Information Minister, Kojo Oppong Nkrumah, has revealed the government will probe allegations that Power Distribution Services (PDS) relied significantly on cash flow from the sale of electricity to meet its financial obligations under the concession agreement.
Following the earlier suspension of the concession agreement by the government, the Millennium Development Authority (MiDA) commissioned an audit into allegations that there were “fundamental and material breaches of PDS’s obligation in the provision of Payment Securities (Demand Guarantees) for the transaction which have been discovered upon further due diligence.”
FTI, the firm commissioned by MiDA to look into the allegation, indicated that out of the $12.25 million raised as Demand Guarantees for the payment securities, only $1 million dollars (8%) was funded by an equity contribution by a PDS shareholder.
The rest of the $11.25 million, according to the FTI report, was paid using money paid by ECG customers.
“$7 million (57%) was funded by a loan that was advanced by Cal Bank to another PDS shareholder. This loan was repaid from operating cash flows generated by PDS after the transfer date. The balance of $4.25 million (35%) was also paid directly from operating cash flows generated by PDS after the transfer date,” the FTI report said.
The FTI finding suggests PDS did not have the required financial capacity to take over the estimated $20 billion total assets of the state-owned Electricity Company of Ghana (ECG), the power distributor for the country’s southern sector.
Although the controversial deal has since been terminated, the government has said that the allegations will still be probed.
“The probe if it does establish that this indeed has transpired I am sure will come with its own consequences,” Mr Oppong Nkrumah said Wednesday on Joy FM’s Top Story.
He added, “my understanding is that government intends to examine those parts of the FTI report, which are also in my understanding corroborated by a CID [Criminal Investigations Department] report that part of the premium may have been funded by receivables from ECG.”
He also revealed that the CID has been part of a Government of Ghana enquiry into some of the allegations in the FTI report.
In the Facebook link below, the Minister speaks to Evans Mensah on Top Story.
The PDS deal: A summary
On July 24, 2018, Parliament approved the concession agreement between the government and consortium led by the Manila Electric Company (Meralco). Mr Boakye Agyarko said, the shareholding structure of the successful consortium was constituted as follows: Manila Electric (Meralco) of The Philippines, 30 per cent; Aenergia SA (Angola), 19 per cent; Santa Baron Ventures Ghana, 13 per cent; TG Energy Solution Ghana, 18 per cent; GTS Engineering Ghana Limited, 10 per cent, and TBK Ghana Limited, 10 per cent. These companies formed a consortium known as Power Distribution Service (PDS).
Following this, the Minister revealed that, “By January 25, 2019, all parties must fulfill all their conditions precedent to transferring the operations and February 1, 2019, is the expected transfer date when the concessionaire takes over operations of ECG.” But things didn’t appear to go as smooth. In order to meet the deadline for the take-off of the agreement, the government changed some of the 45 condition precedents to condition subsequent. One of those condition precedents converted into a condition subsequent was a demand guarantee, according to Boakye Agyarko’s successor, John Peter Amewu. The purpose of a demand guarantees is to ensure that whenever the concessionaire fails to honour its financial obligations, ECG can draw from the funds lodged with an insurer by the private company. This demand notice is the subject of controversy and basis on which government suspended the agreement with PDS. The government claimed that the demand guarantees submitted by PDS were tainted by fraud.
John Peter Amewu is the incumbent Energy Minister
In a letter dated 21 February 2019, Cal bank wrote to the Millennium Development Authority notifying them of receipt of an amount of 8 million dollars as a deposit towards the payment of the fees and charges for the issuance of the demand guarantees for a total value of 350 million dollars. Then in May, the final installment of 4.25 million dollars was also paid from the PDS account at Cal bank. Government, however, suspended the PDS concession agreement because of suspicion that the guarantees were fake.
The information available to Joy News indicates that once Cal Bank received the payment from PDS it worked with local insurance firm, Donewell Insurance, to finance the deal. Donewell also engaged Jordanian broker, Jo Australia Reinsurance brokers who were tasked to facilitate the required payments for the acquisition of the final demand guarantees from Qatar-based insurance firm, Al Koot.
On June 24, 2019, ECG wrote to the reinsurance company Al Koot to verify the demand guarantees and ascertain the status of the issuer of the guarantees who was identified as Yahya Al-Nouri. Al Koot on July 16, 2019 through its Chief Officer, General Insurance, Mr. Osman Hag Musa, wrote to ECG alerting them to a situation of fraud in which the initial guarantee submitted was allegedly forged by an employee of the company(Yahya Al-Nouri) who lacked the capacity to issue such a guarantee.
Curiously, it emerged Al Koot had in a subsequent letter dated Wednesday 31 July, 2019, written to the insurance brokers (Jo Australia) notifying them of a formal cancellation of the insurance cover they guaranteed. They explained in this letter that they were cancelling the cover because the broker had not paid the premium.
The confusion throws up a number of questions and contradictions.
Where is the $12.2 million PDS paid through Cal Bank to secure the insurance cover?
And why is Al Koot now acknowledging that it had previously agreed to provide the insurance guarantee when it had 15 days earlier written to ECG alleging the cover was procured by fraud?
Information Minister Kojo Oppong Nkrumah said a Ghanaian team of investigators is due to travel to Qatar to probe the issues further. He contradicted fellow Minister, Peter Amewu’s statement that the government, in its bid to avoid missing the deadline for the commencement of the concession agreement, converted the demand guarantee from a condition precedent to a condition subsequent. Mr Amewu was answering criticisms that the government had failed to do due diligence resulting in the reliance on a suspicious demand notice.
He said the government found out through due diligence after the retail business was handed over to PDS in March this year. If the government waited to do the due diligence before the takeover, it may have missed the deadline. But the Information Minister said, “For the avoidance of doubt, the provision of the payment guarantee has always been a condition precedent and was never changed to a condition subsequent as being speculated by some persons.”
Procurement Specialist Kwabena Atta Bedu has argued forcefully the government’s decision is strange to the extent even if the officer at Al Koot that signed the documents exceeded his power, that breach could easily have been remedied. He does not understand why the government took the rather extreme step of suspending the agreement simply because of an alleged breach which could be fixed.