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RBLs not really cheaper as being portrayed – Dr Manteaw

Adnan Adams Mohammed

Most often the government’s negotiating team from the ministry of finance justify that, Resource Backed Loans are cheaper than going to borrow from the debt and bond market, but, Dr Steve Manteaw disagrees. 

The Co-chair of the Ghana Extractve Industry Transparency Initiative (GHEITI), has called on government to really do a proper cost-benefit analysis of all RBLs and put values on the intangibles and then do comparative analysis among available options of debt instruments before concluding that RBLs are cheaper. 

According to statistics made available by the expert, RBLs, mostly attracts as high as 4 percent interest aside the environmental cost, resettlement cost, wildlife lost cost, other natural resource (timber) lost cost among others. All this cost quantified might exceed the 6% to 7% interest attracted to bonds and debt instruments.

“I will becareful going for RBLs”, Dr Manteaw stressed in an during the NRGI/ACEP Public Dialogue on Resource Backed Loans in Ghana session in Accra, last week. “It has a whole lot of issues to be considered always ranging from environmental and sustainability cost, to corruption risk monitoring to expenditure/investment abuse tracking and selecting prioritized projects.” 


The public dialogue discussed issues of opportunities and risks of RBLs and how to efficiently utilize RBLs as a financing tool; examine the structure of RBLs in Sub-Sahara Africa, governance challenges, and how lessons will inform the design of future deals to ensure value for African countries; and propose recommendations for effective RBL arrangement, governance, and oversight in resource-rich

SSA countries.

The lead speaker, Denis Gyeyir, NRGI African Region Policy Advisor, in his presentation indicated that, “RBLs are of particular importance—they are the intersection of extractives transparency and debt transparency. Momentum around greater sovereign debt transparency is building [especially in post-COVID-19 pandemic context], and this can only benefit the governance of natural resources. Access to information about past deals and similar arrangements across the region will enable Ghana to better structure and negotiate.” 

He noted that, it is for such reasons that more transparency regarding the structure and governance, terms of agreements, repayment conditions among others are important. “These disclosures will enrich public discourse and help highlight the impact of these arrangements on public finances, project execution and corruption risks associated with RBLs. 

“NRGI and ACEP seek to organize a public dialogue on RBLs in Ghana learning from the experiences of SSA resource-rich countries. 

“The dialogue seeks to examine the risk and opportunities for leveraging the continent’s extractive resources for development. The dialogue will leverage recent scholarship on RBLs to facilitate the conversations. This includes NRGI’s global research on RBLs, NRGI and ACEP analysis into Ghana’s proposed integrated aluminum industry, IMANI’s alert on the bauxite-barter deal, and several others.”

Ghana in 2011, barely a year after commercial oil production began, signed a US$3 billion commercial loan agreement with the China Development Bank (CDB), out of which US$1.5 billion was eventually disbursed to fund the Western Corridor Gas Infrastructure Project. As part of the arrangement, China International United Petroleum & Chemicals Co., Ltd. (UNIPEC) Asia, a wholly owned oil trading subsidiary of China Petroleum & Chemical Corporation (SINOPEC) was to lift 13,000 barrels per day of Ghana’s unencumbered Jubilee crude oil entitlement for 15 years. 

Similarly, in 2018, Ghana’s government entered into a reported US$2 billion agreement with Sinohydro Corp, a Chinese state-owned hydropower and construction company. Under a Master Project Support Agreement (MPSA), Sinohydro is meant to finance and execute the construction of infrastructural projects in Ghana. In return, Ghana would repay the loan amount by granting access to 5% of Ghana’s bauxite reserves and earnings from yet-to-be established refined bauxite. The first tranche of US$649 million is reported to have been disbursed, and would be spent in constructing various road projects. 

Also, in 2020, the government of Ghana attempted a controversial sale of its interest in future gold royalties to private investors through a stock exchange listing — the so-called ‘Agyapa’ mineral royalties deal. 

Others in the region are: the “Oil for Infrastructure” scheme during President Olusegun Obasanjo’s presidency, under which Nigeria sought to offer oil blocks to Chinese bidders in exchange for major infrastructure projects cumulatively valued at US$20billion. Some of these projects included railway network from Lagos to Kano and a hydroelectric power station in Mambilla. However, this scheme was aborted when power changed hands. Similarly, in Angola under the National Reconstruction Program, the government agreed a US$2billion oil backed loan with the Chinese for infrastructure in 2004. 

Across these experiences, the criticisms often highlight lack of transparency and threat to debt sustainability. 

Despite some of the controversies, these RBL arrangements have provided an opportunity to develop and expand infrastructure in beneficiary countries. Ghana’s CDB loan for instance helped to eliminate the dreaded practice of gas flaring and gas reinjection while guaranteeing relatively cheaper natural gas supply for power generation and industrial use. While these loans can address burning development challenges, they can pose setbacks to the economy. 

As expressed earlier in some of the critiques, these loans provide an avenue to sign opaque deals, create repayment challenges and limit benefits to borrower countries. For instance, with the CDB Loan, China began to demand for more security with the plummeting oil prices in late 2014/15 as a condition for Ghana to access the entire US$3 billion. 

These experiences raise an interesting question: how have SSA resource-rich countries learned from the challenges of RBL to inform the structuring and negotiation of future RBL-type deals? For example, Bloomberg is already predicting that Ghana would have to use other sources to service the Sinohydro loan if the aluminum project fails to do so. 

In April 2021, AidData released a trove of loan agreements between Chinese entities and sovereign borrowers in developing countriesincluding several Ghanaian loan agreements and the Sinohydro bauxite agreement. They found 100 publicly available Chinese loan agreements in 24 countries. One key finding of their report in a blog by NRGI “is the widespread use of far-reaching confidentiality clauses in the Chinese loan agreements meant to restrict borrowers from disclosing loan information. 

This confirms worries about opacity and the need to rein in confidentiality provisions in sovereign debt agreements, as previously highlighted”. For instance, Ghana’s MPSA with Sinohydro provides for non-disclosure of the terms of the agreement without prior approval of the other party, except compelled by law. The debtor (Ghana) is also required to open an offshore account (escrow) to serve as an exclusive account through which all receipts from refined bauxite are paid. The account must hold enough funds to meet at least two repayment obligations.

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