Sunday, 24 February 2019

Cedi Falls to Record as Foreign Investors Shun Ghana Bonds


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By Moses Mozart Dzawu

Ghana’s currency slumped to a record against the dollar after a dovish tilt by the nation’s central bank reduced the appeal of fixed-income assets, sapping foreign-investor demand for the country’s bonds.

The cedi has weakened 8.6 percent this year, the most among more than 140 currencies tracked by Bloomberg, after the central bank unexpectedly cut its benchmark rate in January and signaled more easing may be in store. Out of the 2.1 billion cedis ($391 million) of two-year and longer-dated maturities sold by the government through Jan. 31 this year, foreign investors bought just 6.3 percent, according to data from the Central Securities Depository Ghana Ltd. That compares with more than 30 percent in 2018.

Ghana's cedi weakens to a record versus the dollar
“Declining capital inflows from offshore demand for the country’s cedi bonds, coupled with maturities not being rolled over, will affect foreign-exchange supply on the market going forward,” Gaimin Nonyane, a senior macroeconomic specialist at Ecobank Group in London, said by phone. Companies stocking up on dollars before transferring earnings in March also weighed on the cedi, she said.

The cedi declined as much as 0.5 percent on Friday to the weakest level since Bloomberg started keeping the records in 1994, before reversing losses to trade 2.2 percent stronger at 5.3772 per dollar by 4:38 p.m. in the capital, Accra.


A members of the Bank of Ghana’s Monetary Policy Committee said this month rates could be eased further as early as March, following the 100 basis points cut to 16 percent on Jan. 28. A planned Eurobond sale may support the currency as the central bank uses proceeds to replenish its foreign reserves.


source: Bloomberg

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Ghana records over 480% savings from Atuabo Gas utilization for power production

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Adnan Adams Mohammed

Ghana National Gas Company has revealed that, the decision to use processed gas from the Atuabo Gas Processing Plant, in the Western Region, for power generation in place of Light Crude Oil (LCO) has yielded an average savings of around 483.57 percent last year as it recorded about US $206.4 million compared to about US$42.6 million in 2017.

The rise in savings in 2018 was due to a 43% increase in the price of LCO at 84.7/barrel from US$59.3/barrel in 2017. The Head of Corporate Communications at the Ghana Gas, Ernest Kofi Owusu Bempah, made this known when he addressed journalists in Accra about the Industry overview, achievements, progress and the future of Ghana Gas.

Since Ghana Gas began commercial operations in 2015, LPG from Atuabo Gas Processing Plant has, on average, accounted for 32% of national domestic consumption. The year-on-year analysis (2015-2018) shows that Ghana Gas supplied 40% of domestic LPG demand in 2017, the highest since the commissioning and commercial operations, thereby, reducing LPG import bill by US$47million.

In 2018, the LPG supply declined by 2% relative to the 2017 performance due to gas substitution from ENI-Sankofa.

The Head of Corporate Communications explained that, Ghana Gas plant and its associated pipeline infrastructure are currently manned by Ghanaian engineers, after the Chinese from SINOPEC who were managing the plant left.

The takeover of the plant by Ghanaian engineers is saving Ghana about US$3 million monthly, resulting to a savings of about US$60 million since April 2017.

He added that the first major maintenance shutdown, which was done between February and April 2018, was also done by staff of Ghana Gas Company.

This, he said, enabled ENI to tie-in its pipeline at Sanzule.

Owusu Bempah noted that the implementation of Risk Based Process Safety Management has helped to improve safety in the company.

He said, as result of that, there has not been any incident in the company.

"We also developed and implemented key HSE risks control procedures including the Management of Change Procedure in controlling HSE risk associated with changes and modifications to existing facilities," he said.

According to Owusu Bempah, Ghana Gas registered 1,350 indigenes of Atuabo and Aboadze under the National Health Insurance Scheme.

He added that eight-seater water closet toilet and a mechanised borehole had been constructed for Allabokazo.

The company has constructed four-unit teachers' quarters in Anokyi and Asemnda Suazo, while an Ultra-Modern Nursery School facility in Asemnda Suazo had been provided.

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Independent Fiscal Council can serve as Ghana’s IMF, Group proposes as Ghana exit IMF in April

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Adnan Adams Mohammed

The Economic Governance Platform, comprising 15 civil society organisations, has called on the government to put in place the needed measures and resources to help the Fiscal Responsibility Advisory Council, as well as, making it independent in its operation to replace the International Monetary Fund (IMF) in ensuring fiscal discipline and other checks in the management of the economy. 

President Nana Akufo-Addo, delivering his State of the Nation Address stated that, in order not to repeat the cycle of returning to the Fund immediately after exiting, “Ghana will have to ensure that systems are put in place like the Fiscal Council, which are to ensure discipline in the management of the economy, are as effective as possible.”

Early this year, government established a Fiscal Council, appointed by, and is to act as an advisory body to, the President. Its function are spelt out as: “To develop and recommend to the President fiscal responsibility policies for the maintenance of prudent and sustainable levels of public debt, ensuring that the fiscal balance is maintained at a sustainable level, and the management of fiscal risks in a prudent manner, to achieve efficiency, effectiveness and value for money in public expenditure.”

An independent Fiscal Council (FC) can therefore help to give credibility to government statements and policies, World Bank Director for Ghana, Henry Kerali has said at the opening of the Economic Governance Platform workshop organized last week, adding that, “for example, in some countries the FC can review and comment upon the realism of the revenue and expenditure forecast, which the government is obliged to use as the basis of the budget.”     

President Akufo-Addo in Parliament, last week reiterated his government’s commitment to maintaining the needed discipline to ensure that Ghana does not return to the International Monetary Fund (IMF) for the 17th time.
 
“We’ve just concluded the program with the IMF and with continued discipline, we shall sign off from the deal in April. This is the 16th time Ghana has had to go to the IMF in its history. We cannot make the progress we all desire unless we are consistent and disciplined in the management of our economy. We have gone through another round of painful impositions to get to where we are today with healthy fundamentals.

“As we prepare to exit from the IMF program, we expect the impressive figures and good performance to continue. We are very much aware that this is not the first time we have had such good set of figures, but we’re determined to do things differently this time around. We’ve imposed on ourselves fiscal discipline, we’re paying off legacy debts and deepening good governance practice and business confidence is growing. We will maintain the discipline and bring progress to our country”, President Akufo-Addo expressed.

A team from the IMF this week completed the 7th and 8th reviews under the Extended Credit Facility program which Ghana entered into in 2015.

An approval from the IMF board in March should lead to Ghana exiting the program after April 3rd.

Ghana program with the IMF for US$918 million which was approved on April 3, 2015, aims to restore debt sustainability and macroeconomic stability in the country to foster a return to high growth and job creation, while protecting social spending.

The government has given assurances that the economy will remain resilient and robust even after the International Monetary Fund (IMF) program is over.

Chairman of the Finance Committee of Parliament Dr. Assibey-Yeboah in an interview said, he is confident Ghana will successfully exit the extended credit facility program after April 3rd.

“Clearly Ghana is exiting the program after April third as already agreed upon. You’ll recall that we went to the fund for policy credibility. So if you exit they have to sign you off. We want a clean bill of health, so the IMF team will go to the board at the end of March after which the board will decide as to whether or not Ghana has successfully completed the program.”

Throughout the various reviews, Directors of the IMF have commended Ghana on a number of things, welcoming the deceleration in inflation as well as the progress made in the strengthening the banking system, in particular through the approval of timebound recapitalization plans for undercapitalized banks.

On the things that need to be worked on, the Directors emphasized the need to tackle energy sector inefficiencies, particularly improving the management of the State Owned Enterprises (SOEs). They also advised that ongoing debt restructuring efforts are helpful but are no substitute to stemming the SOEs’ financial losses.

While highlighting the progress Ghana has made under the program, Dr. Assibey-Yeboah went on to share some of the benefits of successfully exiting the program for Ghana.

“If we successfully exit the program, then we are found to be creditworthy, it affects our ratings, it affects the cost of borrowing and we are able to tap into other markets because the IMF says these people are credible and they are creditworthy.”

He finally added that apart from the disbursement of the final tranche of about $118 million from the IMF, Ghana was looking at receiving other disbursements from bodies like the World Bank as a result of successfully exiting the program.

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Four GAT beneficiary banks to share GHC780mn in first bond sales


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Adnan Adams Mohammed

Ghana Amalgamated Trust (GAT) has opted to issue bonds, after the private pensions fund managers refused to provide funds for the special purpose vehicle established by the Ministry of Finance to raise equity capital for the recapitalization of five indigenously owned banks.

GAT’s Managing Director, Eric Otoo has disclosed that, the first tranche of the bonds, worth GHC780 million, will be issued before the end of this month and the proceeds will be used to recapitalize four of the five banks.

The first tranche to be raised will be allocated in the following proportion to the five banks: Agricultural Development Bank will get GHc127 million, Prudential Bank GHc251 million, the merged Omni Bank and BSIC (Sahel Sahara Bank) w GHc130 million; and Universal Merchant Bank GHc247 million.

The second tranche of the bonds, worth GHc1.14 billion will be issued shortly after the first tranche. The second tranche aims to recapitalize National Investment Bank – which currently has a capital deficit of over GHC700million – to the new GHC400 million minimum capital requirements.

The GAT aims to issue bonds to the tune of GHC1.92 billion to private investors over the next few weeks, the proceeds of which the Trust will use for the recapitalization. GAT first came to light when the Bank of Ghana (BoG) Governor, Dr. Ernest Addison, announced the status of the banks capitalization at the beginning of the year and hinted of the possibility of the use of private pension funds to shore up some 5 banks that were termed ‘well-run and solvent’.

The bonds will be open to all types of investor, foreign and local, institutional and individual, although the structure of the bonds will appeal primarily to major institutional investors, particularly pension funds and life insurance firms who typically invest in long term.

GAT is expected to pay debt investors a once-off annualized rate of 21 percent when the bonds mature after five years which matches the offered rate on government’s most recent six year treasury bond issue done a few weeks ago and this makes the GAT bonds competitive with regards to pricing. However they have been designed as zero coupon bonds which means all interest will be accumulated and paid as a lump sum along with the principal at the end of the bonds tenor.

The Trust will then seek to exit the holdings through buy-outs or listings on the local bourse.

This makes investment risk considerable; with all interest accruing being piled up to maturity, this means that investors are being asked to bet that GAT can effectively pay double the face value of the bonds five years from now, by selling the shares it will acquire in the banks to interested parties. 

“This is why the government guarantees will be crucial in providing comfort to investors in the impending bonds, since they mean that investors in the first tranche are assured of 70 percent of their investment no matter how well the four beneficiary banks do over the next five years; and investors in the second tranche – the relatively high risk NIB – will be assured of their entire investments.”

Mr Eric Otoo admits that the trust is operating on a tight schedule imposed on it by the Bank of Ghana which insists that all five banks must have been recapitalized by the end of March, which means both issuances must have been successfully completed by that time if the beneficiary banks are not to lose their operating licenses.

The Trust is currently in the process of securing a government guarantee of 70 percent of the value of bonds to be issued as the first tranche; but it is seeking to secure a 100 percent government guarantee for the second tranche. This is due to the fact that, investment into NIB is clearly much riskier, both in the volume of the investment and the financial circumstances of the bank, as compared with the other four beneficiary banks.

Albert Essien, GAT’s Chairman assures that, the guarantees will be provided by government once the requisite approval processes are completed.

GAT has planned to contract banking and finance experts to improve the quality of the beneficiary banks operations over the five year tenor of the bonds in an effort to ensure that they deliver the requisite financial performance to make their respective market values high enough to attract purchase prices that will pay off the GAT bond without recourse to government’s guarantees.

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Cedi depreciation caused by limited safe assets investment options in Ghana

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Adnan Adams Mohammed

The recent sharp depreciation of the cedi has been attributed to lack of safe asset classes into which people can invest due to limited product availability on the capital markets and the dismal performance of the stock markets pushing fund managers to invest in performing assets like the US Dollar, gold, land among others.

The recurrent situation of the cedi depreciating was to do with supply and demand of the US Dollar, which is a preferred asset or currency the ordinary Ghanaian wants to hold so it does not lose its purchasing value relative to other available assets; given the crises in the banking and fall in confidence in savings in the non-banking sector, and the low rates given by the commercial banks.
“People need to move excess funds into some other asset that can give them some return or at least hold its purchasing parity”, Alex Mould, former GNPC boss has said. 

The local currency, the cedi since January 2019 has witnessed some depreciation, trading against the dollar at GHC5.27 as at press time last week from GHC4.90 as at December 31, 2018. The decline in the value of the cedi is having a negative impact on traders, particularly importers.

Traders and businesses in the import business need to continuously buy Forex for their business at a higher rates, this applies to nearly every sector in the country since the economy is heavily import driven. This results in the scarcity of the US Dollar which is a major trading currency for Ghanaians. The shortage in supply results in appreciation in the value of the currency while weakening or depreciating the value of the local currency (cedi).

“Given that we have opted for a regime of flexibility, we will see some level of depreciation. What we want is to bring some level of stability to slow the depreciation rate…I’m not saying that at GHc5 to the dollar, market players won’t lose money but with a stable rate of 3% instead of an uncertain rate, people can then plan,” Economic Advisor and Spokesperson to Vice President Dr Mahmud Bawumia, Dr Gideon Baako has said.

Meanwhile, Director of Treasury at the Bank of Ghana, Steven Opata debunked that, the current free fall of the cedi against major trading currencies especially the dollar has nothing to do with Ghana’s economic fundamentals. He added, currently, the economic fundamentals are good and the central bank expects the cedi to bounce back sooner than later.

“If you look at the fiscal situation, it has improved significantly, if you look at the trade account, it’s been very solid. The current account has also been improving. The fundamentals are solid.” 

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GNPC 2019 work programme implementation to delay

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Adnan Adams Mohammed

The Ghana National Petroleum Corporation (GNPC) is likely to present a work programme for the year 2019 as Minority is demanding the withdrawal of the current work programme before the House after African Center for Energy Policy (ACEP) raised concerns.

Cassiel Ato Forson, Minority Spokesperson on Finance said the allocations for items such as corporate social responsibility and the use of GNPC as a vehicle to borrow some US$250 million to be spent by the Energy Ministry is illegal.  “What we expect of the Ministry of Energy is to withdraw this document and relay something acceptable before the House. I am going to start a crusade against such expenditure.”

In recent times, the Corporation has become more popular in delivering development projects rather than its core mandate. In a detailed analysis of the GNPC’s work programme for the 2019 financial year, which is currently awaiting parliamentary approval, the GNPC plans to spend US$43.05 million on CSR but only US$20.3 million on its operations in the Voltaian Basin and its subsidiaries in the sector. This is less than 50% of what the Corporation wants to spend on CSR.

“While GNPC, like any corporate entity, has a responsibility towards society, it is unusual for sound corporate organisations to spend more than 10% of its cash flow (not profit) on corporate social responsibility,” ACEP states in a report, adding that, spending as much as US$43 million on corporate social responsibility gives a cause for concern particularly when it is juxtaposed against GNPC’s “operations expenditure beyond the traditional cash call on the producing fields.”

ACEP raised the concerns in a detailed analysis of GNPC’s work programme for the 2019 financial year and urged Parliament not to approve the CSR budget for GNPC.

“Parliament should not approve any CSR budget for the Corporation until the end of the fifteen-year financing window provided in the Petroleum Revenue Management Act (PRMA) has elapsed. This should free up funds for the Corporation to deliver on its core mandate as an upstream oil player,” ACEP recommended.

GNPC is Ghana’s national oil company established in 1983 to support the government's objective of providing an adequate and reliable supply of petroleum products and reducing the country's dependence on crude oil imports, through the development of the country’s own petroleum resources. It is a partner in all petroleum agreements in Ghana and the national gas sector aggregator in Ghana.

The Corporation has been in the news in recent times over a seeming turf war between the Chief Executive, Dr. K.K Sarpong and Board Chair, Freddie Blay over the corporation’s procurement functions.

Dr. K. K. Sarpong has been accused of trying to assume the procurement function of the Corporation’s Chief Finance Officer.

But Board Chair of GNPC, Freddie Blay mounted Pressure on Dr. K. K Sarpong, to reverse the decision with immediate effect.

In relation to the development, a policy think tank, Institute for Energy Security had also called on President Nana Akufo-Addo to call the Board Chairman and Chief Executive of the Ghana National Petroleum Corporation (GNPC) to order.

The civil society body believes this friction undermines the smooth operations of the national oil company.

The IES Executive Director, Paa Kwasi Anamua-Sakyi who spoke to Citi News, said the troubles at GNPC could affect investment in Ghana.

“It is important that the President who has the power to appoint leading personnel in these functional areas should step in and stop this because it can deter investors and so it is important for the number one gentlemen of the land to make a statement on this and bring these two gentlemen to order,” he added.

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Sunday, 17 February 2019

Gov’t spends GH¢7.73 on each Ghanaian in providing tax reliefs on petroleum products


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Adnan Adams Mohammed

The government has disclosed that, it spent GH¢7.73 on each Ghanaian, in a total sum of GH¢232 million, by providing tax reliefs on petroleum products to ordinary Ghanaians between December 2017 and June 2018.

The reliefs are part of government’s efforts to use tax interventions to mitigate the impact of the increasing price of oil on the international market on Ghanaians, the Energy Minister, John Peter Amewu has said.

“The revenue loss to government on the removal of the Excise Duty and the reductions of the Price Stabilization and Recovery Levy (PSRL) alone between December 2017 and June 2018 amounts to over ¢232 million,” he revealed this when he took his turn at the Meet-The-Press series in Accra, last week.

He added that in order to cushion the citizenry from the impacts of increasing world market prices, government has used tax interventions to mitigate the impact of domestic petroleum product price increases.

According to him, government removed excise duty on petroleum products and reduced the special petroleum tax rate from 17.5% to 15% in March 2017.

Government further reduced the special petroleum tax rate from 15% to 13% on 16th February 2018, converted the special petroleum tax from Ad valorem to specific tax on the same date and reduced the price stabilization and recovery levies (PSRL) on 1st December 2017.

The Minister also disclosed that government, through the National Petroleum Authority has been making efforts to ensure that realistic prices are set by Bulk Distribution Companies (BDCs) and Oil Marketing Companies (OMCs).

“The NPA reviews the indicative prices submitted by each BDC and OMC for every pricing window to ensure that realistic prices are set by them and to ensure consumers are not taken advantage of in a deregulated environment,” he explained.

Mr. Amewu explained that since the implementation of price deregulation in 2015, the National Petroleum Authority (NPA) has played a supervisory role by determining the price benchmarks and ensuring that BDCs and OMCs set their prices in accordance with the Prescribed Petroleum Pricing Formula.

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BOST officers to face prosecution


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Adnan Adams Mohammed

Some staffs whose actions and decisions resulted in serious financial breaches at the Bulk Oil Storage and Transportation Company (BOST) under the present and past administrations will soon face prosecution as the Committees are ready with their reports.

The recommendations in the two reports are being implemented, however, the Presidential Committee made serious findings about some transactions which occurred during the previous regime, the Deputy Minister for Energy in-charge of Petroleum, Dr. Mohammed Amin Adam, has hinted of a possible prosecution of officials who are found culprits.

Following the contaminated fuel saga at BOST; two committees were set up explaining that the first one which was a Ministerial Committee was to look into the contaminated fuel issue, while the other one which was set up by President Akufo-Addo was tasked to look into the financial aspect of BOST operations.

“The financial issues in BOST were very serious including transactions that are being investigated today for possible prosecution.

"Some of the transactions were done between BOST and the Tema Oil Refinery (TOR). You will remember that we had one managing director for the two companies and it was during that time such questionable transactions took place,” Dr Mohammed Amin revealed this at a Meet the Press series in Accra, last week.

He however could not give details of the ongoing investigations. 

Meanwhile, the Managing Director of the Bulk Oil Storage and Transportation Company (BOST), George Mensah Okley, has disclosed that the controversial contaminated or off-spec products which were sold by his predecessor did not find their way on the market as it was alleged.

It would be recalled that the Chamber of Petroleum Consumers (COPEC), during the latter part of 2018, alleged that some 600,000 litres of contaminated fuel at Zup Oil had disappeared.

Executive Director of COPEC Mr. Duncan Amoah, in a tirade of attack on BOST, alleged that the products had been brought onto the market and cautioned Ghanaians to be mindful of the fuel they buy.

BOST was rife in the news in June 2017 for causing the country to lose some GHc7 million in revenue for allegedly selling some five million litres of contaminated fuel at a cheap price to some two unlicensed companies [at the time] namely, Movenpinaa and Zup Oil, set up days before the sale.

The National Petroleum Authority (NPA) confirmed that the two companies were not licensed.

There were calls for the then BOST MD, Alfred Obeng Boateng, to be interdicted. However, he was cleared for no wrongdoing by the Ministry of Energy.

Fast forward to 2018, the Chamber of Petroleum Consumers (COPEC), again, accused the then MD, Alfred Obeng Boateng, of financial malfeasance.

COPEC, in April 2018, claimed Ghana lost about GHc23 million in revenue when 1.8 million barrels of crude oil was sold at a discount to an unlicensed company.
Alfred Obeng Boateng slammed the accusations, describing them as baseless. Nonetheless, COPEC petitioned the Special Prosecutor to investigate the allegations.

Mr. Obeng was subsequently sacked by the President and named George Mensah Oakley as the new MD.

Responding to a question posed to him at the press encounter, the Managing Director of BOST refuted the claims that the off-spec products were sold onto the market.

According to him, a committee that was chaired by the CEO of Chamber of Bulk Oil Distribution Companies (CBOD), Senyo Hosi, to investigate the issue established the fact that the products were not sold onto the market.

“The off-spec products were not sold onto the market as it was reported,” he stressed.

He stated that the committee recommended that the products be delivered to the Tema Oil Refinery (TOR) to be refined.


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