General News of Wednesday, 25 February 2015
Source: Daily Guide
It has emerged that the Attorney General (AG) and Minister for Justice advised the Ghana National Petroleum Corporation (GNPC) that it was not within the corporation’s statutory mandate to provide loan guarantees to other entities – whether public or private.
This was in respect of the ongoing public-private partnership (PPA) agreement between the Electricity Company of Ghana (ECG) and Karpowership of Turkey over the emergency power barges or ships to mitigate the power generation deficit in the country.
Reports say the presidency has coerced the GNPC to issue the $100 million bank guarantee since the government says the ECG, which is signing the agreement, is not liquid enough to take up the deal.
To make matters worse, the National Democratic Congress (NDC) government is bypassing parliament to push the deal through.
There have been arguments over the suitability of the GNPC abandoning its core mandate of oil exploration and development and entering into the power sector, and others have wondered how the corporation was going to find the requisite funds to guarantee for the ECG in the first place.
However, sources say the government is relying heavily on the recent court order that is allowing the GNPC to source $700 million loan without parliamentary approval, as the main guarantee to push the barges deal through.
The GNPC wrote to the AG on January 16, 2015 specifically asking the government legal advisor to state her position on “whether the provision of bank guarantees falls within the mandate of the GNPC.”
The corporation also wanted the AG to advise on “whether parliamentary approval is required for the transaction in case GNPC were to issue a bank guarantee on behalf of the ECG.”
The overall effect of the AG’s advice was that for the GNPC to establish sufficient connection between its core mandate and the provision of the bank guarantee, “the corporation should negotiate and execute the heavy fuels and/or gas sale agreements with Karpowership,” and also when the GNPC Board had approved the guarantee transaction, it should be forwarded to the minister of finance through the minister of petroleum for approval.
The AG’s letter of advice on the GNPC’s request said even though the corporation was statutorily barred from providing loan guarantees to other entities, the corporation “may enter into contracts if such contracts have a sufficient connection to the core mandate of the corporation.”
The letter sighted by DAILY GUIDE with reference E63/SF. 9TJ written on February 4, 2015 and signed by Dr. Dominic Akuritinga Ayine, a deputy AG, further said there was sufficient connection between GNPC and the overall transaction with Karpowerships to justify the issuance of a guarantee to facilitate the transaction.
The deputy AG explained that once the GNPC was commencing negotiations with Karpower in order to supply it with heavy fuel oils and also conclude a gas sale agreement, if the two agreements were negotiated and executed, then there is going to be “sufficient connection” with the core mandate of the corporation.
“It must be stated that a guarantee is just another contract. Statutory corporations, like other corporate entities, have capacity to enter into and perform contracts,” the deputy AG said in the government’s advice.
The AG said that “In the case of public corporation set up for commercial purposes, such as GNPC, it would be unusual to state in their establishment law that they have the power to lend money or grant bank guarantees.
“However, in view of the fact that they have generic power to contract, they can enter into contracts of guarantee insofar as these contracts relate to their overall statutory mandate.”
On the issue of parliamentary approval for the transaction, the AG said that “it is our opinion that because a guarantee constitutes a contingent liability, it is technically equivalent to a loan,” but added that parliament had waived its right to approve that type of loans or guarantees.
“In the circumstance, there would be no need for parliamentary approval for this transaction,” the AG added.
The two local banks with their headquarters in Togo and Nigeria respectively – earmarked to finance the deal – reportedly developed cold feet.
Sources said it is taking much effort from the presidency to convince the banks but even that, things are still proving to be difficult.
The source said the Pan African Bank with its headquarters in Lome, was unwilling, but presidential powers reportedly were brought to bear on its Accra office to advise Togo and it was purportedly based purely on the opinion of the Attorney General.
As a result, the bank was forced to agree last week and they have since issued $50 million guarantee on behalf of GNPC.
The Nigerian bank on the other hand, is adamant to enter into the deal but the presidency was said to be “hitting hard against the group in Nigeria to get them to approve it.”
The bank has become reluctant because in the past when they got the Kufuor administration to finance a similar project in Tema under a PPA, worth $20 million based on the offtaker agreement, the NDC government after just two years in office, killed the deal, culminating in the biting dumsor (erratic power supply).
Under the agreement, the Turks are expected to run the barges and sell power to the ECG for onward transmission to consumers, which is equivalent to what the Volta River Authority (VRA) is doing for ECG.
However, they (Turks) want a clear-cut guarantee to ensure that their investment did not go down the drain.