DI RAISES ISSUES OVER STX FUNDING

DI RAISES ISSUES OVER STX FUNDING

The Danquah Institute is calling on Government to bring back the US$1.5 billion suppliers’ credit facility agreement with STX (Gh) Ltd for the construction of 30,000 housing units to Parliament since subsequent difficulties with efforts to raise funding and the ambiguity, changes and re-arrangements with sources of funding have altered fundamentally the integrity of the terms and conditions of the agreement which Parliament approved last year.

Last year, the Government of Ghana reached an agreement with STX of Korea, through its subsidiary in Ghana, for the construction of 200,000 houses in Ghana within a period of five years at a total cost of US$10 billion.

In August 2010, Parliament approved an initial off-take agreement between Government and STX for 30,000 housing units for the security forces at the proportionate cost of US$1.5 billion.

We have learnt in the Tuesday, 10^th May 2011 edition of the Daily Graphic that Standard Chartered Bank (a UK-based bank), one of three banks (the other two American) named by Mr Alban Bagbin, the Minister for Works, Housing and Water Resources, in an earlier interview with Joy FM, has now been contracted to fund the project in tranches.

This new development raises fundamental issues about the terms and conditions of these purported new arrangements and the need for the three separate credit agreements (or singular agreement if such) to be brought to Parliament for their terms and conditions to be scrutinized for consistency with what was originally approved by the legislature. For example, is Stanchart demanding to be paid political risk insurance?

We are also aware of the active role played by the Government of Ghana in going on an international road show with officials of STX sourcing for funds as against the original expectation that was to be the responsibility of STX and the Korean Government.

Last year, the Danquah Institute, Imani Ghana, World Bank, GREDA and the Minority in Parliament, inter alia, analyzed the STXhousing project and raised serious concerns about its integrity. Our concerns were basically as follows:

i. The agreement was too premature to be presented to Parliament for approval, particularly since neither Government (the purchaser) nor STX (the supplier) could tell with any certainty the cost per unit and how they came to that specific figure of US$1.5 billion.

ii. It was not proper and therefore highly suspicious for an agreement to have specific terms and conditions, including interest rates, percentage of grant element, percentage of management fees and insurance premium, when the actual source(s) of funding have not been identified and specified.

iii. The nearly 18 percent of political risk insurance slapped on the credit facility without an identified source(s) was unacceptable, inessential and extremely high for a country with Ghana’s credit rating. That political risk insurance was in excess of US$264 million which Government was required to pay upfront per the agreement.

iv. The agreement did not represent value for money and that a consortium of established Ghanaian real estate developers and a local bank were in a position to undertake the project (or a similar one) at nearly half the cost quoted by the Korean firm, STX, provided the Ghanaian consortium received the same favourable incentives and the consortium, in fact, proceeded to present their much cheaper proposal to both the Vice President of the Republic and the Minister of Works, Housing and Water Resources. However, they received no favourable hearing from a Government determined to go ahead with the STX project regardless of the obvious red flags raised.

v. STX had not shown any corporate evidence of their commitment or capacity to invest in Ghana for the construction of the so-called 200,000 housing project.

In September 2010, the Deputy Finance minister, Seth Terkper, defended the STX deal, claiming that the agreement came with identified sources of financing, including the South Korean government.

Nearly 10 months after Parliament approved this controversial agreement we are being told Government is now sourcing for funds. Credit facility agreements are ordinarily not presented to Parliament for scrutiny and approval without an identified source(s) of funding and it is dangerously speculative and suspicious to present any such agreement with specific terms and conditions when sources of funding are yet to be identified. Indeed, such a practice compromises Government’s leverage to negotiate a good deal on behalf of the country and that is what we are afraid has happened in this STX case.

In his recent attempt to explain the delay in construction, five months after President Mills cut the sod for the commencement of work, with not even a single shovel on any site, Mr Bagbin mentioned some preparatory works, including the identification of land, now being done and engineering and procurement details being finalised, all of which, as we argued last year, ought to have been done before any proper calculation of the estimated cost of the project could have been competently reached.

We are, therefore, calling on the Minister of Finance & Economic Planning to go back to Parliament for the House to properly scrutinise the terms and conditions of the agreement, if any, that have been reached with the three international banks that Mr Bagbin now claims have decided to fund the project.

Parliament must satisfy itself with the consistency of the current state of the agreement with what it approved in August 2010 and to further satisfy itself on the current propriety of the exorbitant and inessential $264 million political risk insurance originally demanded by the Koreans.