WHAT KORAAA IS WRONG WITH US?
Gabby Asare Otchere-Darko
What is a supplier credit? It is simply a self-financing instrument by a seller whereby there is an agreement between a supplier and a buyer involving the supplier deferring payment. That is, supplier credit occurs when the supplier accepts installment payments for the supplies she sells. For example, when the Ministry of Energy wants to buy a power plant on supplier's credit, the Minister and his technical team will visit the supplier and inspect the plant to find out about its suitability, durability and cost-effectiveness.
It is only after inspecting the technical dimensions of the product that the seller and buyer can sit down to negotiate the price and then the terms of payment. But, the case before Ghanaians today is a supplier credit facility where the supplier has put a total cost on an unknown product with a specific number (30,000) and has somehow, somewhat managed to get Government to Present for parliamentary approval a credit facility of $1.5 billion when nobody in Ghana knows what exactly Government is buying.
Two weeks ago, Alban Bagbin, the Minister for Water Resources, Works and Housing was asked by Kwami Sefa-Kayi of Peace FM what was the unit cost of the 30,000 units to be built for the security services. His response was that Government was still negotiating with the suppliers! So on what basis was the total figure of $1.5 billion arrived at and for Government to confidently ask the people of Ghana to allow them to issue a sovereign guarantee to borrow funds through the supplier for this project? Unbelievable!
On June 23, a Dr Kwarteng posted this on the website of the Statesman, in response to a report on the controversial $10 billion STX housing deal. It reads: "This marks the end of Ghana. At BRRI [Building and Road Research Institute], we have been researching into affordable housing for over 25 years now. We have many solutions on the shelf, but Government has never given us the funding needed to commercialise the projects... So what at all is wrong with Africans?"
Last month, I was in Parliament and walked in on a Finance Committee deliberation on a 17 million euro credit facility. Well, I was able to walk in unannounced because the all-important committee sessions of the Parliament of the Republic of Ghana take place in open place, at the lobby.
Mind you, it is the committee level that serious work is supposed to take place, where some $1 billion worth of loans are routinely discussed and approved soto voce each year before it is brought to the whole house.
A heated debate ensued between the Majority members and Minority members on the committee, with the latter accusing the former of rushing through an agreement, details of which were still sketchy.
The 17.7 million euro loan facility from BNP Paribas to Government was for a sole sourcing contract for the supply, installation and operation of Vessel Traffic Management and Information System (VTMIS). The project, to be carried out by Zeni Maritime Technology Oy of Finland for electronic and physical surveillance and monitoring of Ghana's 537km coastline/coastal waters. It involves the installation of eight remote sensor sites along the coastline and three manned monitoring and controls centres in Accra, Tema and Takoradi. The technical team from the Ghana Maritime Authority informed the Finance Commitee that the VTMIS "would help in curbing piracy, pair-trawling, narcotics transportation and other vices that take place on the sea."
What some committee members were finding most worrying but which seemed quite normal to the others was that they were being asked to okay a deal without parliament doing any serious value-for-money comparative analysis. They were not experts and were not furnished with any independent expert reports on what such a VTMIS project should cost Ghana and whether or not this was the best deal available. But, hey, the terms of the loan sounded good!
The conclusion of the committee report gives you an idea of what actual work is done by that all-powerful committee under its chairman, James Klutse Avedzi. It reads: "Upon thorough examination of the Agreement, the Committee finds that the terms meet the Government of Ghana concessionality requirement. The VTMIS was also found to be very important for the surveillance of the country's coasts. The Committee therefore recommends to the House to adopt this report and approve by Resolution, the Credit Agreement between the Government of the Republic of Ghana and BNP Paribas, United Kingdom Branch, for an amount of seventeen million, six hundred and eighty-seven thousand, fifty eight euros and fifty one cents for the supply, installation and operation of Vessel Traffic Management Information System for coastal surveillance in Ghana in accordance with Article 181 of the Constitution, Sections 3 and 7 of the Loans Act, 1970 (Act 335) and the Standing Orders of the House."
Notice that the Finance Committee, charged under our to approve loans that serve the national interest only considered two things: (i) concessionality (ii) importance of the project to the nation. They were not at all minded by the other work that the framers of the Constitution saw to be at the heart of the insistence that no loans, taxation or any other such financial commitments can be made on behalf of the state without the prior approval of the institutional representative of the people of Ghana and that approval must be assumed to be made in the interest of the nation. If a contract does not pass the test of value for money then it cannot be deemed to be in the interest of the state. Yet, the Finance Committee does not seem to be bothered about whether or not they state is being overcharged for the VTMIS project.
From the little that the Danquah Institute has studied and continues to study what is coming out clearer and clearer is that contract sums are usually woefully inflated and later on cushioned by a 35-plus-something percent grant element and a meagre percentage interest rate to make it appear concessionary. So long as the terms of a loan is concessionary nothing else matters. It did not ring any bells how a commercial bank like BNP Paribas could finance a project that attracted zero percent interest rate.
Ghana's programme with the IMF and World Bank has forced the usual transaction charlatans to device news ways of fleecing the country. That new way is simple: inflate the price, negotiate with the bank and pay it some fees that would more than take care of whatever commercial rates loss that may incur under a concessionary arrangement and present credit terms to Ghana Government in a concessionary manner. In short, what is presented as concessionary is an inflated contract sum dressed to appear concessionary. If the whole concept behind the IMF's insistence of concessionary loans is to help developing countries on a programme to maintain debt sustainability then they better go back to the drawing board. It is failing! The focus should be on a broader value for money analysis rather than this narrow concessionary requirement, to which charlatans have found an antidote.
There is also another example of how a facility with a generous grant element may end up being more expensive than it is all dressed up to be. Archetypical of this is the Jubilee House project. The Indians came in with their money and contractors for a sole-sourced turnkey project. The defence then was that it was being financed mainly by an Indian government grant. Yet, in the end, government ended up paying or committing funds more than twice the value of the grant received for a building which Ghanaian built environment players could have done at presumably half the cost with very little national security implications of another sovereign nation having the full engineering details of our sovereign presidential palace.
The naked truth is that Ghanaians are being screwed big time and certainly not by their spouses or lovers and with no attempt on the part of those doing the screwing to resort to the use of protection.
The hottest such deal in town is the biggest credit facility ever entered into by any government since 1957. There is only one fundamental question to ask: How could the Minister of Finance & Economic Planning, ably supported by the Minister of Water Resources, Works & Housing, present to Parliament for approval a $1.5 billion supplier's credit facility for 30,000 housing units when the project contractors themselves, STX, did not have a clue what the designs were to be, where the actual sites were to be at and what a unit cost of the housing project would be? The source of funding is also far from certain.
On Monday, July 5, the Ghana Real Estate Developers Association went before the joint committee of Finance and Housing to talk about a petition they presented to Parliament earlier. As to what happened between the formation of the petition and Monday only GREDA members and their self-interest know. But, GREDA backtracked on their opposition to the STX deal to say that Parliament can pass the STX deal but that they also have an alternative deal which they want considered alongside STX! The heated discussion in the oval basement lobby of the legislature moments before the meeting was obvious to all onlookers, including me, that something had gone wrong.
The perplexing aspect of the GREDA u-turn is this: They still presented to Parliament their well-detailed alternative project of 30,000 housing units for the security agencies. Simply put, GREDA said they could provide 5,000 housing units for Government per year at an estimated cost of some $90,000. They rounded it all up to say they can build the 30,000 housing project at some $540 million as compared to the $1.5bn financing package for the STX option! They went as far to provide estimates of how much will be lost to the consolidated fund through the tax exemptions Government intends to offer to STX.
While GREDA, after some obvious consultations with pro-STX characters, is no longer willing to be seen to be opposing GREDA, however, by presenting an alternative at nearly a third of the financial package that the STX model would cost the Government, they have impliedly but effectively shot down STX. So far, STX has not been able to support its credit agreement demands with any details of what it is offering Ghana in terms of the housing units.
Mind you, this is a credit facility with a peculiar doubling of fees. For example, the VTMIS loan had just a single 0.5% arrangement fee. The STX credit deal, on the other hand, has an Arrangement Fee of 0.75% and a superflously nomenclatured Management Fee of another 0.75% (apparently reduced to 0.5%) of the facility.
This adds up to $12.5 million extra cash to help STX in arranging and managing a credit facility which STX now assures us is being fully funded by the Korean government! No wonder some suspect this to be a corrupt deal. But, if it is corrupt then it is far bigger than the M&J scandal to which the NPP is comparing STX. The hast in getting Parliament to approve a deal that some very basic preparatory work has not been completed is what makes some us view this deal with utmost suspicion.
No adherent of Danquah's property-ownership philosophy can say no to the principle of this project even if it carries with it some political inconvenience. Beyond that, after all, how many Ghanaians care who is building them homes so long as it is decent, available and affordable? Who cares if a foreign company intends to build 200,000 homes in Ghana and wants to price them above the means of 80% of Ghanaian workers?
Normally, we would not; but if there are issues about value for money and Ghanaians (through the Government of Ghana) is being asked to fork out a total of $4.5 billion later (or $1.5 billion now) then we have to ask some relevant questions. So long as Government money is funding it we should make sure it is spent rightly.
For example, how could Parliament be asked to approve such a record credit sum for a project when the necessary contractual arrangements for the joint venture, the EPC agreement and other related matters are yet to be negotiated and drafted? So on what basis did STX come about that figure of $1.5 billion?
My hunch is this: STX is likely to make a cool $300 million from this 30,000-unit project after which they would simply pack bags and leave, blaming Government for breaching its contractual obligation in the joint agreement. GREDA even estimates a higher return for STX.
To appreciate this fear of mine you have to look at the details of the off-take agreement between STX and Government of Ghana. Let me just quote from the recital of that agreement signed by Albert Abongo and inherited by Alban Bagbin and supervised by John Mahama.
It reads: (i) Whereas the Government of Ghana (GoG) intends to initiate a housing development project (Housing Project) whereby (1) over the next five (5) years, 200,000 housing units will be built in ten cities in Ghana, forty five percent (45%) of which the GoG will become an off-taker to meet some of the accommodation needs of security agencies of Ghana (the GoG Off-Take) and HFC will become an off-taker (as the principle mortgage finance provider) of the remainder (ie 55%) and (2) 300 units will be built on the Build Lease Operate basis to house members of the Parliament, Ministers and State Protocol Department and visiting VVIPs thereof."
As Dr Bawumia points out in his analysis of the deal, $4.5 billion would mean an annual repayment bill of $400 million. There is absolutely no way (mark my word) that this government or any other subsequent government would or could honour the entire off-take agreement of 90,000 homes at that ridiculous price. Government has more to do with our money than providing homes which the private sector is already doing.
Now, wait a minute... beyond the 200,000 units, 45% of which Abongo, acting on the instructions of the Mills cabinet, committed Government to buying, the Koreans are being contracted to build an additional 300 luxury village of MPs, Ministers and visiting VVIPS like the Korean President. At the same time, we are busy selling the ones built by Tarzan!
What is interesting about this 300 parliamentary village is the proposal to evacuate the soldiers from Burma Camp and use that prime land for the project. The Koreans have even offered to build a new 'Burma Camp' near Michel Camp.
There is an electoral blackmail going on. The NPP was being warned against opposing the deal because it would lose them friends in the security services since the 30,000 units are for the use of the forces. First of all, at best 6,000 units would be built a year and there is some two years to the next election. Again, from all the discussions I have heard no Ghanaian is saying that Government should not provide decent homes for the police, the NPP even made a manifesto commitment to that effect.
What we all saying is that let us make sure we do so at value-for-money and properly. After all, there are another 8 million voters or so who could also do with accommodation better than what they now live in.
As a memo from members of Ghana's Built Environment points out, "If the houses to be built by the Koreans should be truly affordable, then we need to ensure that the cost is within the income profile of the target group. We should be guided by the fact that those in the lower-middle income group and lower income groups may fall within a bracket of GH¢150 to GH¢400 a month of net salary of which housing expenditure will most likely not exceed 40% of their disposable income. Within such estimates, an affordable house should not exceed US$15,000 – US$20,000."
In that carefully drafted memorandum to the Minister of Water Resources, Works & Housing, stakeholders of Ghana's built environment have raised serious questions about the proposed $10 billion joint venture agreement between STX Korea and the Government of Ghana for the construction of 200,000 housing units between 2010 and 2015.
In their memo dated June 9, 2010, the Joint Committee of the Ghana Institute of Architects, Ghana Institute of Planners, Ghana Institution of Engineers and Ghana Institution of Surveyors welcomed the bold project but added that Ghanaians don't need Koreans to come and build affordable homes for Ghana.
The memo states, "In spite of the huge economic potential of this investment, there is strong possibility that the real economic benefits of this investment could elude Ghana and rather stimulate the South Korean economy."
The stakeholders reminded Government that "As far back as the 1960’s, Ghanaians were in charge of large scale housing projects and even built the State House. Ghanaians fully managed and built Dansoman, Teshie-Nungua Estates etc. We may need technical assistance from South Korea when we need to build an Oil Refinery, Merchant or Navy Ships, Nuclear Plants etc but certainly NOT AFFORDABLE HOUSES!"
So, what at all is wrong with us as a people? This is a question best answered by our leaders. Those we trust to 'think' for us and act in our collective interest.
The author is the Executive Director of the Danquah Institute, a centre-right policy think tank in Ghana.
Send your news stories to and features to . Chat with us via WhatsApp on +233 55 2699 625.