Former Minister of Finance, Mr Seth Terkper, has asked the government to ignore the advice of the International Monetary Fund (IMF) to add the US$2.5 billion ESLA-backed Energy Bond to the country’s public debt.
Rather, he is urging the government not to classify the bond as public debt and should rather let it remain on the balance sheet of the Volta River Authority (VRA).
Mr Terkper explained that the risk of increase in public debt was real, “if we do not manage the levy well. However, the opportunity cost of not issuing the bond is higher, given the potential collapse of more banks under the weight of SOE debt, as happened with the Capital and UT banks.”
“Our view is that, even if this multilateral view prevails, Ghana should keep-to-plan and not classify such bonds or loans as public debt in the Public Accounts sent to Parliament—provided we continue to take certain concrete steps under the new debt management policy. We understand that the IMF takes a public debt view for the 5th ECF Programme Review.”
Total public debt stood at GH¢138.6 billion (68.6 percent of GDP) at the end of June 2017 from GH¢137.3 billion (68.0 percent of GDP) in May 2017.
One of the issues currently under discussion is whether Ghana should add the ESLA-backed Energy Bond it is about to issue to public debt, instead of remaining on VRA’s Balance Sheet—as assigned to a special purpose vehicle (SPV) called ESLA Plc. ESLA means Energy Sector Levy Act, 2015 (Act 899).
Ghana has issued an ESLA Bond Prospectus and roadshows are underway for investors, at home and abroad. Last week, government officials met with some foreign investors in London, United Kingdom, during the international roadshow. Yesterday, a local roadshow was held where the government officials met with local investors.
In a letter to the GRAPHIC BUSINESS, Mr Terpker explained, “if the value of the ESLA Bond does not exceed revenue estimates from the levy—and current debt service flows that add to escrows—the levy is an implicit guarantee by taxpayers and power consumers.
“Hence, if the bond is made a pure public debt, it adds an explicit (sovereign) guarantee dimension that leads to its over-securitisation or extreme state undertaking.
“In technical terms, it is “double counting” since, even if the bond value exceeds the ESLA and other proceeds, in computing our Debt Sustainability Analysis (DSA), the multilaterals must add only the proportionate excess bond value to public debt, until a default occurs, if any.
The government took the ESLA Bill to Parliament to raise funds to pay energy-sector debt owed by SOEs, notably for VRA; minimise the non-performing loan (NPL) impact of such debts on domestic and foreign banks, as well as suppliers; and improve the balance sheet of the SOEs to make them play their envisaged future roles in an oil-and-gas era.
These roles include stable power supply and, mainly, meeting their financial obligations to banks, suppliers, and independent power producers (IPPs) under the World Bank Partial Risk Guarantee (PRG).
Mr Terkper suggested, “we strongly propose that, whatever treatment the multilaterals give to the ESLA-backed bond, Ghana should continue to create the necessary “asset” accounts to move our debt methodology to an accrual or “contingent liability” basis.”
“Parliament must make the ESLA law certain by placing a firm “sunset clause” on the levy and more firmly legislating its use to settle specific SOE debt. In this regard, a key issue is whether the ESLA levy itself will last 10 or 15 years—in line with the tenor of the bond.
“We must be transparent on this issue, if the delay in issuing the bond under an earlier shorter term syndicated loan means an increase in the SOE debt.”
The former Finance Minister also recommended that an appropriate medium-term goal should take advantage of the additional oil flows to make the “energy” bond as enviable as the “cocoa” bond in the future.
“This requires that we clarify the fiscal status of ESLA Plc, in relation to the goal of using the Ghana Infrastructure Investment Fund (GIIF) as the sovereign wealth fund (SWF) to spearhead a commercial loan strategy for Ghana. “