PRESS CONFERENCE – JULY 21, 2010
Ladies and Gentlemen of the Press, we have called you here to inform the good people of Ghana through you about developments in Parliament regarding the STX housing project. You will recall that on Thursday, July 15, 2010, the NDC government through it’s Parliamentary representatives withdrew from the floor of the House a motion to approve of A Supplier’s Credit Agreement Between the Government of Ghana and STX Engineering and Construction Ghana Limited for an amount of US$1,525,443,468 for the construction of 30,000 units of houses for the security services in Ghana. This withdrawal was ostensibly occasioned by arguments proffered by the Minority side which had started to debate the motion on Wednesday, July 14, 2010. We are here today to tell Ghanaians the reasons why the Minority was asking Parliament to reject the proposal placed before it at the instance of Professor Mills, since the agreement came by Executive approval and not Cabinet approval. It is critically important to let the good people of Ghana know this because, as you may recollect, of the seven people that the Minority had lined up for the debate only two people spoke before the government beat a hasty retreat.
The shortfall in housing stock in Ghana is by any measure above one million. The yearly housing need is about one hundred thousand. The average delivery of housing per year by individual builders, private estate developers and government involvement is about thirty-five thousand. In the event, every year the total arrears in the country increases by about 60 – 70,000. The situation is worrying. Since independence various governments have resorted to various mechanisms to attempt to solve the problem. It is for this reason that we in the Minority support in principle government’s bold declaration of intent to enter into a joint venture to produce 200,000 houses which, if it comes on stream, will address about 20% of housing need in the country. Like other political parties which addressed the problem of housing, the NDC have stated on page 84 of their manifesto that the “housing deficit is about 500,000”. That clearly is an understatement. Does that explain why the nation is being led to this slippery track?
Ladies and Gentlemen, what is the STX Housing Project? The STX Housing Project is a Joint Venture (JV) agreement between the Government of Ghana (GoG), STX Engineering and Construction Ghana Limited (STX) and HFC Bank Ghana Limited (HFC) in which the parties intend to develop 200,000 housing units in ten cities in Ghana over a five year period. The JV Agreement is what is now being referred to as the ‘grandmother’ agreement. In this Agreement the Government of Ghana (GoG) intends to offtake (own) 90,000 of the units. This is the Offtaker Agreement now known as the ‘mother’ agreement; and HFC agrees to become the principal mortgage finance provider for 110,000 units (or the ‘auntie’ agreement) and STX agrees to find the financing as well as build the 200,000 units on a Build Lease Operate (BLO) basis. The total cost of the project is estimated at US$10 billion. This JV agreement was signed on December 9, 2009. Parliament is yet to be served with the Joint Venture Agreement for its approval. The Offtaker Agreement which is the commitment by government to buy 90,000 units and which emanates from the Joint Venture Agreement must also be approved by Parliament since they both are international economic/business transactions as provided for under Act 181(5) of the 1992 Constitution.
As part of it’s obligation to offtake 90,000 units, GoG in a memorandum dated May 4, 2010 sent to Parliament a Supplier’s Credit Agreement between the Government of Ghana and STX Engineering and Construction Ghana Limited for an amount UP TO US$1,525,443,468 for the construction of an initial amount of 30,000 units. The terms of the credit agreement were that there will be a grace period of 5 years’ a repayment period of 15 years; a maturity period of 20 years; an interest rate of 2% fixed; an arrangement fee of 0.75 percent; and a management fee of 0.5 percent. This agreement for the 30,000 units is what is now known as the ‘baby’ agreement.
Fellow countrymen, in principle all of us support any initiative by government to reduce the current housing deficit estimated at over one million (1,000,000) units. In particular, given the rather appalling living conditions of security agents, an initiative to provide 30,000 to augment their current housing should ordinarily be supported and it is for that reason we have insisted that we in principle support the bold decision to build 200,000 houses. However, looking closely at all the agreements, (grandmother, mother and baby) we in the minority group are of the opinion that these agreements are not in the interest of the people of Ghana. All the risk bearing is placed on Ghana and STX Engineering and Construction is getting a free ride on the back of the people and government of Ghana.
Ladies and Gentlemen we will now give you the reasons why the people of Ghana will be cheated if these agreements were agreed to. Let us first discuss the provisions in the Offtaker agreement, especially on the undertakings by GoG.
First, Clause 1 of the agreement provides: the ‘GoG hereby undertakes to purchase 45% of the 200,000 units to be constructed under the Housing Project (the Gog Offtake). The implication is that this single transaction alone will amount to about US$4.5 billion, the largest ever single transaction in the nation’s history. It is equivalent to 30 percent of Ghana’s GDP; 150 percent of our gross international reserves; and over 50 percent of our current stock of debt, now estimated at US$9.2 billion.
This single transaction which is on one ministry and relates to housing, only one of the three limbs of the ministry of Water Resources, Works and Housing will increase the public debt GDP ratio from about 60 percent to over 90 percent. Interest payments alone at 2 percent per annum, will amount to US$90 million per annum or US$1.8 billion over 20 years. To put it in perspective, in 2009 interest payment on all our external debt amount to US$141 million. After five years (that is, the grace period), government will need about US$400 million to pay principal and interest on the loan for fifteen years. Clearly, the deal has serious implications for the nation, especially when viewed in the context of our ability to pay. Concurrently, we have to confront the delivery of potable water, electricity, health facilities, food, educational facilities, roads, transportation, employment, justice, among other pressing needs of our peoples. Do we as a nation have the ability to make this payment in a single transaction relating to one department in one ministry?
As at end 2009 Government owed about US$1 billion to various contractors, including statutory payments to GETFund, DACF, NHIS and Social Security contributions. If we do not have money to make these statutory payments how can we think of making discretionary payments on one single transaction that could amount to US$400 million? Are we using resources wisely as a nation? Ghanaians can judge for themselves.
Secondly, countrymen, having agreed to potentially spend US$4.5 billion as per the Offtake (“mother”) Agreement, GoG in clause 3 of the Agreement, “hereby undertakes to issue to and in favour of STX a government guarantee under section 10 of the Loans Act 1970 (Act 335) securing its financial obligations in relation to the GoG Off-Take, valid and sufficiently viable to enable STX to obtain funding from financiers and investors for the forty-five percent (45%) of the 200,000 housing units to be built under the Housing Project. In relation to this Off-Taker Agreement and the Government guarantee, the GoG shall waive its sovereign immunity”.
Compatriots, you will recall that about four years ago the government of Ghana took a calculated decision to go for a Sovereign Credit Rating, which would allow it to access funds on the international capital markets without a sovereign guarantee. Subsequent to that, precisely in September 2007, Ghana issued a Eurobond in the amount of US$750 million on the back of only the Sovereign Credit Rating. In fact, the actual demand for the bond issue amounted to US$3.2 billion but government took only US$ 750 million. In the light of this fact, why is the government being asked to provide a Sovereign Guarantee, and to a private company? Given the earlier success of accessing money from the international capital market, providing a sovereign guarantee to a non financial institution such as STX Engineering and Construction Ghana is simply unacceptable. If we need to borrow then let us go directly to the banks, we do not need an intermediary that is not a financial institution. Furthermore, we want to put on record that Ghana’s history with the issuance of sovereign guarantees has been jerky and bumpy. At best, we have had to recall the guarantees and, at worst, they have crystallized and government has had to pay through its teeth – GNPC, LaPalm, are veritable examples of our woes. It is important to place on record that in Korea senior government officials including the Prime Minister whom the Ghana delegation met were all quick to emphasize that the STX deal was a deal with a private company. What was the import of that?
Ladies and Gentlemen, in the same clause 5, Government more ominously is being asked to waive its Sovereign Immunity. What this means is that should there be a default, STX Engineering and Construction Ghana could be attaching our properties all around the world. Is this the type of agreement our Nation wants to have with a private company? Why this bending over backwards for one single company? Don’t we place any value on our sovereignty?
Now, having agreed to off-take 90,000 units, as well as provide a Sovereign Guarantee, GoG in the same off-taker agreement, Clause 5 further agrees to provide:
1. All land designated as sites (“sites”) for the Housing Project free from any and all encumbrances, free from claims or disputes of any nature at no cost to STX;
2. Any and all infrastructure necessary for STX to freely access to Sites and successfully execute the Housing Project, including, but not limited to, water, electricity, telephone, roads, sewerage, drainage, etc;
3. Exemptions of tax, duty, withholding and impost when applicable, on specific machineries and equipments, spare parts and personal effects and materials to be used for the execution of the Housing Project as well as income tax exemption for contracts and specific expatriate personnel;
4. An irrevocable waiver of sovereign immunity with regard to any and all liabilities arising from and in connection with this agreement; and
5. Prompt and effective assistance to STX in procuring, obtaining and maintaining all permits, approvals, licenses and consent from any governmental, quasi governmental authorities, required by statutes or regulatory bodies for the execution of the Housing Project, including but not limited to building and zoning permits, importation of project equipments and work permits for expatriate staff necessary for the execution of the Housing Project.
Brother and sisters, the obvious question is how much additional money is government going to have find to fulfill all these undertakings? How much are these combined undertakings going to add to the cost per unit? Disturbing as these are, they are not the only requirements of the State in the agreement. In addition, GoG will have to pay within 10 business days all expenses incurred including but not limited to, legal valuation and accounting fees, travel expenses and other out of pocket expenses and any VAT on those expenses. Furthermore, GoG will have to pay all stamp duties, documentary, registration or other charges or taxes imposed or chargeable in connection with any financing document.
Ladies and gentlemen, besides these manifestly giveaways, GoG in the Suppliers Credit Facility is further required to pay an Arrangement Fee of 0.75 percent as well as a Management Fee of 0.5 percent. These together amount to about US$19 million on the US$1,525,443,468 Credit Facility. This amount will be deducted up front. In other words, before one single unit is built STX Ghana will be paid this amount.
Fellow countrymen, the mother of all transgression is that, in spite of the Sovereign Guarantee that is demanded from GoG, the state is required to pay over US$ 250 million as insurance on the facility. So what is the use of the Sovereign Guarantee? The effect of the issuance of a sovereign guarantee is to guarantee or insure against any future problems including default. Is somebody trying to reap where he has not sown? In any event, does it make economic sense to throw away over US$250 million as insurance on top of a sovereign guarantee when we have sovereign credit rating?
Another serious matter relates to the interest rate on the credit facility. It is pegged at 2 percent, which was the Bank of Korea Prime rate, the minimum rate it charges to commercial banks in Korea. As of today that rate has been increased to 2.25 percent. How will any bank, even if it were willing to provide funds to STX, afford to charge a rate below the Bank of Korea prime rate? Ghanaians should judge for themselves.
My brothers and sisters, let us now ask ourselves what the agreement requires STX Ghana to do. This is provided in clause 6 of the Offtaker (‘mother’) Agreement. It states: “In exchange for what the GoG undertakes to provide in Paragraph 5 hereof STX commits to:
1. Plan, design, implement and execute the Housing Project at the Sites in accordance with international standards;
2. Obtain funding for the execution of the Housing Project utilizing the GoG’s government guarantee to be provided in accordance with this Off-Taker Agreement; and
3. Directly or indirectly use local resources of Ghana for at least thirty percent (30%) of the resources for the Housing Project and train the locally-hired labour force so that they can be equipped with necessary technical and professional skills.
Ladies and Gentlemen, if you compare what is required of GoG as described above and what is required of STX Ghana, it does not take a genius to come to the conclusion that the agreement stinks. It is completely one sided. No counter guarantees are being demanded of STX Ghana. No questions are being asked of its capacity to find the requisite financing especially since it is not a bank. No questions are being asked of it’s capacity to build 200,000 units, since the largest contract STX Korea the backbone company itself has obtained in building housing units is for 27,000 units in China to be built over 8 years. That contract was secured in 2008 for an average yearly production of about 3,475 housing units. Two and a half years into the contract they have woefully delivered just over 3,000. That is STX Korea. In Ghana, STX Ghana is supposed to deliver 40,000 per year. Does their track record indicate proven capacity to deliver?
Now, let us consider the source of financing of the houses. Ladies and Gentlemen the fact is that as of today, STX Engineering and Construction Ghana limited upon probing has not been able to clearly and unequivocally identify its source of funding. This is so because STX Ghana first identified Woori Bank of Korea as a potential lender. The documentation provided by the Bank indicated that the term sheet was “not legally binding” and the government therefore rejected and withdrew this offer. Subsequently, in a letter sent to the Ministry of Finance and Economic Planning, the Korean Ambassador intimated that the Korean government would provide support through a Korean government entity known as the Global Infra Fund, a fund set up to assist Korean companies.
However, upon further inquiries, additional information received from the Korean government revealed that “STX is eligible for funding for feasibility studies for the Ghana Housing Project”. Clearly, therefore, for the Korean government, the Ghana Housing Project is only at the feasibility stage. In the circumstance, can anyone claim that there is a credit facility of US$1,525,443,668 available for the project? So what was Parliament being asked to approve of? Funding for feasibility studies? If the feasibility stage is not over, then Parliament could not be approving a credit facility of US$1.525 billion.
STX construction presents itself in the Agreement as the lender of the facility to GoG. Checks at the Registrar-General does not indicate that STX Engineering and Construction Ghana is incorporated as a lender of money. Financial lenders have to be licensed by Bank of Ghana and STX Ghana has not been so licensed and hence they cannot present themselves as lenders. Ghanaians do remember the horrible experience with PYRAM a few years ago.
According to the 2000 Population and Housing Census there are 3.88 million dwelling units in Ghana. Less than one-half of this are classified as houses. Fifty eight per cent (58%) of the houses are of poor quality, made of mud, laterite brick, wattle and daub, and earth. Over 74,000 kiosks and containers are used as houses. About 50% of all Ghanaian households sleep in single rooms; 22% sleep in 2 bedrooms whilst 12% sleep in 3 rooms. Only 17% of all Ghanaian households sleep in 4 or more bedroom facilities. Government therefore needs to build good and cheap accommodation to put more people into the 2 or 3 room bracket for improved living standards.
Undoubtedly, ladies and gentlemen, these figures are so frightening that they should stimulate any government worth its sort to develop a programme to address same. Kwame Nkrumah had his Estates of the 60s - Labone, Ringway, Nyaneba, Kaneshie. Busia started the low-cost housing scheme dotted all over the country. General Acheampong had Dansoman, Teshie-Nungua, Patasi, Ahesan, Buokrom estates; Rawlings had SSNIT and Adenta flats; Kufour started the affordable housing scheme. It is now the turn of the Mills administration to provide housing and we in the Minority could only welcome the boldness to confront the situation frontally.
We must now consider the application of the supplier’s credit facility on housing delivery. First, on the cost per unit of housing, the agreement refers to the Joint Venture Agreement which involves the construction of 200,000 at US$10 billion overall. That works to an average of US$50,000 per unit. The facility involves the construction of single bedroom units, two bedroom units and three bedroom units. One could argue then than the average size of the units is a two bedroom unit for a prize of US$50,000. That itself is quite expensive given the cost of the affordable houses started by the previous administration which were priced, upon completion, at US$24,000.
However, it is even wrong to average the size of the units at two bedrooms since 20,000 out of the 30,000 to be built are single room structure whilst 8,000 are 2-bedroom units with only 2,000 as 3-bedrooms. The average unit size then is about 1.7 bedrooms. Clearly, 1.7 bedrooms at a cost of US$50,000 is by any description not affordable.
Beyond these are the facts contained in the Agreement that STX has nothing to do with the acquisition of the parcels of land for the houses. That cost is to be borne by government of Ghana. As well, government will bear the cost of the construction of infrastructure like roads, drains, sewage etc and the provision of utilities like water, electricity, and telephone. Additionally, government is to bear the cost of the provision of such facilities as markets, clinics, shopping malls, schools, recreational facilities, etc.
The Daily Graphic of Tuesday, June 29, 2010 reported the sod-cutting event by the Minister responsible for Housing to commence work on the 900-unit housing project at Katamanso in Accra to provide affordable accommodation for workers in the middle and upper income brackets. The housing types will range from two-bedroom and three-bedroom flats and three-bedroom semi-detached and three and four-bedroom detached facility. The five-bedroom houses are priced at US$55,000 whilst a 4-bedroom facility costs US$45,000 and 3-bedroom house is US$37,000.00.
A semi-detached three bedroom house by Goodwill International Group a private construction company which comes loaded with utilities and infrastructure and which are built on lands privately acquired is priced at $37,000 whilst the STX facility may carry a price tag of about US$90,000 if all these facilities are loaded. Clearly, the amount quoted by Goodwill International could provide two and a-half times the number of houses to be provided by STX.
Ghana Real Estate Developers Association (GREDA) have also submitted a proposal to government indicating that with the same money being provided to STX they could produce twice the number being done by STX.
The facility in question is a Supplier’s Credit to supply houses. The obvious question then is what houses are going for the quoted price? The price of a house depends primarily on the structural design. Till now there are no designs for the STX project.
In the STX Agreement there is no competitive bidding and government has resorted to sole-sourcing of supplier. That should necessarily involve value-for-money audit. Unfortunately, as of now there are no designs for the houses. So what houses are we expecting to be built? Since Parliament does not have the designs of the buildings, Parliament cannot assess the value of the houses to enable us know whether the nation will have value for money.
Ladies and Gentlemen, the issues raised here are only a few of the financial and architectural issues that concern the Minority side with respect to the STX Ghana housing project. Indeed there are other legal, technical and procurement issues that would need to be addressed before the project can move further.
As we have earlier indicated the Agreement relating to the Supplier’s Credit Facility came to Parliament by Executive approval, in other words, directly from the Office of the President. In the face of these patented deficiencies what conclusions are we to draw? Is it that the President himself an Associate Professor of Law did not read the Agreement, or is it that his advisors on the Project did not offer good counsel to him? Let the good people of this country pass their own judgement.
We thank you very much for attending to this conference in spite of the shortness of notice. Thank you.
