The government has revived talks with the China Development Bank (CDB) for the remainder of the almost US$2 billion loan facility it abandoned in 2014.
The government suspended discussions with the Chinese bank after the country utilised the first tranche of US$ 1 billion from the US$3 billion loan agreed with China in 2011.
The Finance Minister, Mr Seth Terkper, told the Graphic Business in an interview that a government task force is currently in China to renegotiate the deal. When it becomes successful will be repaid by leveraging revenue flows from the supply of lean gas from Ghana’s Jubilee field.
“There is a task force that is working with the ministry of Finance and the power ministry to continue the negotiations with the China Development Bank in order that the CAP of $1.5 billion that was placed is removed,” Mr Terkper said.
He said “The CDB disbursed $1bn of the $3bn and the government placed a CAP on $1.5bn. It should be noted that CDB has disbursed approximately US$1 billion for the Atuabo Gas Plant, pipelines from the Jubilee field and other infrastructure.”
Task force in China
“The mandate of the task force is to discuss further utilisation of the outstanding US$500m and the remaining US$ 1.5bn if possible because these are already covered by the government,” Mr Terkper said.
The premise of CDB facility is in tune with Ghana’s self-financing strategy, which states that proceeds from any commercial project must be used to pay for the loans which financed the project, not paid from taxes as public debt.
The Finance Minister explained that the revenue from crude oil sold at international market price at Brent benchmark price and the resources are repatriated to the Bank of Ghana(BoG) and used to service the facility.
“When crude oil prices fell, the source of financing for the entire facility became insufficient, so disbursement was stopped,” Mr Terkper said.
“This time we will use lean gas from the Jubilee oil field to pay for the remainder of the loan. We need that US$1.5 billion now.”
It is expected that the potential for the energy sector in the country, which include crude, gas and lean gas will be used to finance the facility.
Oil, including direct sales to China, as well as other revenues, will be used to repay the loan but Chinese firms will be handed the majority of the contracts for work funded by the cash, the report said.
“This will ensure that the loan is not put on the tax payer to increase public debt, the projects will pay for themselves”, Mr Terkper said.
This he said is in consonance with the government’s focus on insisting that state institutions follow the Ghana Cocoa Board’s example in using the proceeds from projects to repay loans.
The Ghana Airport Company, he said is using the airport tax and other charges to develop the airport. The Ghana Ports and Harbours Authority is also using proceeds from the port to pay for its expansion projects.
“This is part of a broad strategy of finding alternative and more prudent ways to fund infrastructure projects in the country and this is working today.”
“We are not going to be putting the loans of commercial project on tax payers as public debt. Ghana has a potential gas from three fields Jubilee TEN and Sankofa but this deals if for only lean gas from Jubilee”, assured. We would develop similar strategies for the TEN and Sankofa Oil and gas fields”, the Finance Minister rationalised.
Analysts say, the country is depending on a ramp-up in oil output at the Jubilee and TEN oil fields to revive economic growth, which the International Monetary Fund(IMF) forecast will slow to 3.3 per cent this year, the lowest rate in more than two decades.
Ghana and China are due to establish a commercial contract to oversee China’s offtake of Ghana’s oil as part of the loan repayments. Upfront fees are 0.25 per cent and commitment fees are one per cent per year for both tranches.
The government has said it would use Chinese loans to finance infrastructure projects and transform its economy through gas- and oil-driven industrialisation.
Ghana is Africa’s second-largest gold miner, a major cocoa producer, which started pumping oil in December 2010 and became a commercial oil exporter in 2011.
At the time, the IMF in 2010 warned that the Chinese loan was good for the country and does not contravene any debt limitation conventions with the them.
But the IMF has warned that Ghana’s oil revenues may initially only cover the costs of its recently agreed public sector wage hike.