|Ghana's speaker of the house of parliament in Beijing, 2008|
What's interesting about all this? Three things: (1) Ghana's democracy and lively parliament show that a better governed country allows more transparency about its engagement with Chinese banks; (2) Because of that transparency, we are learning a lot from Ghana about how Chinese banks engage, and they don't seem to have prohibited Ghana from releasing this information; (3) China's resource-secured line of credit model appears alive and well. The IMF and World Bank are not going to like this challenge to their position as preferred creditors.
The terms of the CDB line of credit differ in its two installments. The first tranche of $1.5 billion will have a 20yr maturity including a 5yr grace period. The interest rate will be 6 month LIBOR (London Inter-Bank Offered Rate) plus a margin of 2.95%, with a commitment fee of 1% and an upfront fee of 0.25%. The terms of the second $1.5bn tranche are 15yr maturity including a 5yr grace period, interest rate of 6 month LIBOR plus a margin of 2.28%, and probably the same fees.
The credit appears to be secured by a petroleum off-take arrangement and escrow account, the same model China has been using for decades in Africa, most famously in Angola. As one report states:
Repayment of the loan facility ... would be effected from petroleum revenue and other government owned resources. Due to the aforementioned terms of repayment, the report stated that a commercial contract for the off-take of oil would be entered into by the Ghana Petroleum Corporation and the Chinese authorities. According to the report, the government would reduce the impact of commercial projects on the public debt, through an on-lending and escrow arrangement for most of the projects under the facility.With a debt burdened past, Ghanians rightly worry about the increasing levels of debt being incurred by their government. Their parliament needs now to ensure that all the projects financed under these credits have proper feasibility studies, and that the contracts they finance are won through open, international, competitive tenders. There should be plenty of Chinese companies competitive enough to win contracts that these loans will finance, and according to the terms, up to 40% can finance non-Chinese contractors.
Under clause three of the Master Facility Agreement, a minimum of 60 per cent of each tranche was required to be paid to the People's Republic of China (PRC) contractors, a clause which allows about 40 percent of the facility to be applied towards local content sourcing, or sources other than the PRGhanians are already trading accusations about corruption and worries about kickbacks. With infrastructure contracts this is a very real worry. But from what I've seen the intial allegations stem from a lack of understanding of the convention of upfront fees. Some believed the fees serve as a commission of some kind to some broker or deal maker, but this kind of fee is common, even in World Bank loans, which also have upfront fees. The World Bank's IDA loans for the poorest countries currently have no commitment fee (this is a change) but do carry a service fee of 0.75%. The World Bank's IBRD loans (for middle income countries, probably Ghana falls here now) vary in fees. The highest are for special development policy loans, currently at 6 month LIBOR plus a minimum of 2%, with upfront fees of 1% of the total loan amount, while "Development Policy Loans with a Deferred Drawdown Option (DPL DDO) carry a 0.75% front-end fee, plus a 0.50% renewal fee; and Catastrophe Risk or Cat DDOs carry a 0.50% front-end fee, plus a 0.25% renewal fee".
A hat tip to Naa Aku Addo for the story. Below, more details of the loan, repayment, and the projects that are projected to be financed.