Despite a recent assessment by the International Monetary Fund (IMF) which warns that the development delays associated with Ghana’s US$2 billion Sinohydro bauxite deal with China could potentially lead to loss of the country’s collateral – five percent of Ghana’s identified bauxite deposits – a new report published last week by the National Resource Governance Institute (NRGI) insists that may not be the case.

In similar vein, some industry analysts and government officials have told the Goldstreet Business that the possible scenario being presented by the IMF will not come to pass, insisting that a default in repayment of the loan will not lead to loss of collateral as there is room for renegotiations.

They support the position of NGRI’s new report that Resource-Backed Loans (RBL) – being loans provided to a government or a state-owned company, where commitment is made to repay in the form of future commodity production such as oil, gold and bauxite – provide the opportunity for renegotiations in the event of repayment defaults.

This is because the mutual interdependence between borrowers of Resource-Backed Loans and lenders as well as the difficulty lenders face in enforcing RBL collaterals have led to many RBLs being successfully renegotiated, according to NRGI’s new report released recently. Indeed, the report points out that none of the US$ 66 billion in RBLs given to sub Saharan African countries between 2004 and 2018 have resulted in seizure of collaterals put up by defaulting borrowing countries. Rather in every case of default so far, the repayment terms have been renegotiated to the satisfaction of both counterparties.

What this means is that borrowers of RBL are not always trapped into unfavorable loan terms and conditions until their debts are fully repaid and this further goes to suggest that Ghana would not lose its collateral in the Sinohydro bauxite loan deal.

Although RBLs can sometimes include collateral, enforcing the resort to collateral may be difficult in practice. In fact, enforcement can be a challenge without the consent of the borrowing government, particularly where the collateral involves assets in the country. Assets such as the bauxite reserves supposedly serving as collateral in Ghana’s case are highly sensitive and their loss would face great resistance, the report stated.

Should lenders resort to seizure rather than negotiation, it is possible that the lenders would be heavily dependent on local cooperation by the state and citizens for using them productively, which they would likely find difficult and as such they are unlikely to work effectively as collateral. This may be the key reason that no claims on such subsoil collateral have emerged publicly from the various RBLs facing repayment difficulties, the report added.


Countries use RBLs to invest in various sectors of the economy usually in infrastructure and particularly for the energy sector. Ghana’s Bui Dam and Atuabo Gas Plant are some examples.

Highlights

Ghana’s Sinohydro RBL offers to develop infrastructure in exchange for future refined bauxite. The Integrated Aluminum Development Corporation, a dedicated state-owned enterprise which has been established specifically to manage the country’s bauxite reserves took the loan.

Up to five percent of the bauxite deposits of the Atewa Forest Reserve in the Eastern Region has been allocated to China through the China Development Bank’s RBL negotiations with Ghana. Ghana is expected to benefit from various infrastructure projects under the deal which include expanding the rail network, as well as building new roads and bridges among others.

A technical analysis of the repayment schedule has revealed that a rapid ramp-up of bauxite production and refining is required, which the IMF has raised doubts about.