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.

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Recent Parliament Action
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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.

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Loan Details and Concerns
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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.
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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.

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Post is told that LOAN IS DEAD
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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)

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Comment:
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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


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