UPDATE ON CHINA LOAN SCANDAL

C O N F I D E N T I A L ACCRA 001564 SIPDIS E.O. 12958: DECL: 07/22/2014 TAGS: PREL ETRD EAID EFIN CH GH GOG SUBJECT: UPDATE ON CHINA LOAN SCANDAL REF: A. 2003 ACCRA 2382 ¶B. ACCRA 621 ¶C. 2002 ACCRA 2469 Classified By: EconChief Chris Landberg for Reasons 1.5 B & D ¶1. (C) SUMMARY: GoG officials continue to tell Post privately that the USD 300 million loan from China New Techniques Construction and Investment (CNTCI),which was approved by Parliament in April 2004, is dead (see Refs A and B for background). In May 2004, Minister of Finance and Economic Planning (MOFEP) Yaw Osafo Maafo told Ambassador Yates that the GoG was waiting for a good opportunity to allow the loan to die. More recently, BOG contacts have repeated their view that the loan will not be utilized. However, for political reasons, the GoG is still publicly supporting the loan. On June 30, when a motion to rescind the loan approval was before Parliament, Osafo Maafo called on the house to reject the politically motivated motion, which it did. End Summary. -------------- Recent Parliament Action -------------- ¶2. (U) On June 30, Minority leader Alban Bagbin tabled a motion to rescind Parliament's April 13, 2004, decision to approve the USD 300 million loan and suppliers credit from CNTCI, on the grounds that MOFEP and the Bank of Ghana (BoG) had misled Parliament. The rescission motion listed various concerns about the proposed loan, including the validity of the lender and the terms of the deal. While Parliament did reject the rescission motion at Osafo Maafo's urging, the event forced the NPP majority to publicly defend the loan. -------------- Loan Details and Concerns -------------- ¶3. (C) The loan is intended for high-profile projects, including rehabilitation of the eastern rail line, improvements on the Accra-Kumasi road, establishing six Presidential Special Initiative (PSI) starch factories, and finishing the PSI garment village. It will work more likely as a supplier's credit than a loan, with CNTCI and associated companies doing most of the construction work. On the surface, the loan appears concessional with a 15-year grace period, 30-year repayment period, and 0.65 percent interest rate. However, the four percent management fee (USD 12 million) and CNTCI's potential ability to take a 20 percent stake in Ghana's mineral resources throw into question the loan's actual concessionality. ¶4. (C) The dearth of available transparent information, the inability to verify the addresses of those involved, and alleged ethical questions about the individual reportedly behind CNTCI gives the loan a similar appearance to that of the infamous USD 1 billion IFC loan of 2002 (Ref C). (Note: "IFC" is not to be confused with the World Bank's International Finance Corporation. End Note). In that loan scandal, it was only after considerable pressure from donors (including the USG),the opposition, and press, that the GoG ultimately decided not to accept what turned out to be a fraudulent loan offer. The GoG responded by admonishing the international community for funding shortfalls that forced GoG to consider riskier arrangements. The event tarnished key GoG officials' reputations, including those of BoG Governor Paul Acquah and Finance Minister Osafo Maafo, and temporarily impaired their relations with donors and creditors. ¶5. (C) Minority leader Bagbin's suspicions about the CNTCI loan are similar to those held by many in the donor community, the media, and some in the BoG and MOFEP. Public skepticism emanates from the lack of transparency surrounding the loan, the GoG's inability to answer basic structural questions about the loan, and the GoG's checkered past with scam loans. The debate over the loan has taken on added political overtones in the run-up to the December 2004 elections as the opposition is looking for any opportunity to embarrass the NPP by linking it to desperate and irresponsible actions. The June 30 Parliamentary action is a perfect example of this. / / / / / / / / ¶6. (C) The NPP, on the other hand, is determined to demonstrate its actions are in Ghana's best interests, and it sees public backpedaling on the loan agreement as a defeat in the face of opposition pressure. Hence, the NPP appears to still be searching for a graceful way to distance itself from the loan. -------------- Post is told that LOAN IS DEAD -------------- ¶7. (C) Prior to his public defense of the loan in Parliament, Osafo Maafo told the Ambassador in May that the loan was dead. He said that the GoG was waiting for the opportune moment to end its arrangement with CNTCI. Osafo Maafo has steadily worked to distance himself from the loan scandal claiming the loan was the work of the Ministers of Trade (Kyerematen) and Roads and Transport (Ameyaw Akumfi). Osafo Maafo publicly claimed that he could take responsibility for the loan only insofar as he is the ultimate signer of GoG checks. ¶8. (C) Dr. Mahamudu Bawumia, Special Assistant to BOG Governor Acquah, told Post on several occasions, most recently July 16, that the loan is finished. He told EconChief that since the concessionality is unclear, the GoG had agreed to verify various elements of the loan in order demonstrate to the IMF that the loan met the condition of no new non-concessional debt. The IMF Board approved the second review of Ghana's PRGF and its HIPC Completion Point on July 9, apparently indicating that the IMF was satisfied that Ghana was compliant with its commitments. (Note: the PRGF review is backwards looking, so its approval does not necessarily indicate an explicit repudiation of the loan by the GoG. End Note) -------------- Comment: -------------- ¶9. (C) The on-going fallout from the loan leaves Osafo Maafo in a difficult political situation. He was a central figure (along with Minister Kyerematen and Governor Acquah) in the "IFC" loan scandal and Post expected that he and the GoG would have learned from that fiasco. Now, given the upcoming election, we expect Osafo Maafo and other GoG officials to attempt to deflect responsibility for the CNTCI loan. ¶10. (C) The GoG had an opportunity during the Parliamentary debate to distance itself from the loan deal and put it behind them, some 5-6 months ahead of the elections. The GoG missed that opportunity. The opposition has promised to maintain pressure on the majority party until the deal is rejected once and for all, so the GoG is in for continued public debate. The Parliamentary action may have forced the GoG to realize that the matter will not fade quietly. ¶11. (C) The fact that senior-most GoG officials, including the President and the Finance and Trade Ministers, were interested in this loan in the first place, is perhaps the most interesting commentary. Post hears frequently from GoG officials that they are concerned this government has little to show for over three years in power. They also worry that it does not appear that macroeconomic stability has yet resulted in improved living standards for average Ghanaians. This has led NPP loyalists to increase pressure on the Kufuor administration to delay difficult reforms and increase spending during this election year. ¶12. (C) Indeed, there appear to be those in the GoG who, for political reasons, are willing to make risky decisions that put them at odds with donors and creditors. This phenomenon underlines how delicate the financial condition of the government is, and may mean that GoG officials may continue to pursue questionable deals. While Post cannot definitively say that the CNTCI loan is rotten, all indications point that way and the old adage that "if it looks too good to be true, it probably is" likely holds in this instance. End Comment. YATES NNNN