Ghana on hook for billion-dollar China deal if bauxite plan stalls

Ghana will have to use alternative sources to pay back China’s Sinohydro Corp. for USD2 billion in infrastructure if the revenue from an earmarked bauxite project is insufficient to meet installments.

Sinohydro agreed to a deal with the West African nation in May to build bridges, roads, hospitals and housing as part of the government of President Nana Akufo-Addo’s plans to lift economic growth. In return, Ghana undertook to repay the Beijing-based company with the proceeds of refined bauxite sales from a plant that is due to be commissioned and completed within three years.

While the construction of the projects will start right away, payments are deferred for the three years and will be made in equal installments over the deal’s remaining 12-year period, according to a copy of the agreement that was signed on May 16.

Where receipts from the refined bauxite are not sufficient for the installments “the government of Ghana shall use other sources for the repayment,” the parties said in the agreement.

Ghana is banking on using its untapped bauxite resources to pay for new infrastructure as the country sees out the final year of an almost $1 billion debt-bailout arrangement with the International Monetary Fund. The country’s public liabilities measured 63.8 percent of gross domestic product at the end of May, compared with 67.3 percent the year before.

The deal between Ghana and Sinohydro is being finalized as African leaders and the government of President Xi Jinping met earlier this month to promote trade between China and the continent that totaled $170 billion in 2017. While Beijing-backed investment has provided African governments with much-needed infrastructure, it has also generated complaints about China’s preference for loans.

Lawmakers in Ghana are expected to debate the Sinohydro agreement later this month for parliamentary approval. MDT/Bloomberg