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General News of Tuesday, 3 January 2012

Source: citifmonline

IMANI got it wrong on $3bn Chinese loan – Gov't

The Government of Ghana has reacted to a statement by IMANI-Ghana that said “government’s over-reliance” on the $3 billion Chinese loan “to prosecute its 2013 economic program, especially in the infrastructure area, could lead to dislocations in the economy and frustrations on the part of its managers. ”

The Information Ministry in a swift reply stated that IMANI peddled inaccuracies and should have double checked its facts well before going ahead with its report.

Below is the full statement:

We wish to respond to a statement issued by IMANI (The $3 Billion Loan is no Easy Panacea) on the Master Facility Agreement (MFA) signed between the Government of Ghana and China Development Bank (CDB).

A) Master Facility Agreement (MFA)

• IMANI confuses the Framework Agreements signed with the Chinese authorities (CDB and China EXIM Bank) in September 2010 (during HE President Mills’ visit to China) with the Master Facility Agreement (MFA) which Parliament approved in August 2011.

• It is regrettable that IMANI confuses the two documents and is misleading the public. Indeed, IMANI refers to a Master Framework (not Facility) Agreement in its analysis. While the Framework Agreements are Memoranda of Understanding (MOUs), the MFA is a firm and binding Agreement with CDB.

• The Master Facility Agreement (MFA) that Parliament approved in August 2011 was signed in December 2011 after the IMF granted the waiver on non-concessional financing in the same month.

• Furthermore, the CDB Board approved the MFA in June 2011 before the Minister of Finance tabled it in Parliament that month (note that Parliament was recalled in August to approve the MFA). Again, IMANI got it wrong on this point.

B) Availability period

• The availability period for drawing down on the two Tranches (US1. 5 billion each) under the MFA is five (5) years, not three years as IMANI sought to portray to the public.

• This is because Government is aware that it is asking for a Facility to finance major infrastructure projects (e. g. , oil/gas pipeline and processing plant; Takoradi harbor and Volta basin/ coastal landing sites; Accra Plains Irrigation; and Takoradi to Kumasi railway line) that cannot be completed within one (1) fiscal year.

• In placing the projects within the GSGDA, government was not looking at short-term gains only, as IMANI sought to portray. The feasibility studies for the projects are very clear on this point, that they are medium-to-long term projects.

C) IMANI cites Article 26 of Framework Agreement (not MFA)

• As noted IMANI quotes Article 26 of the Framework Agreement, not Section 26 of the binding MFA. Had it referred to the MFA, IMANI would have seen that Section 26 of the MFA (Partial Invalidity) is part of Part 9 of the Agreement, which deals with elaborate processes for administering the loan.

D) Subsidiary Agreements

• The Government is on course to submit the Subsidiary Agreements (which specify the Projects to be financed) to Parliament, as it promised during the Parliamentary debates between June and August 2011. It is surprising that IMANI is making an issue of these Agreements again.

• Government promised to send the Subsidiary Agreements to Parliament to promote transparency and accountability. This is precisely what it is doing and IMANI should laud the process and effort, not be seen to be running it down.

• For the avoidance of doubt, the Subsidiary Agreements are secondary to the MFA and they will define the projects and disbursement of funds, among others.

• Oil-gas Subsidiary Agreement and Contracts: Indeed, the first of those Agreements—the Subsidiary Agreement for Oil/Gas and Related Infrastructure Projects—was tabled in December 2011 during the last sitting of Parliament and the joint Finance and Energy Committees of the House started a review before the recess. It was the heavy workload relating to the 2012 Budget that prevented the House from approving the Agreement.

• It should be noted that an important requirement for passing the Subsidiary Agreements is a contract for works in relation to the projects, which is what Government has signed with SINOPEC. There is no question about circumventing the process, as IMANI seeks to portray.

• Given the ongoing reinjection and flaring of gas that could damage the Jubilee Fields and result in enormous economic losses, Government negotiated with CDB and the contractor for pre-financing critical aspects of the oil-gas project, after approval had been given for SINOPEC as contractor. This is far from the lack of urgency that IMANI associates with Chinese projects, such as the Liberian example it cites.

E) Ghana is to diversify its financing with CDB loan

• It is surprising for IMANI to belittle the amount that CDB lends for foreign operations. Government does not view 17. 5 percent of US$800 billion (or US$140 billion) as an insignificant amount in terms of development bank, multilateral or bilateral financing. It is prudent for Ghana to tap this source of financing to diversify its traditional sources of financing infrastructure development, notably commercial projects. As IMANI notes, most of CDB’s financing goes into energy and other infrastructure projects in developing countries.

F) Conclusion

• We urge IMANI and other individuals and groups with questions on the MFA to contact the Ministry of Finance for clarification before rushing to publish information that is inaccurate.

• We take this opportunity to wish all Ghanaians a Happy New Year.