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IMF Kicks Against $1.2bn GNPC ‘Needless’ Loan   
 
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08-Nov-2014  
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Information reaching the New Statesman is that the International Monetary Fund team, which arrived in Ghana to begin the final leg of negotiations for Ghana's bail out package Thursday has raised concerns with the $700 million loan facility secured by the Ghana National Petroleum Corporation from international lenders.

Also, it has been disclosed that Ghana’s Attorney-General, Marietta Brew Appiah-Oppong, assured the board of GNPC that they did not need parliamentary approval for the loan.

In 2012, the Supreme Court of Ghana ruled that the July 2007 Power Purchase Agreement between the Government of Ghana and, an international company, Balkan Energy (Ghana) Ltd was unconstitutional because it did not receive parliamentary approval as the Constitution demanded of an international business transaction.

This was in spite of two written opinions of the Attorney-General then that the contract did not have to be put before the legislature.

Today, the Deutsche Bank-led facility, which is feared has GNPC being used as the "alter ego" of Government to borrow the money for other pressing budgetary demands of Government, risks a similar fate without parliamentary approval.

The facility, which is said to have a total envelope of $1.2 billion on the table possibly over the next 12 months, has hit a snag over revelations by the New Statesman on Wednesday that it was being done on the blind side of Parliament.

GNPC is a hundred per cent state-owned petroleum entity which continues to use powers granted under the Provisional National Defence Coucil in 1983 to borrow, just like the Ghana Cocobod, only needing the approval of the Secretary (Minister) of Finance. But, Ghana had no parliament then.

Yet, under the current Constitution and in light of recent Supreme Court decisions, Cocobod has made it a mandatory procedure to bring its loan agreements to Parliament for prior approval. Recently, in July, the legislature considered and approved a syndicated loan of $2 billion from international banks to finance the purchases and related operations of Cocobod for the 2014/15 season.

Not so, GNPC, which manages Ghana’s share of oil produced in the country on behalf of the people. It has assumed the exclusive right to pledge Ghanaians' share of crude oil to finance a loan facility without the input, scrutiny and approval of the people's constitutional representative body, Parliament.

Alex Mould, the CEO of GNPC, opted to secure a $700 million loan to be scaled up to $1.2 billion, and he did so without bringing the loan agreement before Parliament. This is a practice which has been described by a London based financial analyst as "setting a dangerous precedent if allowed to go unchallenged."

The commercial loan, which has no grace period, is scheduled to be redeemed in full in 2019 using crude oil.

Already, arrangements has been made for global commodities trader and lending partner to the transaction, Trafigura, to start lifting oil for the loan's repayment from next week.

Disbursement of the first tranche of $350 million is scheduled for this week. In defence of this, government officials have told the New Statesman that the Attorney-General gave her legal opinion to GNPC that parliamentary approval was not necessary.

The loan, ostensibly for oil & gas exploration and development, has been badly received by analysts, parliamentarians, civil society, journalists and civil servants alike as “needless and dangerous.”

Needless because GNPC is seen as not needing $700 million over the next 12 months for any exploration or production which it cannot fund from its existing flow of funds from its 30% share of oil revenues. GNPC is said to have in excess of $200 million sitting in its bank accounts currently from its share of oil revenues from the Jubilee fields.

The growing suspicion is that, Government, which is facing serious fiscal tightness as a result of over-borrowing and reckless expenditures in the recent past, is looking for money, especially foreign exchange, to fund its budget, pay off its debts and arrears and to stabilize the local currency, as well.

Though relatively stable in recent weeks, the cedi is the worst performing currency in Africa this year.

Speaking to Accra’s Citi FM Wednesday, Asare “Gabby” Otchere-Darko of Global Dynamix Consult, a UK-based investment consultant, drew a distinction between the capacity of GNPC to borrow without parliamentary approval at the time when there was no legislature and now.

In an interview on Eyewitness News, Mr Otchere-Darko explained that when the law which created GNPC was enacted in 1983, the nation had no Parliament, therefore, PNDC Law 64 expressly stipulated under Section 15(2) that “The power of the Corporation to borrow money shall be exercisable only on the recommendation of the Secretary and with the approval of the Secretary responsible for Finance as to the amount, source of the loan and the terms and conditions under which the loan may be effected.”

Today, those functions have been taken over by Parliament which has been exercising the power to approve the annual programmes and budgets of GNPC.

He said, it would be odd for the legislature, which has the exclusive sovereign authority to approve and grant GNPC’s annual budgets, to not have any say when it comes to the same corporation contracting loans.

The analyst warned the lenders that it would be in their own interest to demand that GNPC took the loan agreement to Parliament for approval before any disbursement was done.

“In the light of recent Supreme Court decisions such as Faroe Atlantic v Attorney General, Isofoton, Waterville, and, especially, the Klomega, Meridian Ports case, which was related to a public authority entering into an international economic transaction, Deutsche Bank and its partners are better off pulling the brakes now and demanding that GNPC secures prior parliamentary approval before going ahead with disbursements.”

According to the CEO of Global Dynamix, “This $700 million five-year prepayment financial facility effectively mortgages Ghana’s share of oil production from now to 2019 because oil is being used both for repayment and as collateral. It has predetermined for Parliament for what Ghanaians must use the bulk of their oil revenues from now until 2019.”
 
 
Source: New Statesman
 
 

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