Monday 10, September 2018 by Bloomberg

Ghana on hook for $2 billion China deal if bauxite plan stalls

 

Ghana will have to use alternative sources to pay back China’s Sinohydro Corp. for $2 billion in infrastructure if the revenue from an earmarked bauxite project is insufficient to meet installments.

Sinohydro agreed to a deal with the West African nation in May to build bridges, roads, hospitals and housing as part of the government of President Nana Akufo-Addo’s plans to lift economic growth. In return, Ghana undertook to repay the Beijing-based company with the proceeds of refined bauxite sales from a plant that is due to be commissioned and completed within three years.

While the construction of the projects will start right away, payments are deferred for the three years and will be made in equal instalments over the deal’s remaining 12-year period, according to a copy of the agreement that was signed on 16 May.

Where receipts from the refined bauxite are insufficient for the instalments “the government of Ghana shall use other sources for the repayment,” the parties said in the agreement.

Ghana is banking on using its untapped bauxite resources to pay for new infrastructure as the country sees out the final year of an almost $1 billion debt-bailout arrangement with the International Monetary Fund. The country’s public liabilities measured 63.8 per cent of gross domestic product at the end of May, compared with 67.3 per cent the year before.

“We don’t want to put $2 billion on Ghana’s books to increase our debt,” Mark Osei Assibey, parliament’s finance committee chairman, told Bloomberg in an interview. “So, it is Sinohydro that is contracting the entire $2 billion loan.”

Sinohydro didn’t repond to an emailed request for comment.

The deal between Ghana and Sinohydro is being finalised as African leaders and the government of President Xi Jinping met earlier this month to promote trade between China and the continent that totalled $170 billion in 2017. While Beijing-backed investment has provided African governments with much-needed infrastructure, it has also generated complaints about China’s preference for loans.

Ghana has requested proposals for a joint venture to build the refinery, which is estimated to cost $300 million, said Assibey. Lawmakers will debate the Sinohydro agreement later this month for parliamentary approval, he said.

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