US embassy cable - 04ACCRA1564

C O N F I D E N T I A L  ACCRA 001564 
 
SIPDIS 
 
 
E.O. 12958: DECL: 07/22/2014 
TAGS: PREL, ETRD, EAID, EFIN, CH, GH, GOG, Funding Initiatives 
SUBJECT: UPDATE ON CHINA LOAN SCANDAL 
 
REF: A. 2003 ACCRA 2382 
 
     B. ACCRA 621 
     C. 2002 ACCRA 2469 
 
Classified By: EconChief Chris Landberg for Reasons 1.5 B & D 
 
1. (C) SUMMARY: GoG officials continue to tell Post privately 
that the USD 300 million loan from China New Techniques 
Construction and Investment (CNTCI), which was approved by 
Parliament in April 2004, is dead (see Refs A and B for 
background).  In May 2004, Minister of Finance and Economic 
Planning (MOFEP) Yaw Osafo Maafo told Ambassador Yates that 
the GoG was waiting for a good opportunity to allow the loan 
to die.  More recently, BOG contacts have repeated their view 
that the loan will not be utilized.  However, for political 
reasons, the GoG is still publicly supporting the loan.  On 
June 30, when a motion to rescind the loan approval was 
before Parliament, Osafo Maafo called on the house to reject 
the politically motivated motion, which it did.  End Summary. 
 
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Recent Parliament Action 
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2. (U)  On June 30, Minority leader Alban Bagbin tabled a 
motion to rescind Parliament's April 13, 2004, decision to 
approve the USD 300 million loan and suppliers credit from 
CNTCI, on the grounds that MOFEP and the Bank of Ghana (BoG) 
had misled Parliament.  The rescission motion listed various 
concerns about the proposed loan, including the validity of 
the lender and the terms of the deal.  While Parliament did 
reject the rescission motion at Osafo Maafo's urging, the 
event forced the NPP majority to publicly defend the loan. 
 
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Loan Details and Concerns 
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3. (C) The loan is intended for high-profile projects, 
including rehabilitation of the eastern rail line, 
improvements on the Accra-Kumasi road, establishing six 
Presidential Special Initiative (PSI) starch factories, and 
finishing the PSI garment village.  It will work more likely 
as a supplier's credit than a loan, with CNTCI and associated 
companies doing most of the construction work.  On the 
surface, the loan appears concessional with a 15-year grace 
period, 30-year repayment period, and 0.65 percent interest 
rate.  However, the four percent management fee (USD 12 
million) and CNTCI's potential ability to take a 20 percent 
stake in Ghana's mineral resources throw into question the 
loan's actual concessionality. 
 
4. (C) The dearth of available transparent information, the 
inability to verify the addresses of those involved, and 
alleged ethical questions about the individual reportedly 
behind CNTCI gives the loan a similar appearance to that of 
the infamous USD 1 billion IFC loan of 2002 (Ref C). (Note: 
"IFC" is not to be confused with the World Bank's 
International Finance Corporation.  End Note). In that loan 
scandal, it was only after considerable pressure from donors 
(including the USG), the opposition, and press, that the GoG 
ultimately decided not to accept what turned out to be a 
fraudulent loan offer.  The GoG responded by admonishing the 
international community for funding shortfalls that forced 
GoG to consider riskier arrangements.  The event tarnished 
key GoG officials' reputations, including those of BoG 
Governor Paul Acquah and Finance Minister Osafo Maafo, and 
temporarily impaired their relations with donors and 
creditors. 
 
5. (C) Minority leader Bagbin's suspicions about the CNTCI 
loan are similar to those held by many in the donor 
community, the media, and some in the BoG and MOFEP.  Public 
skepticism emanates from the lack of transparency surrounding 
the loan, the GoG's inability to answer basic structural 
questions about the loan, and the GoG's checkered past with 
scam loans.  The debate over the loan has taken on added 
political overtones in the run-up to the December 2004 
elections as the opposition is looking for any opportunity to 
embarrass the NPP by linking it to desperate and 
irresponsible actions.  The June 30 Parliamentary action is a 
perfect example of this. 
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6. (C) The NPP, on the other hand, is determined to 
demonstrate its actions are in Ghana's best interests, and it 
sees public backpedaling on the loan agreement as a defeat in 
the face of opposition pressure.  Hence, the NPP appears to 
still be searching for a graceful way to distance itself from 
the loan. 
 
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Post is told that LOAN IS DEAD 
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7. (C) Prior to his public defense of the loan in Parliament, 
Osafo Maafo told the Ambassador in May that the loan was 
dead.  He said that the GoG was waiting for the opportune 
moment to end its arrangement with CNTCI.  Osafo Maafo has 
steadily worked to distance himself from the loan scandal 
claiming the loan was the work of the Ministers of Trade 
(Kyerematen) and Roads and Transport (Ameyaw Akumfi).  Osafo 
Maafo publicly claimed that he could take responsibility for 
the loan only insofar as he is the ultimate signer of GoG 
checks. 
 
8. (C) Dr. Mahamudu Bawumia, Special Assistant to BOG 
Governor Acquah, told Post on several occasions, most 
recently July 16, that the loan is finished.  He told 
EconChief that since the concessionality is unclear, the GoG 
had agreed to verify various elements of the loan in order 
demonstrate to the IMF that the loan met the condition of no 
new non-concessional debt.  The IMF Board approved the second 
review of Ghana's PRGF and its HIPC Completion Point on July 
9, apparently indicating that the IMF was satisfied that 
Ghana was compliant with its commitments. (Note: the PRGF 
review is backwards looking, so its approval does not 
necessarily indicate an explicit repudiation of the loan by 
the GoG. End Note) 
 
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Comment: 
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9. (C) The on-going fallout from the loan leaves Osafo Maafo 
in a difficult political situation.  He was a central figure 
(along with Minister Kyerematen and Governor Acquah) in the 
"IFC" loan scandal and Post expected that he and the GoG 
would have learned from that fiasco.  Now, given the upcoming 
election, we expect Osafo Maafo and other GoG officials to 
attempt to deflect responsibility for the CNTCI loan. 
 
10. (C) The GoG had an opportunity during the Parliamentary 
debate to distance itself from the loan deal and put it 
behind them, some 5-6 months ahead of the elections.  The GoG 
missed that opportunity.  The opposition has promised to 
maintain pressure on the majority party until the deal is 
rejected once and for all, so the GoG is in for continued 
public debate.  The Parliamentary action may have forced the 
GoG to realize that the matter will not fade quietly. 
 
11. (C)  The fact that senior-most GoG officials, including 
the President and the Finance and Trade Ministers, were 
interested in this loan in the first place, is perhaps the 
most interesting commentary.  Post hears frequently from GoG 
officials that they are concerned this government has little 
to show for over three years in power.  They also worry that 
it does not appear that macroeconomic stability has yet 
resulted in improved living standards for average Ghanaians. 
This has led NPP loyalists to increase pressure on the Kufuor 
administration to delay difficult reforms and increase 
spending during this election year. 
 
12. (C) Indeed, there appear to be those in the GoG who, for 
political reasons, are willing to make risky decisions that 
put them at odds with donors and creditors.  This phenomenon 
underlines how delicate the financial condition of the 
government is, and may mean that GoG officials may continue 
to pursue questionable deals.  While Post cannot definitively 
say that the CNTCI loan is rotten, all indications point that 
way and the old adage that "if it looks too good to be true, 
it probably is" likely holds in this instance.  End Comment. 
YATES 
 
 
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