PRESS BRIEFING ON SUSPENSION OF CONCESSION AGREEMENT BETWEEN PDS AND GOVERNMENT OF GHANA READ BY THE EXECUTIVE DIRECTOR, BENJAMIN BOAKYE.
Accra, 31st July 2019.
Ladies and gentlemen in the media, we have invited you here today to have a conversation on the challenges in the energy sector, a looming danger of catastrophic proportion for this country and in particular the poor who are consigned to prolonged poverty much longer while their leaders engage in wanton dissipation of national wealth.
Ladies and gentlemen, we have on many occasions engaged you on leakages in the energy sector. Surprisingly we are told time and again that it is too technical to understand, though the gargantuan dollars oozing out of the national budget are always mentioned. We struggle to comprehend how one million dollars in the energy sector is more technical than one million dollars in the sports sector for example. Maybe we have to eliminate the megawatts, gigawatts, mmscfs, the MMBtus from the conversation and stay with the cash numbers. We have to find a way around it. This is urgent because the waste in the energy sector, estimated to be about $1 billion each year, can build six chambers for parliament every year or finance 222 AFCONs every year. So, it is difficult to understand why Ghanaians can be angry at AFCON expenditures and not the waste in the energy sector, without assuming that the former is less important. We all owe it a duty to protect the public purse regardless of sector, individuals or investors behind deals, political parties or regimes. We should monitor the behaviour of the politicians typically on contracts to ensure that dubious investors do not masquerade around siphoning public finances. For example, it can never be justified for an investor to make about 200 percent return on investment regardless of what government’s NPV looks like in relation to similar bad deals as we are beginning to see with some of the signed PPAs. This is unconscionable.
Last night, a major setback was introduced into the process to improve the distribution of electricity in the country. The concession agreement with Power Distribution Services (PDS) Ghana Limited was suspended by the Government of Ghana. ACEP is not surprised by the development but deeply worried about the level of negligence that has led to the current situation. Indeed, the finest conclusion anyone can give is that this represents the summary of the posture of MiDA in the events leading up to the granting of the concession agreement.
Ladies and Gentlemen, the Private sector participation in the distribution of electricity was supported by ACEP from the beginning and the organisation consciously committed energy into ensuring that the process was transparent, efficient and delivered in a manner that led to the reform of the distribution sector. In fact, the first Civil Society engagement with MCC was activated and hosted by ACEP in its office in 2014. However, the process that started with deeper stakeholder consultations took a deep dive into secrecy.
In 2017, MiDA set up and inaugurated a Stakeholder Committee as part of the MCC Compact, in the presence of the crème de la crème of Cabinet Ministers; to interface with various constituencies represented on the committee. These included the Ministers for energy, finance and justice. Subsequently, ACEP was appointed to Chair the committee and therefore is clothed with details of how the Committee has been treated since its establishment. Ladies and Gentlemen, the committee was met only once by MiDA. Various efforts to engage MiDA were ignored marking the end of all communication channels with the Committee and to a large extent, the constituents.
Ladies and Gentlemen, the abdication of the stakeholder committee did not stop ACEP from commenting on the concession award processes to highlight the dangerous path MiDA was treading. ACEP warned Government (including Parliament’s joint committee on finance and energy) and MiDA about the quality of the processes which saw Meralco winning the bid without competition, although Meralco did not meet the initial requirement to have 51% local content; an opportunity which could have influenced the decision of the companies that abandoned the bid process. ACEP also questioned the quality of the companies that formed the PDS consortium to take over the assets of ECG. Apart from Meralco, the other parties in the consortium were not known, which was enough basis for MiDA to be meticulous in checking the background of the companies to ensure that they, at least, have the financial capacity to assume the business with a cash flow of $4billion.
Today we are told that the negligence of MiDA to ensure proper due diligence on the payment securities provided by PDS has led to likely fraudulent misrepresentation by the PDS and their guarantors. Preliminary information available to ACEP shows that the insurance provided by PDS has been declared fraudulent by the Qatar-based Alkoot Insurance. While this situation is under investigation by the government of Ghana, ACEP believes that the contested document could have been deemed suspicious if MiDA and the transaction advisors (IFC) had showed the slightest seriousness and placed Ghana first. The reasons are that:
1. The requirement of bank guarantee as prescribed under the concession was changed to insurance bond to fit the weak capacity of the concessionaire to raise the needed bank guarantee. This was in breach of the requirement approved by Parliament of Ghana to securitise ECG’s assets worth $18 billion in compliance with Schedule 10 of the Lease and Assignment Agreement (LAA). It is therefore unthinkable that MiDA and IFC would bend the processes to suit PDS knowing that the effect of a bank guarantee and insurance bond are not the same. While the bank guarantee can be called upon without recourse, the same cannot be said of insurance bond.
2. The insurance bond of $350 million produced by PDS was signed by only the Managing Director (MD) of the issuer. It has emerged that the MD’s signature was forged. This raises significant questions about why nobody detected that a transaction of this scale should have adhered strictly to the procedures of the issuer, and corporate governance principles requiring the signature of at least one additional board member. ACEP has sighted Alkoot Insurance’s response to ECG acknowledging that the MD could not have had the sole capacity to sign the guarantee. Yet, IFC and MiDA did not detect this. IFC in particular, which has been the financial advisor since the beginning of the PSP process, has a resident office in Qatar where Alkoot Insurance is based. The IFC could have marshalled the needed support from its office in Qatar to detect the purported misrepresentation by a staff of Alkoot.
3. Persistent caution by ECG on the weaknesses of the bond issued was ignored. Perhaps ECG was seen to be a detractor of the concession process and not a relevant party interested in properly securitizing the assets of the company. Eventually ECG is the one that managed to unravel the alleged fraud.
4. It is difficult to imagine that PDS and the local Insurance company, Donewell, could not have known the capacity of the individuals they worked with in Alkoot Insurance in Qatar.
The situation, if confirmed by government’s ongoing investigation will represent significant embarrassment caused to Ghana by MiDA and IFC who are paid to protect the interest of Ghana and ensure the efficient spending of US public funds granted to Ghana. While ACEP commends government for quickly mobilising the state apparatus to protect public interest, the following far reaching actions are required:
1. Immediate interdiction of the leadership of MiDA to prevent tampering with evidence that may be necessary to support the case of the State.
2. Cease with immediate effect the consumption of advice from the IFC on the transaction. This is because the IFC has proven incapable of defending the interest of its clients; MiDA and Government of Ghana.
3. Immediately Audit the background of the beneficial owners of the local partners to PDS.