Sinohydro provides $93.8 million — via deferred payment agreement — for Accra Inner City Roads (Phase 1, Lot 1) Project (Linked to Record ID#60154)

Project narrative

On May 16, 2018, the Government of Ghana signed a master project support agreement (MPSA) with Sinohydro Corporation Limited (‘SInohydro’) for an amount of up to $2 billion for the construction of priority infrastructure projects (captured via Record ID#60154). Under the terms to the MPSA, Sinohydro Corporation Limited and the Ghana’s Ministry of Roads and Highways (MORH) agreed to sign individual engineering, procurement, and construction (EPC) contracts for road construction and rehabilitation projects and Ghana’s Ministry of Finance and Economic Planning (MOFEP) agreed to assume responsibility for payment of the total price of each EPC contract to Sinohydro Corporation Limited. However, Sinohydro Corporation Limited agreed to defer MOFEP’s payment obligations for 85% of the total price of each EPC contract. Under a set of deferred payment agreements (DPAs) for individual EPC contracts, MOFEP was expected to repay Sinohydro Corporation Limited in twenty-four, equal, semi-annual installments with the proceeds from the sale of refined bauxite (after a Ghanaian state-owned special purpose vehicle known as Ghana Integrated Aluminium Development Corporation established a bauxite processing plant). The MPSA was approved by Ghana’s Parliament on July 28, 2018. All borrowings that took place under the MPSA via DPAs carry identical borrowing terms: a maturity of 15 years, a grace period of 3 years, an interest rate of 6-month LIBOR plus a 2.80% margin, a 2% default (penalty) interest rate, a 0.70% management fee, a 0.50% commitment fee, and a lump sum Sinosure insurance premium of 7%. Under the terms of an escrow account agreement, the Government of Ghana (and, later, Ghana Integrated Aluminium Development Corporation) was responsible for (a) depositing the cash proceeds from all future sales of refined bauxite into in an offshore escrow account (known as the ‘bauxite revenue account’) for the benefit of Sinohydro Corporation Limited, and (b) maintaining a minimum cash balance in the offshore escrow account equivalent to two semi-annual installments (repayments) of principal and interest. If neither the Government of Ghana nor Ghana Integrated Aluminium Development Corporation generated sufficient revenue from the refined bauxite sale to repay Sinohydro Corporation Limited, MOFEP was responsible for alternative means of repayment. Sinohydro Corporation Limited, in turn, borrowed from China Construction Bank through an Accounts Receivable Finance Agreement (ARFA). Under the terms of the ARFA, Sinohydro Corporation Limited assigned to China Construction Bank the right to receive MOFEP’s deferred payments under each EPC contract. The assignment of receivables (i.e., unpaid invoices from MOFEP) to China Construction Bank as a source of collateral enabled Sinohydro Corporation Limited to borrow from China Construction Bank and thereby discharge its DPA obligations as a lender to MOFEP. Sinohydro Corporation Limited decided to approve funding for infrastructure projects under the MPSA in phases. The first phase consisted of 10 road projects (underpinned by 10 EPC contracts) that were collectively worth $646,637,879.74: Accra Inner City Roads Project (or Phase 1, Lot 1 Project), Kumasi Inner City Roads Project (or Phase 1, Lot 2 Project), Tamale Interchange Project (or Phase 1, Lot 3 Project), PTC Interchange Takoradi Project (or Phase 1, Lot 4 Project and the PTC Roundabout Interchange Project, Takoradi), Adenta-Dodowa Dual Carriageway Project (or Phase 1, Lot 5 Project and the Construction of 14 km Adenta-Dodowa Dual Carriageway Project), Sunyani Inner City Roads Project (or Phase 1, Lot 6 Project), Western Region and Cape Coast Inner City Roads Project (or Phase 1, Lot 7 Project), Upgrading of Selected Feeder Roads in Ashanti and Western Region Project (or Phase 1, Lot 8 Project, Rehabilitation of Oda Ofoase-Abirem Road Project (or Phase 1, Lot 9 Project and 38 km Rehabilitation of New Abirem-Afoasekuma-Akim Oda Road project), and Hohoe-Jasikan-Dodi Pepesu Road Project (or Phase 1, Lot 10 Project and 56.40 km Construction of Hohoe-Jasikan-Dodo Pepesu Road Project). Each of these projects was financed through a separate DPA. Under the terms of the MPSA, 'deferred payments' refer to payments due to Sinohydro under a given EPC contract to be made by Ghana's Ministry of Finance using the proceeds from the sale of refined bauxite that have been deferred up to the repayment dates stipulated in the repayment schedules of the DPAs. The DPA for the Accra Inner City Roads Project (Phase 1, Lot 1 Project) was signed by Ghana’s Ministry of Roads and Highways, Ghana’s Ministry of Finance, and Sinohydro on September 1, 2018. Under this DPA, which is captured via Record ID#89467, Sinohydro provided $93,897,686.91 of financing to cover 85% of the total cost of the EPC contract ($72,837,698.14) plus the cost of accrued interest and fees during the 30-month construction period. The scope of the Accra Inner City Roads Project (Phase 1, Lot 1 Project) covers a set of roads measuring 85 km in length in 5 municipal assemblies across the Greater Accra Region: a 19.03 km road from Ga North to Trobu, a 23.97 km road from Ga Central to Anyaa Sowutoum, a 21.70 km road from Ga East to Dome Kwabenya, an 11.3 m road from Ledzokuku to Teshie, and an 8 km road from Adenta to Santeo via Nanakrom. The project, which was originally expected to be completed within a period of 30 months (beginning during the first quarter of 2019), involves (1) road works which involve earthworks, provision of sub-base and base works, surface dressing and road line markings; (2) drainage works involving the construction of roadside drain, culvert, and storm drains; (3) construction of pedestrian and public transport walk ways and laybys; and (4) the provision of services like road safety audits and pedestrian facilities. Sinohydro Corporation Limited is the EPC contractor responsible for project implementation. As of September 2021, project implementation had not yet commenced. The Government of Ghana initially refused to acknowledge that any of the borrowings under the MPSA represented sources of public debt exposure. On the floor of parliament on July 19, 2019, Ghana’s Finance Minister Ken Ofori-Atta insisted that borrowings under the MPSA with Sinohydro Corporation Limited ‘would not add to the debt stock.’ Cassiel Ato Forson, a ranking member of Parliament's Finance Committee challenged the Finance Minister's assertion and argued that 'this is simply a supplier's credit [from Sinohydro Corporation Limited].' Nor were any of the borrowings under the MPSA with Sinohydro Corporation Limited acknowledged as sources of public debt exposure in 2018, 2019, 2020, or 2021 editions of the Annual Public Debt Report, which MOFEP submits to Parliament to comply with the requirements of Section 72 of the Public Financial Management Act, 2016 (Act 921). Additionally, as a condition of borrowing from the World Bank, the Government of Ghana is required to disclose all actual and potential repayment obligations to external creditors to the World Bank through its Debtor Reporting System (DRS). Although the loan-level data that MOFEP reports to the DRS are not publicly available, AidData learned through correspondence with World Bank that MOFEP had not disclosed any of its actual or potential repayment obligations to Sinohydro Corporation Limited through the DRS as of November 2022. The Government of Ghana is also responsible for disclosing its sources of public debt exposure under its Article IV agreement with the International Monetary Fund (IMF). However, as of July 2021, ‘the [Ghanaian] government’s headline measure [of public debt] excludes liabilities that pertain to the central government, including […] extrabudgetary funds such as Sinohydro, and which are included in [the IMF’s] definition of public debt.’ Additionally, when the Government of Ghana issued a Eurobond prospectus on February 3, 2020, it claimed to disclose all ‘debts incurred by the Government and Government-guaranteed debts’ and affirmed that ‘the information contained in [the prospectus] is in accordance with the facts and […] makes no omission likely to affect its import.’ Yet the DPAs with Sinohydro Corporation Limited were not identified as sources of public debt exposure in the February 3, 2020 Eurobond prospectus. However, in a September 5, 2024 public disclosure, the Government of Ghana reversed course, acknowledging that ‘[t]he US$2 billion Sinohydro deferred loan agreement, initially structured around refined bauxite proceeds, has been reclassified as a loan due to the non-materialisation of a bauxite processing plant, further complicating the country’s debt restructuring efforts.’