June 04, 2023

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Energy sector bond drawing the country back – Hon Isaac Adongo

The desperate move by Government of Ghana to raise bonds, purportedly to defray the Energy Sector Debt is both very weird and revealing.

A palpable false step is in the bizarre attempt to bait IMF to hang its credibility by requesting the lMF to approve the issuance of the Bond through what it calls a Special Purpose Vehicle (SPV).

It is both strange and weird to do so because, any cursory financial analyst ought to have known that this is not tenable and the last “person” expected to make such a move is the head of Economic Management Team of Ghana (Dr. Bawumia).

It therefore didn’t come as a surprise that government was emphatically denied that move because it simply amounted to affront to the credibility of IMF supervision to attempt to issue a bond through an ESLA PLC, which notably has only a name and a letter head. Nothing more. Practically speaking, ESLA Plc has no balance sheet to borrow on.

It is completely baffling to see that Dr. Bawumia, the Finance Minister and his Harvard trained deputy do not know that such a bond will need not just a regular source of repayment but also a government/sovereign guarantee in the event that the proceeds do not flow.

Rather remarkably, apart from the name ESLA PLC, and it’s letter head, this (SPV) has nothing of substantial value to back itself in any huge financial transaction. In simple terms, it has no Balance Sheet. Unless these bonds are preplanned to be issued to cronies who are assured because their partners are managing our finances.

It will be great innovative economics to the see Yale and Harvard trained scholars attempt to use such a company for a multimillion dollar project.

If for instance, Dr Bawumia, has a debt of GHC11 billion and there is a regular flow of GHC3.6 billion a year from ESLA to pay off that debt with its interest.

Does it not make sense to take the GHC3.6 billion yearly to liquidate it in 4years rather than postpone payment of the debt for 10 years through another loan? What will government then be doing with the GHC3.6 billion a year from the ESLA?

This is the scenario that confronts the Nana Addo/Bawumia led government for which they are completely confused about how to navigate their way out in the best interest of the people of Ghana.

The options being contemplated will only shortchange the people of Ghana and perpetuate our suffering for 10 more years. A very simple arithmetic drawn from the aforementioned case will help Dr. Bawumia out: The GHC3.6 billion a year for 3 years will yield GHC10.8 billion from ESLA which will be just enough to pay the Principal sum of the $2.4 billion.

By the 4th year, the figure will be about GHC14.4 billion, which is enough to clear the energy sector debt and all its accrued interest?

We are again being told that there is another trench of $1.3 bond to be floated.

This is equally completely unnecessary. That amount of money can be generated by ESLA in just 2 years. So why ignore this for a longer route which will still be paid by the taxpayer anyway.

Now if I may ask, what exactly is Dr. Bawumia, and Ken Ofori Atta planning to do with the GHC21.6 billion ‘proceeds’ over the additional 6 years when the scenario illustrated above has shown capacity to liquidate the loan. Is this not intended to burden the people of Ghana?

This government is like drunken driver that wants to go to Suhum from Flagstaff House, This driver, instead of hitting Pokuasi, Amasaman, Nsawam road……to Suhum in a maximum time of 45minutes, the driver rather heads to Central Region, navigating his way through Obuasi to Kumasi before heading back to Suhum.

What is the crime of Ghanaians to be taken through this grueling torture?

Perhaps, the only reason is when the driver and his mate stand to personally profit from such a wasteful venture.

There is yet another deceptive if not fraudulent argument that, Government of Ghana needs the money to pay for the Energy Sector Debts to the banks to prevent them from collapse. Wow. Government says, these debts have resulted in high None Performing Loan (NPL) portfolios of the banks.

This argument from government is completely false, it is deceptive and totally misleading.

The Energy Sector Debts ceased to be NPL when the NDC Government restructured these debt in 2015 with the participating banks. The NDC Government subsequently got Parliament to pass the Energy Sector Levy Act (ESLA) to provide regular streams of revenue to pay the debt. Dr. Bawumia and his economic management team should know this. If they were sleeping in opposition and cared to do more talking and propaganda than knowing the happenings within Government, now they are in office and have the books and the records. They have a responsibility to read and enlighten themselves.

The Monetary Policy Committee (MPC) report in January 2017, reflecting the year ending 2016, indicates that, NPLs declined on the start of disbursement of ESLA proceeds to pay the Debts. Thus, NPLs declined from 19% in October 2016, to 18% in November 2016 and to 17% in December 2016.

In fact, these declines in NPLs even exclude the last payment of $165million to the banks in December 2016. It is refreshing to know that, these payments have continued into 2017.

Dr Bawumia, you are an economist, a forma Deputy Governor of the Bank of Ghana, and now the Vice President. Mr. Kenneth Nana Yaw Kuntunkununku Ofori-Atta, aka Ken Ofori-Atta, you are Yale University trained Economist, an Investment Banker and co-founder of Databank and now Finance Minister of Ghana.

The two of you are now members of the economic management team. My question to you is, which banker or economist worth the name of his profession will refer to loans that have been restructured and are being serviced as NPLs?

It must be noted that, notwithstanding the ESLA payments to the banks, there still exist some NPLs in the books of Banks. In fact, recent reviews of the MPC show that the NPLs have only actually started rising. This rise is clearly on the account of Government poor policy judgment. Government’s decision not to pay or to postpone payments (for whatever reasons) to contractors and other service providers who took loans from banks, account for this problem. It is therefore clear that the NPLs in the banking sector today is not the Energy Sector Debts. Government must not be allowed to blame its incompetence on someone else. Dr Bawumia should be told to stop developing and launching fake mobile apps and focus on his core mandate.

I will conclude by telling Dr. Bawumia and his team that, to raise this bond requires verifiable assurances through a strong Balance Sheet of the sponsoring institution or a Sovereign Guarantee. But we all know that, sovereign guarantees are no longer fashionable.

The energy sector companies don’t have a good balance sheet with these loans hanging on them. Making issuance in their name simply means a change of the names of loan creditors. This adds nothing to their balance sheet and financial credibility. As indicated earlier, ESLA PLC only has a name and a Letterhead as its assets. No Balance Sheet to back any transaction. So if it must transact, it has to do so on the strength of government guarantee. This attracts a contingent liability.

Finally, I will like to inform investors and potential investors that, ESLA is a nuisance tax after Four (4) years. The public reserve the right to rise against the continuous existence of it, much for its concomitant hardship. A responsible government will respond by scrapping it.

The investors will be left naked under such a situation with their helpless SPV. The choice of name of that special purpose vehicle (ESLA PLC) is very strange. NPP believed ESLA to be a Nuisance Tax. Isn’t it strange that, now this nuisance tax acronym has become the star company on r..

Source: Daniel Kaku

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