William Hutton Mensah – PDS Boss and Ing Samuel Boakye Appiah – ECG Boss
It
appears the new managers of the Electricity Company of Ghana’s (ECG) assets‒ Power Distribution Services (PDS) Limited‒ is relying heavily on cash flow from the sale of electricity to meet
its financial obligations under the power concession agreement.
According to a consulting firm, FTI Consulting, which was engaged to
probe the recent brouhaha over the botched PDS demand guarantees submitted for the
management of ECG assets under the Millennium Development Authority (MiDA)
concessionaire agreement, PDS lacks adequate capital to undertake US$350million
investment for the protection of the ECG assets.
“PDS is not having a certain level of capital required for the
issuance of a cash-backed letters of credit, which was an option offered by
some financial institutions that PDS had approached. We were informed during
interviews that PDS was offered the opportunity to secure cash-backed letters
of credit if it could deposit US$350 million in its bank account,” FTI stated
in its report.
In lieu of that, PDS engaged its bankers (Cal Bank) to facilitate
the insurance cover as payment security for the Lease Assignment Agreement
(LAA) and Bulk Supply Agreement (BSA) before the transfer of ECG assets.
Cal Bank therefore contacted its business partner, Donewell
Insurance, which also engaged Jordanian insurance brokers, Jo Australia Reinsurance Brokers, to seal a
reinsurance deal with Al-Koot, a Qatar-based insurance firm.
However, the whole transaction could not stand because the Qatar
based insurance company has ruled out capacity to underwrite the US$350million
insurance cover, throwing the PDS takeover of ECG assets into disarray.
Ghanaians are awaiting pronouncements from the government, after
it was established that the reinsurance deal with Al-Koot did not go through, having
recognised that US$12.25millon Demand
Guarantees posted by PDS was not valid
No Cash
The FTI report quoted that PDS could not secure the Demand
Guarantees or Letters of Credit as per the requirements of the LAA and the BSA
from a bank because of not having a certain level of capital required for the
issuance of cash-backed payment security.
The FTI, commissioned by MiDA to look into the confusion generated
by the suspension of the PDS deal because of lack of financial security, in its
report indicated that of the US$12.25 million raised for the Demand Guarantees
as charged by Cal Bank to PDS as fees for raising the payment securities, only one
million dollars (8%) was funded by an equity contribution by a PDS shareholder.
The rest of the money totalling US$11.25million
was paid using money paid by ECG customers.
The report said, “US$7 million (57%) was funded by a loan that was
advanced by Cal Bank to another PDS shareholder. This loan was repaid from
operating cash flows generated by PDS after the transfer date. The balance of US$4.25
million (35%) was also paid directly from operating cash flows generated by PDS
after the transfer date.”
This indicates that only one million dollars had been paid by the
new mangers of ECG’s GH¢22 billion assets to take control of
power distribution in the ECG enclave, raising questions about the financial
capability of the new operators.
Meralco, the Filipino, 49 per cent owner of PDS, was not mentioned
as having contributed a dime in the transaction even though the company has
been given a mouthwatering consulting job by PDS.
The report also established the sharing formula of the US$12.25
million, with seven million dollars paid to Donewell for the cost of the
insurance premium, while US$5.25 million was retained by Cal Bank.
“The total insurance premium of seven million dollars was posted to
Donewell’s Cal Bank account on February 27, 2019. As reported by Donewell, a
portion of this amount was distributed to four local Ghanaian reinsurers and Jo
Australia (the reinsurance broker),” the report stated, without mentioning
whether Al-Koot got its share of the proceeds.
No Fraud
The consultant ruled out underhand dealings in its investigations.
“We have not identified any information to suggest that either PDS,
Cal Bank, and/or Donewell committed or conspired to commit fraud or other
malfeasance in relation to the Demand Guarantees.”
Invalid Deal
A delegation sent by government to Qatar to authenticate the US$12.25millon
Demand Guarantees posted by PDS indicated in its report that the guarantee was
not valid as it was fraudulently procured by Yahaya Al-Nouri, a staff of Al
Koot Insurance and Reinsurance Company in Doha.
PDS, a local and foreign consortium, in March 2019 took over power
distribution functions of ECG under a concession agreement which ran into
trouble four months into the agreement over insurance security.
Government of Ghana in July suspended the transaction following the
“detection of fundamental and material breaches of PDS’ obligation in the
provision of Payment Securities (Demand Guarantees) for the transaction which
has been discovered upon further due diligence.”
According to the delegation, there was no valid guarantee issued by
Al Koot in the name of PDS as the documents purported to be coming from the
Qatari insurance company was forged by a staff, Yahaya Al-Nouri, who until
recently was manager of reinsurance.
Al-Koot has indicated that the company was not in a capacity to
underwrite PDS guarantee valued at US$350million when its total net worth is
about US$170million.
The company explained that Al-Nouri’s capacity to commit the company to any deal does not exceed US$15,000 as a manager and can only recommend a similar amount for approval.
By Fortune Alimi
