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?"