Citi Business News has gathered that the delay in issuing the Energy Sector bond is due to an inconclusive meeting with the International Monetary Fund on the categorization of the bond.
An earlier statement from the Finance Ministry indicated that, government will issue the 2.5 billion dollar energy sector bond in September this year.
At the last meeting with the IMF, the board of the Fund insisted that the 2.5 billion dollar bond should be issued as sovereign debt. By this, the bond would be deemed as an amount borrowed by the government of Ghana.
However Citi Business News understands that the government economic team made a counter argument against the proposal, explaining that the debt is on the books of State Owned Power companies with strong financial statements that can support the issue of such a bond.
In addition, the Finance Ministry argued that, the cost of the bond may increase if it is captured as a sovereign debt.
The government economic team is currently meeting the IMF board and the subject is expected to be high on the agenda. But as government delays in issuing the bond, what are the effects on banks whose ratio of Non Performing Loans increased due to the debt.
Speaking to Citi Business News, a Deputy Information Minister, Kojo Oppong Nkrumah stated that the deliberations between the government of Ghana and IMF are going on smoothly on how to issue the bond.
“We have gone through a lot of preliminary processes so far, a transaction advisor has been selected. The special purpose vehicle which we will be using for this transaction has also been put together. We are now completing our conversation between the transaction advisor and the various investors who are we expecting to put up the money for this bond as well”
He added that both parties are finding a common ground on the mode to issue the bond.
“The IMF has various proposals on how they should be treated. Sometimes they want to treat it as a memo item, sometimes they want to capture as non tax revenue item, sometimes they want it as a non-tax revenue item, in this particular item, they have a view of how this transaction should be treated.
“We have an alternate view, they have explained to us why they want us to treat it in their way, we have also been explaining to them the reasons for which we don’t want it to be treated as a sovereign instrument and why we prefer a different approach. Between today and tomorrow, we will be having those conversations with the fund and we expect to arrive at a conclusion,” he said.
Mr. Oppong Nkrumah emphasized that Ghana did not require permission from the IMF to issue the bond.
“We actually do not need permission from the fund like it’s being suggested in some quarters that the fund may have blocked it. No , not at all. We don’t even need permission from the fund,” he said.
Meanwhile, the Managing Director of Zenith Bank, Henry Oroh, in August this year, during the Energy Policy Summit, outlined the impact.
“The energy debt has been a major problem for the industry. It’s been there for four years. It’s quite monumental, 2.5 billion dollars is quite big. As long as those debts are there it becomes a drain on liquidity of banks. Our capacity to support the government and the private sector diminish by the fact that those debts remain unpaid,” he told Citi Business News in August during the Energy Policy Summit.
Also, the Volta River Authority (VRA), which bears a greater part of the debt, is also calling for a speedy issue of the bond to save the power generator.
Former Chief Executive Officer and current Board Chairman of the authority, Kweku Awotwi describes the bond as critical.
For the banks, the timely issue of the bond will not only reduce the Non Performing Loan portfolio in the financial sector, but trigger a series of economic activities.