rate of 2.5% per annum and so is a concessionary, rather than a commercial loan.

Delays in releasing a US $75million component of the gas infrastructure project in the Western region has forced contractors to postpone the date of completion a number of times.

The situation forced President Mahama to ask the Finance minister a couple of months back to explore other sources of funding for the gas project, which is needed to boost gas supply to the power sector.

Meanwhile, the Member of Parliament for Dormaa Central is urging the government of Ghana to throw in the towel and request for the cancellation of the deal, pay the penalty and save Ghana from sinking further.

“If you look at how things are going, it would be prudent for the government to cancel it instead of renegotiating which would put extreme pressure on the economy of Ghana,” he said on ‘Burning Issues’ on Adom FM.

“If the government wants to opt out of the deal, it can give 10 days notification to the other party,” the MP said.

According to him, things would get worse because of the exchange rate and interest accruing on the loan by the day.

“Government’s intention of renegotiation of the deal should come before the Parliament,” he said.

There are indications that government is indeed looking at alternatives to the Chinese loan. Although it has by no means given up all hope that the rest of the loan will come through, it is already devising a fall-back position. Top of the pack in this regard is a resort to the Eurobond market which Ghana has already tapped successfully, and with little fuss, twice since 2007.

Government already has plans to return to the Eurobond market this year to top up last year’s US$1 billion issue with as much as another US$1.5 billion. Now some influential voices in government have started suggesting that it should forget about the Chinese loan and go for up to US$3 billion on the Eurobond market.

This would be easier said than done though. Asking for such a large amount at once would put Ghana’s sovereign credit worthiness ratings at risk, a situation which the credit rating agency Fitch would be only too happy to play on as the latest episode in its on-going feud with the Government of Ghana.

On the other hand, even though this would mean accepting an inordinately high interest rate for a larger than originally planned Eurobond loan, it would hold the attraction of not having to try so hard to convince the investors as to the efficacy with which it would be spent.