The Ghana National Petroleum Company has secured $700 million loan, with more to come out of facility which it has contracted from international lenders to pay back within five years with oil from the Jubilee Fields. $1 billion is already on the table.

The loan, ostensibly for oil & gas exploration and development, has made technocrats at the Ministry of Finance very uneasy. They fought successfully against a similar facility under Kwabena Duffuor in 2012 but appear to have hit stiffer resistance this time round.

$350 million of the loan is expected to be disbursed to GNPC today. Frankfurt-based Deutsche Bank is the lead financier.

Asare “Gabby” Otchere-Darko of Globaldynamix Consult, a UK-based investment consultant, who spoke to the New Statesman yesterday raised critical issues with the nature and integrity of the facility and has called on the President to push the pause button for the “proper thing” to be done first. GNPC is 100 percent state-owned.

“There are a number of issues with this facility, in my view” Mr Otchere-Darko said. “One, there is the legal question of GNPC’s capacity to contract this loan independently. Under the Petroleum Revenue Management Act, GNPC has to bring its annual programme and budget to Parliament for approval. How come this loan has escaped the attention, scrutiny and prior approval of Parliament?

“Two, how come this loan and the purposes of it were not part of the programme and budget submitted to Parliament by GNPC in 2014 for approval?”

The analyst warns the lenders, “In the light of recent Supreme Court decisions such as Faroe Atlantic v Attorney General, Isofoton, and, especially, the Meridian Ports case, which was related to a public authority entering into an international economic transaction, Deutsche Bank and its partners are better off pulling the brakes now and demanding that GNPC secures prior parliamentary approval before going ahead with disbursements.”

He continued, “This $700 million five-year prepayment financial facility effectively mortgages Ghana’s share of oil production from now to 2019 because oil is being used both for repayment and as collateral. It has predetermined for Parliament for what we must use the bulk of our oil revenues from now until 2019.”

This international transaction will give direct access of our share of oil produced domestically to the leading commodities trader, Trafigura, as payment for the loan. Already, Sinopec of China has priority access to our oil because of the $1 billion suppliers’ credit agreement with Ghana for the development of the Atuobo Gas Plant. That credit facility was approved by Parliament, though.

Mr Otchere-Darko, who has built a reputation for advocating value for money in such international transactions, warned, “It is a dangerous practice for the nation to be railroaded to commit to a billion dollar loan facility without any parliamentary scrutiny and the basic expectations of transparency required for such transactions. I think this facility raises serious questions.”

He is, therefore, urging the President to call for the facility to “be suspended and the proper thing done. We should stop this culture of always being in a rush to mortgage our resources to the fastest bidder, without much regard for value for money. It is this kind of practice that has gotten us into the situation that forced us to run to the IMF for a bailout in the first place,” he recalled.

“Again, the purpose of this loan is vague and unconvincing,” according to Gabby, adding, “GNPC says it needs the money for capital investment for exploration and production. Yet, they haven’t made the case. And, my sources within Deutsche Bank have also expressed similar reservations over what really GNPC, the borrower, claims it wants the money for. ”

In the view of Gabby, who specializes in analyzing financial transactions, GNPC has no reason to borrow.

“It currently has enough money for any exploration work that it needs to do. The normal practice has been that production contributions from GNPC are pre-financed by its equity partners of the oil fields concerned and, certainly, at a much lower cost than the nearly 4% plus Libor which is the interest on this loan,” Gabby stated.

The CEO of Global Dynamix stressed, “I hold the view that GNPC, which has some $200 million of cash sitting in the bank at the moment, does not need to go out there to borrow $1 billion for anything. Certainly not for exploration or production.”

Mr Otchere-Darko suspects that the actual purpose of the loan is not what is apparent on the face of the loan agreement. He believes it could be just another way of raising money for government business.

Government is in negotiations with the International Monetary Fund, which is worried about the escalating debt burden of the country. Allowing cash-generating parastatals like GNPC to raise money on the back of their own balance sheets is seen as a creative way of generating needed income to finance government programmes without adding to the already stressed debt to GDP ratio.

“For Parliament to allow GNPC to get its hands on this facility that it has secured without parliamentary approval would set a bad precedent with serious constitutional implications,” Mr Otchere-Darko, who is also a lawyer, warned, calling on the legislature to “take urgent and particular interest to what GNPC is committing the whole nation to on the blind side of the people.”

Another problem he raised with the facility is that Parliament this year reviewed GNPC’s share of revenue in the Petroleum Holding Fund downwards from 40% to 30% for the next 3 years.

“This loan facility is for five years and we start paying with our share of crude oil production from Jubilee this month if disbursements start now. There is no grace period. It, therefore, has the risk of tying the hands of Parliament when GNPC’s share of revenue from oil production come up for another review in three years time,” Gabby reasoned.

Deutsche Bank and Trafigura are the main international players behind this transaction.

It would be recalled that Deutsche Bank and its partners are the lenders of the controversial $332 million the design and construction of the proposed Kasoa Interchange and ancillary works.

Three years ago, Ghana completed a six-lane 18 kilometre road plus two flyovers, the N1, at the cost of $115 million, which was grant from the US Millennium Challenge Account.

Recently at an investment forum in London, Alex Mould, the CEO of GNPC announced that the company’s focus for 2015 will be on oil production at the main Jubilee field and extracting gas to reduce pressure on its reservoirs as well as developing the Tweneboa, Enyenra, and Ntomme (TEN) cluster.

In April, Mould forecast that Ghana's total crude output would be above 200,000 bpd by late 2016 and said he hoped to raise $1 billion to fund its plan to become an independent operator in seven years.

Asked in London how much money had been raised so far, Mould said GNPC had secured $700 million and more was to come.

"We are waiting for TEN to come on-stream, and most likely by the end of next year, early 2016, we should be able to raise another $500 million mostly from capital markets but also from banks," he said.

He said he hoped GNPC would get an investment grade rating, though that process had not yet started.