PDS saga: God is in the details

We may have lost the $190 million which would have been ours if the Power Distribution Services’ (PDS) concession agreement with the Electricity Company of Ghana had not been canceled by us, but I dare say that it was better than to have lost $3 billion worth of assets belonging to ECG if we had gone ahead.

A letter from the American Embassy in Ghana said, among others, this week that: “Based upon the conclusions of the independent forensic investigation,... the termination is unwarranted”.

That is their point of view. My understanding of the whole deal is that the Americans were/are wrong.

I base my conclusion on the letter to the Americans signed by the Finance Minister terminating the concession agreement. The letter, dated October 18, 2019, stated among others, the following facts which Yours Truly has brutally condensed for lack of space.

” A key condition under the private sector arrangement was to introduce a Concessionaire into the distribution sector, who would inject private capital into the operations of the ECG…Through an international competitive tender, Meralco of the Philippines was selected as the concessionaire. In order to satisfy the local content requirement under the transaction, a special purpose vehicle, Power Distribution Services (PDS), was incorporated in Ghana to be the operator,” it said.

Flowing from that, the Transaction Agreements were executed.

In these agreements, there was over 40 Conditions Precedent, five (5) of which were considered critical and essential. One of them was that PDS was to furnish to ECG payment securities in the form of either a Demand Guarantee or a Letter of Credit issued by a Qualified Bank.

Owing to difficulties experienced with raising a bank guarantee, PDS formally requested MiDA to accept a demand guarantee issued by an A-rated insurance company.

This was accepted. Consequently, PDS submitted the Payment Securities in the form of Demand Guarantees issued by a Qatari insurance firm, Al Koot Insurance, and Reinsurance, on February 27, 2019, two days before the Transfer Date of March 1, 2019.

On June 24, 2019, ECG received from Al Koot a letter dated June 16, 2019, saying, among others, that: • Al Koot is not authorized by its constitutional documents to underwrite counterparty and trade risk;

• The Demand Guarantees were not executed by authorized signatories of Al Koot;

• The letter dated March 13, 2019, forwarded by MiDA to ECG purporting to confirm the issuance of the Demand Guarantees was a misrepresentation because the signature on the letter was forged;

• Al Koot refused to accept any present or future legal obligations in connection with the purported Guarantees.

To establish whether a valid Demand Guarantee was provided by PDS, the Government of Ghana mandated its mission in Qatar to visit the official premises of Al Koot in Doha.

At this meeting with officers of the Ghana Embassy in Qatar, held on July 30, 2019, Al Koot, confirmed that:

(i) The letter was a fabrication and part of a fraud.

(ii) Yahaya Al-Nouri, the staff of Al Koot who forged the signature on the letter, had since July 21, 2019, been suspended without pay.

(iii) There was no approval by competent signatories or by the Board. The guarantees were witnessed by a junior officer of the company who had been working under Al-Nouri for only a month. The transactions, accordingly, lacked the due authorization1111111111111111111111111 and approval of the company”.

(iv) “Al Koot has an underwriting policy and guidelines which require the approval of the Central Bank of Qatar. No such approval was granted by the Central Bank of Qatar.”

The ministry’s letter concluded: “On the strength of all the information gathered about the purported Demand Guarantees provided by PDS as security for the transfer, the Government of Ghana is of the firm opinion that there is no valid Payment Security”

The Americans, in a recommendation after their forensic audit, suggested that it was possible that Ghana could prevail in a lawsuit against Al Koot.

Our Finance Minister replied that “The people of Ghana would consider it highly irresponsible”.

The Americans have a right to arrive at the conclusions they did, and I grant that.

What yours truly finds untenable is the statement that “The United States underscores the importance of contract sanctity as essential to a conducive investment climate…”.

Sanctity? The Americans may know something they have not communicated to us, yet. From all the facts available, yours truly thinks that if there ever was a breach of contract sanctity, it was not by the Ghana Government.