IMANI Alert: Ghana Governments in Investment Chaos

Sunday, October 24, 2010

Governments in Ghana and their bureaucratic sidekicks continue to overreach in objectives, under-price risk, over-state outcomes, under-perform on timelines, over-manage processes, and under-benchmark important milestones.

So that there is no room for ambiguity, we want to repeat that we support this and previous governments’ strategy of using public – private partnerships (PPPs)as a principal means of delivering major development-related capital investments.

We think PPPs offer an elegant and powerful approach of leveraging the profit-seeking impulses of private actors for public benefit through increased financial support for the provision of public goods like roads, utilities, schools and hospitals.

Since the mid-90s when plans for outright privatisation of major development infrastructure were bungled through the overreaching zeal of immature technocrats, we have as a nation come round to the belief that even those areas once held to belong to the exclusive jurisdiction of governments can do with some private sector efficiency.
We have thus sought to marry our long-term development agenda to the medium-term “return on investment” focus of major institutional and so-called “strategic” investors.
Slowly has our thinking evolved, but it would seem that our attitudes remain unchanged.

Governments in Ghana and their bureaucratic sidekicks continue to overreach in objectives, under-price risk, over-state outcomes, under-perform on timelines, over-manage processes, and under-benchmark important milestones. Worst of all, they proceed to use PPPs in an arbitrary, “buga-buga” fashion that fails to build on the efforts of past governments. There has been no institutional learning and no clear purpose or direction in much touted reforms. From the mid-90s to date, these “deals” have been shrouded in secrecy and steeped in contempt for public curiosity.

If you think we are just huffing and puffing, consider the following two examples.

The Western Rail Project

Like most independent observers who monitor government policy, we were alarmed when we heard a political bigshot at the Ministry of Finance claiming recently that the Chinese “framework agreements” that Government of Ghana recently entered into paves the ground for Chinese investment in the vaunted “western rail project” and the hubris-drenched Ghana-Burkina rail corridor (aka “Tema to Paga”!).

We were alarmed because that is the tenth or eleventh PPP policy announced by successive governments regarding either or both projects.

Our fear is that our politicians are making this very important program up as they go along, with scant regard for any of the due processes of policymaking.
Soon after the announcement by the political boss, another big kahuna from the same Ministry disclosed that Goldman Sachs was interested in funding the western rail project to the tune of $500 million. And that was the end. Nothing comprehensive has been published and shared with the relevant agencies and independent organisations in this country about how these various PPP initiatives involving multiple partners in respect of the same project are being coordinated.
And we have cause to worry.

It is this same western rail project that was supposedly awarded to a company called the Kampac Group on a Build-Operate-Transfer (BOT) basis worth a reported $1.6 billion in 2008 (note the penchance for bandying huge figures around). Indeed a close inspection of the contract, as announced, will show that several components of the north-south, trans-Ghana, railway project were envisaged under this deal.

Kampac Group, which does not have any verifiable track record in securing such huge sums of money and delivering such large projects anywhere in the world, subsequently announced that it had also acquired mineral concessions worth more than $2 billion in the Western region as part of the financing mechanism for the project. Government of Ghana denied complicity in this contorted arrangement, and nothing has been heard of the $1.6 billion since.
Indeed, regarding the ambitious Tema – Paga railway project, which as far as we are concerned is far from validated on a “return on investment” basis, a German company called RailOne announced in 2007, prior to the official award of the BOT deal to Kampac, that it had already concluded a supply agreement with the Dubai-based company to provide materiel for the same project.

At the time these wide-ranging arrangements were being consummated, various proposals from the Government of Ghana related to the same projects were pending before a dazzling array of Chinese and Indian state and private institutions, as well as multilateral financial institutions, such as the African Development Bank.

Indeed, immediately prior to the Kampac undertaking, the same GK Holdings that is today championing the STX deal entered into an understanding with the Government of Ghana to source $2 billion from Korean strategic investors to integrate the eastern railway corridor into the proposed trans-Ghana rail system to be anchored at Tema. It was this grandiose scheme that, after its 2-year timeline had expired, was recycled to form the base of the Kampac deal, and which today we are being told shall be funded with Chinese money.
We seem as a nation mastered the choreography of endlessly shifting between Arab, Korean, Indian, and Chinese money that never materialises even as senior management time and significant quantities of aid money are squandered on self-serving, ivory-tower, consultancy projects. Yes, as a country that is manifestly short of funds for our own development it makes sense not to put all our eggs in one basket, but you can only diversify fund-raising if you pursue a well-articulated, consistent, strategy. Otherwise, you risk looking like a flake, and blowing what little credibility you have left through under-performance on your covenants.

As you might have guessed the European Union and the World Bank have all in recent years provided funds to assist this country develop a credible program for the revitalisation of the railway network. A number of mining companies, especially in the Western Region, have demonstrated a readiness to buy significant commercial services from a credible railway contractor as a way out of their traumatic dependency on the dilapidated road network.

Instead of focusing on integrating clear points of infrastructure need in the chief agricultural and mining belts in order to raise realistic sums of money to actually jumpstart the process, and thus increase the confidence of prospective investors, every time our political leaders don their wellington boots and descend upon the railway tracks they lose their financial bearings and begin to fantasise about levitating high-speed locomotives and retractable, air-suspended, tracks.

If, for instance, there is a strong case for trans-border trade between Burkina Faso and Ghana, and we suspect there is, one must focus on clear, high impact, connections within the trade belts themselves and assume that at certain points, river and road transport shall complement. The idea should clearly be about clear and observable improvements in efficiency so as to justify to investors that the opportunity is profitable and not some fantastic wholesale transformation of Ghana’s transport infrastructure over 2 years.
Clearly, this habit of jumping from one potential funder to the other, waving giant figures in the air and cawing on about how delightful it would be to unite the crocodiles in Paga with the shrimps in Tema isn’t going to strengthen the confidence of prospective investors in Ghana’s PPP railway program.

Jubilee Field Gas Project

Granted, the Jubilee Field gas project does not have as colourful a history as the trans-Ghana railway project, with its various sub-incarnations in the eastern and western corridors, inland ports near Kumasi, and crocodile ponds near Paga etc, but it still fits quite closely in the same mould of disjointed, disconnected, and disorganised PPP policymaking that we have seen in this country for a decade and half.

In late 2009 the financial press was saturated with reports that Government of Ghana (GoG) had concluded a deal with Oando PLC of Nigeria for the latter to fund and exploit associated gas from the Jubilee Field in a deal worth a more than $1 billion. Six months down the line GoG announced that Technip had consented to finance and construct the pipeline from the offshore reserves to a yet to be completed processing facility onshore, in Jomoro. The masterplan envisages the pumping of treated gas to power stations in Effasu and Takoradi, amongst others.

It has been nearly six months now and there is absolutely no clarity how the Jubilee Field gas infrastructure development program is proceeding. Yet, Government of Ghana policy remains committed to a policy of zero-tolerance for flaring. How can that be achieved if the infrastructure to cart the gas away from the field is still shrouded in financing mystery?


The conclusion is very straightforward: we should get our act together, think more like a country confronted with real-world constraints and stop fantasizing about grandiose schemes that never materialises.  Projects like the STX-Gog one detract from our global investment push. We now hear that the promoters of STX are wandering all over Europe and America essentially pleading with prospective sub-contractors to come and handle a piece of the pie that is now choking them. A Minister of State was recently overheard soliciting $600 million from a so-called “investment group” from the Gulf for a project that was supposedly pre-financed. It is now clear that it is not Woori bank or the Korean government that shall be funding the grandiose $10 billion project. Why then the kikikiki?

The same problem afflicts the myriads of projects piling up in the infant oil industry.  The sooner Government of Ghana gets real, the better it shall be for all of us.

Courtesy of IMANI-Ghana ( & AfricanLiberty.Org