Ghana's Mining royalties deal is a 'State Capture' - Alex Mould
It succeeded in muddying the waters and raises
a number of legal and valuation questions.
Firstly, it raises the important question as
to whether Ghana Govt should be gambling by investing in a Fund, which will be
managed by a Fund Manager with no reported fund management track record. A Fund
with unknown objectives, and backed by a rather questionable amendment to the
MIIF Act that only the Majority in Parliament approved (after a walkout by the
minority), which restricts any government from changing the directors or fund
manager irrespective of non-performance.
One should also question the timing of this
amendment, which has subsequently allowed the SPV, originally set up as Asaase
Royalties, only to be renamed in August when questions surfaced linking it to
the owners of Asaase Radio - Gabby Okyere Darko and the Akuffo-Addo family - to
be constructed as is.
Then there are the legal issues, on which the
Attorney General, on 22nd July 2020, raised seven (7) significant conflicts
between what the transaction advisor wanted done and the laws of Ghana. These
issues, highlighted by the Attorney General, confirmed our worst fears and
suspicions; that this agreement is both unconscionable and illegal.
Surprisingly, a new document surfaced only a
few days ago dated 12th August, 2020, in which the very grave legal concerns
initially raised by the AG, have been miraculously resolved with no change to
any laws.
The real question is why the Minister of
Finance chose an equity-sale route to raise money rather than the more
conventional, tried and tested traditional and secure approach which investment
bankers have used over the years to monetize future flow of assets - in this
case being our Royalties- via a securitization route.
The conventional method, is to set up an SPV
that will be assigned the flows from the Royalties (not sold); the SPV then
issues notes to raise money for the owner of the SPV, ie GoG. Hence, in this
case it is just the future flows of these Royalties that are being securitized.
There is no sale of Ghana Royalties, and all the flows in excess of what is
used to make debt service payments to Note-holders - interest and principal -
return to the consolidated funds of the Government.
On the contrary, this controversial and
unconventional route taken by government in the case of Agyapa is highly
unusual. Here, GoG is selling the Royalties from 16 mining agreements, ad
infinitum, to a SPV company, of which Ghana owns only 51%, and which in turn
uses our Royalties to trade with no
supervision or oversight.
What is the rationale of taking this
unconventional route, whereby Ghana will receive no Royalties into our
consolidated fund until the end date of these mining lease agreements – which
is also unclear and is clouded in ambiguity?
There is absolutely no logical ground for
choosing to raise money by floating shares in a brand new company with no track
record. If Government needs to raise funds using our Royalties, a cheaper and
more transparent way would be to issue notes in the capital markets backed by
the future receivables of Royalties.
The management of the fund is yet another area
where there is clearly a lack of good governance and proper clear-cut
supervision. Investors are attracted to
solid tried and tested fund managers based on their qualifications and
experience. So, this needs to be
seriously looked at as no one will invest in a brand new company unless it’s
being managed by a reputable and well established Fund Manager with great credentials;
well, no-one except maybe friends and family who know what they will be
getting!
Another subject of concern is that of the
price - the value Government (GoG) gets for selling 49% of its share of the
future Royalties. How did they arrive at the price of the share of a Fund that
will be receiving 75.6% of GoG Royalties from identified gold mining lease,
whose specific objectives are to trade or invest in assets?
One would have expected our Investment Banker
Minister to have provided a thorough Net Present Value (NPV) analysis, which
would convincingly show that the rate of return from the upfront payment
received for the sale of GOG’s 49% of the fund, as well as all projected future
profits accrued to GoG from this company Asaase/Agyapa, will exceed the return
we currently earn from receiving 100% of all our Royalties. This certainly
would have helped to clarify many unanswered questions.
The current argument being raised to justify
this sham of a transaction is that we the citizens do not have clarity or
visibility on what our Royalties have been used for. Yet the murkiness of
Agyapa is precisely why there is absolutely no transparency or accountability.
Clearly, another case of bad governance and,
even worse, weak policies and law!
I believe that this fracas could have been
avoided if GoG had, for example, modeled the management of mining sector
revenue similar to that of the petroleum sector's PRMA- in a transparent and
conventional manner - even though PRMA has it’s own challenges, which is
another topic for discussion on another fine day.
Lastly, I am appalled by the lack of
independence of our Legislative arm from the Executive, as evidenced by
repeated blatant State Capture schemes from the President’s Office being rubber
stamped by Parliament.
Fellow citizens, this deal raises more
questions than answers, as there are many crucial issues that require immediate
responses clarifying the grey areas.
Ghanaians deserve answers now
Signed
Alex Kofi-Mensah Mould
30/08/2020
0 comments: