TABLE OF CONTENT

Executive summary

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Introduction

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A loan of choice

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The Deal

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Subsidiary agreements

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The commodity-backed payment

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The use of local labours and the transfer of technology

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Conditionality of the loan terms

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Conclusion

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Reference

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Executive summary
On the 16th of December, 2011 the Master Facility Agreement (MFA) with reference to the
US$3 billion term loan facility agreement between the Government of Ghana and the China
Development Bank (CDB) signed a loan term as a result of an approval from the International
Monetary Fund on the 14th of December 2011 to increase the commercial borrowing ceiling of
Ghana from US$800 million to US$3.4 billion. However, this loan term facility was attested by
the Ghanas Ambassador to PRC based on a power of Attorney from the Minister for Finance and
Economic Planning.

Introduction
During the Attah Mills/Mahama government in 2011, the government administration secured a
US$3 billion loan from the Chinese government from the China Development Bank (CDB) as a
stated owned, which is meant for the development of major infrastructure projects in the
Ghanaian economy. In August 2011, the agreement to the loan was approved by Parliament in
spite of the amid controversies accompanying the terms and condition of the loan agreement,
especially the collateralization of the countrys oil against the loan. The rise of this issue caused
minority of the parliament (New Patriotic Party) to dessert from the vote on the terms and
conditions of the loan, but the majority at the parliament were able to have their way through.
The loan from the China Development Bank is made of a competitive financing arrangements
and it is arranged in a much faster when compare to what the loan from World Bank would have
been. This loan have however, earmarked to facilitates developmental projects. These projects
can be categorized into twelve (12) main eligible projects, which within the various MDAs and
these include;
1. The Western Corridor Infrastructure Renewal Project from the Takoradi-Kumasi;
Dunkwa-Awaso Railway Line Scenario 1 Retrofit
2. The Western Corridor Infrastructure Renewal ProjectTakoradi Port Retrofit Phase 1
3. The Sekondi Free Zone Project, which include a shared infrastructure and Utility
Services
4. The Accra Plains Irrigation Project, which is a phase 1 on a 5000 hectare
5. The coastal Fishing Harbour and the landing Sites redevelopment projects on the Axim,
Dixcove, Elmina, Winneba, Mumford, Senya-Beraku, Jamestown, Teshie, Tema, Ada and
Keta
6. The Eastern Corridor multi-modal transportation project and this include the upgrade of
the Lake Volta Ferries, Pontons and the landing sites at Kpandu-Amankwakrom, Kete

Krachi-Kwadokrom, Yeji-Makongo, Tapa Aboatoase, Dzemini as well as the upgrade of

the Akosombo and the Buipe Ports
7. The Western Corridor Gas Infrastructure project
8. The Western Corridor Petroleum Terminal Project
9. The Western Corridor Oil Enclave Toll Road project
10. The development of the Accra Metropolitan Accra Information, Communication and
Technology (ICT) and this include the enhancement of the traffic management project,
which include the completion of the urgent roads
11. The integration of the National Security Communication Enhancement Project, and this is
made of the disposition of an ICT enhancement surveillance platform for the Western
Corridor oil Enclave
12. The establishment of a US$100 SME project incubation facility that will consist of a
facility management contract with the local financial institutions.
A loan of choice
Ghana made its oil discovery in 2007 based on a large offshore oilfield that was estimated to be
around three (3) billion barrel capacity. For the country to ensure an effective extraction and
exploration of this oil discovery, the government of Ghana have actively embark on soliciting
funds so as to facilitates majority of its infrastructure projects, which includes the above listed
projects. For the past five decades after independence, the government of Ghana have not taken a
loan that is close to US$3 billion from any institution, as compare to what have been taken from
China, and also, the terms and conditions of this US$3 billion are different from the previous
interactions that was held with the World Bank and International Monetary Fund (IMF).
When the government of Ghana and its ministerial bodies went to IMF with regards to the
economic development of Ghana, the World Bank have gesticulated its willingness to assist the
country with funds on its offshore gas projects. But due to the past financing agreement of the

World Bank with lower interest rate compare to the commercial loans, which include the US$3
billion China Development Bank deal, the government made a decision to go in for the China
deal. In spite of the low rates from the World Bank, there were some officials from the Ministry
of Finance and Economic Planning who believe that, the loan from the World Bank is going to
take a longer period before it is been disbursed and moreover, it may contain so much conditions
with regards to the countrys processes and procedures for procurement and due diligence. Also,
there were some of these government officials who believe that, the World Bank can delay in the
development of the countrys offshore resources.
The Deal
To facilitates a bilateral relationship between the Peoples Republic of China and Ghana, the
former later president of GhanaJohn Evans Atta-Mills in 2010 made a journey to Beijing.
According to a report from Idun-Arkhurst (2015) and Darko (2015), it was at this point that the
president and the China presidentHu Jintao formulated the early framework of the US$3
billion deal. In response to this deal, the China Development Bank made a formal proposed loan
facility agreement to the government of Ghana for the US$3 billion that comes with its own
terms and conditions. For the approval of this loan to take effect, there is the need for parliament
approval and this later resulted in a fierce debate with regards to the terms and conditions of the
loan agreement and the impacts on this loan on the countrys relationship with World Bank and
the International Monetary Fund.
The China Development Banks multi finance proposal is made of two US$1.5 billion payments,
which sum up to the US$3 billion loan facility. As stated earlier, this loan is meant to support the

infrastructure components of industrial projects in the country, particularly projects related to the
production of oil within the Western Corridor of Ghana.
However, the first tranche of the US$1.5 billion comes with a 15 years repayment terms and an
additional five years grace period. The interest rate for first tranche is based on a six (6) months
LIBOR rate and this changes over time, which is been added to a set margin of 2.95% (Nyarku,
2012). Also, findings have shown that, the LIBOR rate is set at 0.2112% and according to
Owusu-Ankome, who is a member of Ghanas parliament stated that, the LIBOR rate changes
rapidly. For instance, Osei (2009) was of the view that, as at 2007 prior to the financial crisis, the
LIBOR rate stand at 5.5%. Moreover, the second tranche of the of the loan facility is made of
additional US$1.5 billion and is made up of a 10 years repayment terms, with an additional
interest rate margin of 2.85%
However, for the Ghana government to repay the loan and its interest rate, the government and
the China Development Bank entered into an offtake agreement between their main subsidiary
resources organizationsthe Ghana National Petroleum Corporation (GNPC) and the China
International United Petroleum and Chemical Company (UNIPEC Asia). This is an offtake
agreement that exist between the producers of the resourcesGhana and the buyerChina
Development Bank to buy/sell a given amount of the countrys future production. This kind of
agreement is often common for large scale natural resources deals that have a high initial cost of
capital. This offtake agreement serves as a guarantee to a market for its new Western Region
petroleum products and also providing an advantage to the China Development Bank for a steady
supply of oil for more than 15 years.
Subsidiary agreements
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The subsidiary agreements to the infrastructure projects is made up of specific terms and
conditions in the framework of the loan facility. The 12 infrastructure projects are made of 12
anticipated independent subsidiary agreement. For instance, each of the agreement like the
Takoradi Port Retrofit requires the China Development Bank and the Ministry of Finance in
Ghana to attested to a separate agreement, and it is the responsibility of the China Development
Bank to ensure a comprehensive due diligence on the project before the loan is been disbursed.
To ensure an effective executions of the projects, five subsidiary agreements are required to be
made in a year and the funds for each of the project will be paid directly from the China
Development Bank to the project contractors. This is to mitigate any corruption in the execution
of the project and not allow any governmental officials from Ghana to serves as an
intermediaries for the infrastructure projects. The only role to be played by the ministerial body
like the Ministry of Finance is to supervise the project and ensure the reduction of cost overruns.
The commodity-backed payment
However, the offtake agreement that was proposed to facilitate the deal of the loan have raised a
lot of controversies among the people of Ghana. This is because, the agreement is said to be
arrange through the subsidiariesGNPC and UNIPEC Asia issued that, the UNIPEC Asia is
h=going to purchase the oil as soon as it is produced with the revenues that are paid directly into
the Ghanas Petroleum Holding Funds for a period of 15 years or more. However, when the
proceeds from this resources are not sufficient enough to cover the US$3 billion loan facility and
its accruing interest within that period, then the agreement will be extended till the loan are fully
paid.

It have been the strategies of the Chinese Government to finance most projects in Africa so as to
be able to secure natural resources. With the use of a model known as the Angola Model, the
Chinese government often provides low interest loans to countries that solely rely on natural
commodities like oil or mineral resources and uses that as a collateral. However, there have been
some Ghanaian scholars and researchers who have affirmed that, the practice of the Chinese
government to provide financial aid to African projects in exchange for a guaranteed that stream
from commodity products and cash can reduce Africa countries like as in the case of Ghana, its
future benefits from the world commodity market.
According to these scholars and researchers, there is no way Ghanaian officials can effectively
negotiate these complex, long term future agreements that will be of advantage of the Ghanaian
economy, since they will commit the countrys oil reserves to China at a lower future price (Osei,
2009; Adam, 2015; Darko, 2015). This however, can be linked to a similar deal in 2009 between
the China Development Bank and Russia. The deal between these two parties were that, the loan
guarantees the buyer (China Development Bank) the supply of oil at a specific price. However,
the price of the oil was set based on the monthly weighted-average oil price in the international
market. The deal between these two parties based on the price was that, the China Development
Bank loan proposed the specification for the market price minus US$3.
The use of local labours and the transfer of technology
Additionally, the proposed US$3 billion loan facility proposed a clause that need to ensure that at
least 60% of the companies that will execute the construction works will be organized through
the subsidiary agreements to be Chinese owned and operated. The remaining 40% will be
levelled to the local contractors in Ghana.

It is based on this concession that, the executive director of an NGO in GhanaGabby Darko of
the Danquah Institute vividly stood on his foot and advice the parliament that the loan from the
Chinese government should not be taken. According to Darko, in spite of the poor financing
terms, there is the need for parliament to be more concern with the local contractors, since the
Chinese contractors are going to bring in their own subcontractors and labourers, who will ask
direct access to the countrys natural resourceoil.
There is a low level of technology and skills transfer between the Chinese workers and the
Ghanaian workers. This was reveals by the finding of African Center for Economic
Transformation in 2009. The findings reveals that, the low level of technology and skills transfer
are as a result of the ownership structure of the Chinese Investment and the stratification that
exist between the laborers (Ghanaian workers) and the managers (Chinese workers).
Additionally, there is the probability of the Chinese organizations having an unfair advantage
when bidding for work on several of the developmental projects. However, these projects often
includes several of the subsidiary agreement projects as well as projects from the World Bank
and this often requires a fair and transparent tendering process that will rewards the lower
bidders. However, due to their accessibility to capital and goods, the Chinese companies,
especially the state owned companies have the potential of crowding out the contractors and
procedures from Ghana for these projects. In most situations, a third part system produces little
impacts to the Ghanas economy. For instance, a bank from China can provide a loan (earning
interest); a company from China can win the contract (paid through the loan); and employees
from China can performs the labor (earning wages). However, all these three approaches neuter

the money from the Ghanas economy, irrespective of the fact that, the investment may look
appealing on the agreement paper.
Conditionality of the loan terms
Compare to other Western aids, particularly with development assistance from the US and other
international development institutions, there are several non-financial conditions package that
often comes with the deal. These conditions may specifically emphasize on corruption, the
processes and procedures for tendering, government and human rights (World Bank, 2010). For
instance, World Bank in Ghana specifically focus on the need for a true competitive bidding
processes for any infrastructure projects. According to World Bank (2010), these conditions are
very significant, as it facilitate the reduction of corruption and adhere within the budgets of the
projects.
However, in the case of the Chinese fundings, it is a different case. The Chinese banks have not
emphatically mitigate corruption, foster transparency or raise any environmental and social
standards to the same extend as the Western donors. The China funding environment have been
regarded as a rogue donor since the country does not adhere to the same conditionality that
often stipulate from the Western organization. According to a report from Condon (2012), within
the Chinese environment, the respect for sovereignty, particularly with issues that pertain the
choice within the political system and developmental path is often regarded as a tenant within its
development policy. Further, when compare to a loan from the World Bank, the bidding as well
as the procurement processes from the China Development Bank are often not transparent. Their
contracts are often dispensed to international and domestic companies, in a sense that, the
Ghanaian counterparts may not know how these organizations were chosen.

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Conclusion
Conclusively, I may stand on two main stones to draw my conclusion. First, I strongly disagreed
agreed with the fact that, majority of the Ghana parliament are of the view that, the US$3 billion
facility is going to add value to most of the infrastructural projects, which include the countrys
gas resources, as this will be developed to its fullest, as this will be of benefits to the
development of the economy. My concession is that, there are several oil rich nations like
Kuwait, Iran, Iraq, Saudi Arabia, Canada, Libya, and Dubai utilized the funds generated from the
sales of their crude oil to develop their economy, without soliciting for any loan. Ghana can do
likewise, without going on for loan where these resources will be used as a collateral.
Secondly, I strongly agree with the minority of Ghana parliament that, the government of China
are only interested in the natural resources of Ghana to advance their economy and meet their
growing population of over 1.6 billion. For instance, with the terms and conditions of the loan
facility for the infrastructural project, it states in one of the condition that, the contractors for the
projects will be Chinese contractors. This gives an indication that, the loan is not going to
benefits Ghanaians, but will rather be in favour of the Chinese people.
Conclusively, the government of Ghana and its ministerial bodies have several alternatives
international donors like the World Bank and IFC deals that they can consider, so as to enhance
the execution of the infrastructure developmental projects in the country, instead of the China
Development Bank loan with its pros and cons.
Additionally, there is the need for the government of Ghana to take into consideration whether it
have the capacity to shoulder the numerous subsidiary agreements in a timely fashion, which is
very significant, as this will be able to balance an effective infrastructure projects executions,
particular with its offshore projects.
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Reference
Adam, Mohammed. (2015) "Petroleum Revenue Management Bill Promises Greater
Transparency and Accountability." Ghana Web. N.p., 07 Mar. 2011. Web. 29 July.
China Gives Development Package To Ghana | Ministry of Finance - Government of Ghana."
Ministry of Finance. Government of Ghana, n.d. Web. 08 Sept. 2015.
Condon, Madison. (2015) "China in Africa: What the Policy of Nonintervention Adds to the
Western Development Dilemma." The Fletcher Journal of Human Security Vol. XXVII (2012):
5-25. Tufts University. 2012. Web. 7 Sept.
Darko, Gabby. "Danquah Institute Interview." Personal interview. 05 Aug. 2015.
Idun-Arkhurst, Kobina. (2015). "Some Thoughts on President Mills Visit to China."GhanaWeb.
N.p., 04 Oct. 2010. Web. 08 Sept.
Institute of Statistical, Social and Economic Research (ISSER). 2015. State of the Ghanaian
Economy
International Monetary Fund (IMF). 2012. Direction of Trade Statistics
Nyarku, Felix. (2012) "Ghana China Bi-Lateral Relations: A Treasured Fifty Years Of
Diplomatic, Cultural, Economic And Trade Relations." (n.d.): pg 12.
Osei, Barfour. "LOOKING EAST: CHINA- AFRICA ENGAGEMENTS." African Center for
Economic Transformation (2009): 1-33. ACET, Dec. 2009. Web. 6 Aug. 2015. pg. 4.
World Bank, (2010). Overview of Corruption and Anti-corruption in Ghana." Transparency
International. Anti Corruption Resource Centre, 22 Feb. 2010. Web. 08 Sept. 2015.
www.nytimes.com/2009/09/22/world/africa/22namibia.html;

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