CABINET MEMORANDUM

SUBMITTED BY THE MINISTER FOR FINANCE AND ECONOMIC PLANNING

TITLE: US$3.0 BILLION TERM LOAN FACILITY BETWEEN THE REPUBLIC OF GHANA AND THE CHINA DEVELOPMENT BANK (CDB) TO FINANCE INFRASTRUCTURE DEVELOPMENT PROJECTS UNDER THE GHANA SHARED GROWTH AND DEVELOPMENT AGENDA (GSGDA)

JUNE 2011

1.

Cabinet Decision Requested

1.1 Colleague Cabinet members are respectfully requested to consider and approve a US$3.0 billion Term Loan Facility between the Republic of Ghana (represented by the Ministry of Finance and Economic Planning [MOFEP]) and the China Development Bank (CDB) to finance infrastructure development projects under the Ghana Shared Growth and Development Agenda (GSGDA). 1.2 Colleagues are also being respectfully requested to approve the full or partial use of the Annual Budget Funding Amount (ABFA) under the Petroleum Revenue Management Act, 2011 (Act 815) to support repayment of the Facility, under an Escrow mechanism agreed with the Chinese authorities. Furthermore, colleagues are requested to a proposal to on-lend the financing resources provided under the Facility to the implementing agencies - with a view to improving government fiscal management and setting up a revolving fund for further infrastructure development. 1.3 If approved, the proposed Master Facility Agreement (MFA) to be signed between the CDB and the Government provides that the US$3.0 billion Facility should be disbursed in two (2) tranches US$ 1.5 billion each over a period of six (6) years. The draft MFA is attached to this Cabinet Memorandum for the necessary approval and, subsequently, ratification by Parliament. 2. Background Information

2.1 In September 20, 2010, during the State Visit to China by H.E. President J.E.A Mills, at the invitation of H. E. President Hu Jintao of the Peoples Republic of China, a Framework Agreement for CDBs Comprehensive Project Finance Facility for Ghana was signed to extend the coverage of bilateral economic cooperation to the mobilization of financing for public private partnerships. The goal is to enhance the efficiency and effectiveness of the oil and gas sector operations, value-adding industrial minerals processing ventures, and agro-industrial ventures. 2.2 In April 2011, following two rounds of discussions with CDB in Beijing (January 2011) and Accra (February 2011), MOFEP and CDB signed the Agreed Term Sheet which formed the substantive basis for the draft MFA. Cabinet had given approval to the draft Term Sheet to facilitate the

negotiations with CDB in April 2011. After approval, the MFA will be submitted to Parliament for ratification. 2.3 On these occasions, the Presidents Task Force on the SinoGhana Technical and Economic Cooperation Agreements also held talks on a similar Framework Agreement signed with the China Exim Bank in September 2010. During the April 2011 visit, concurrent meetings were held with China Exim on a supplementary loan facility for the Bui Hydroelectric project and also with CDB on a special line of credit for the Development of African SMEs. 3. Scope of Financing and Implementation

3.1 This Master Facility Agreement covers an umbrella Facility amount of US$3 billion under which Subsidiary Project Agreements will be put in place to finance primarily infrastructure expansion and development projects in priority sectors. As explained below under Financing Structure, the umbrella Facility will be disbursed through two (2) windows Tranche A and Tranche B - with specific commitment and disbursements under each the Tranches being determined by the Subsidiary Project Agreements. 3.2 The projects to be financed under Tranche A are summarized below, with more details in Appendix I attached (see also Schedule 7 of the MFA). Component A1: Western Projects Corridor Oil/Gas Sector Infrastructure

a) Early Phase Gas Infrastructure [Offshore Gathering Pipeline; Gas Processing Plant; and Onshore Trunk Pipeline] Projects to be implemented by the newly created Ghana National Gas Company Limited under a design-build turnkey contract (Estimated Amount of US$650 million). b) Tema Oil Refinery Retrofit Project to enable the processing of natural gas liquids (NGLs), to be implemented by the Tema Oil Refinery (TOR) under an EPC Contract (Estimated Amount of US$100 million). c) Deployment of Helicopters and an ICT-based communication platform to enhance security and surveillance of infrastructure in the Western Corridor Oil Enclave, to be coordinated by National

Security Council and Ministry of Defence under direct procurement (Estimated Amount of US$250 million). d) Phase 1 of the Takoradi Oil and Gas Terminal Project, to be sited at Pumpuni, and implemented the Bulk Oil Storage Transport Company Ltd (BOST) under a design-build contract (Estimated Amount of US$200 million). e) Western Corridor Oil Enclave Roads Redevelopment Project to be implemented by the Ghana Highways Authority under an EPC contract (Estimated Amount of US$200 million). Component A2: Special projects a) Special SME Project: A special financial intermediation scheme involving on-lending to Ghanaian SMEs to be implemented by MOFEP under a financial agreement with a selected Ghanaian bank (the project falls under CDBs Special Small Loans Project). b) Accra Metropolitan Intelligent Traffic Management Project to be implemented by the Accra Metropolitan Assembly (AMA) under a design-build contract to be supervised by the Ministry of Roads and Highways. 3.3 The projects to be financed under Tranche B are summarized below, with more details in Appendix II attached (see also Schedule 7 of the MFA). Component B1: Infrastructure Development for Integrated Industrial Minerals Processing Ventures a) Western Railway Line Modernization Project to be implemented by Ghana Railway Development Authority (GRDA) under a designbuild contract (Estimated Amount of US$750 million). b) Takoradi Port Rehabilitation/Retrofit Project to be implemented by the Ghana Ports and Harbours Authority (GPHA) under an EPC contract (Estimated Amount of US$150 million). c) Drilling Rigs and Laboratory (geo-physical, geo-chemical) Equipment and Instrumentation for use by the Ghana Geological

Survey Department (GSD) to enhance national capability to survey industrial mineral deposits. Hardware to be acquired by GSD under direct procurement (Estimated Amount of US$50 million). d) Sekondi Industrial EstateShared Infrastructure and Utility Services Project to be implemented a Free Zone Developer to be licensed by the Ghana Free Zone Board (GFZB) under a BuildOperate-Transfer Contract (Estimated Amount of US$ 100 million). Component B2: Infrastructure Agricultural Modernization Development for Accelerated

a) Accra Plains Irrigation Project (Phase 1: 5000 ha) to be implemented by the Ghana Irrigation Development Authority (GIDA) under a design-build contract (Estimated Amount US$100 million). b) Coastal Fishing Harbours and Landing Sites Project to be implemented by the Ghana Ports and Harbours Authority (GPHA) under a design-build contract (Estimated Amount of US$150-250 million). c) Tema-Akosombo-Buipe Multi-Modal Transportation Project to be implemented by GPHA/Volta Lake Transport Authority (VLTA)/GRDA under design-build contracts (Estimated Amount of US$150-500 million). 4. Justification of Project Financing

4.1 The main thrust of GSGDA is transformation of the national economy for accelerated growth and job creation. The Agenda for Shared Growth and Accelerated Development for a Better Ghana leverages the countrys oil and gas resources and an emerging multi-sector infrastructure platform to anchor industrialization. It aims to convert Ghanas natural resource endowments into value-added products with emphasis on agro-based manufacturing and industrial minerals processing ventures. 4.2 Furthermore, to close the infrastructural gap under the Agenda for Shared Growth and Accelerated Development for a Better Ghana, massive amounts of capital and technological resources must be mobilized and

invested. Accordingly, Governments transformational agenda envisions the forging of bilateral partnerships and/or public-private-partnerships to address the capacity and financing gaps in order to ease the burden on the national budget. 4.3 CDBs Comprehensive Project Finance Facility for Ghana, which is structured as a bilateral partnership is a concrete step towards mobilizing the quantum of financing required to seed investment by public-privatepartnerships to accelerate implementation of following strategic elements of the Agenda for Shared Growth and Accelerated Development for a Better Ghana, nemely: (i) Infrastructural expansion and development, emphasizing core infrastructure required to gather, process, transport and supply indigenous natural gas for electricity generation and industrial heating applications; (ii) Integrated industrial minerals processing ventures, such as the processing of indigenous bauxite into alumina to feed the VALCO aluminium smelter; and (iii) Accelerated agricultural modernization, including large scale irrigated production and agro-processing. 5. Benefits of the Loan and Projects

5.1 The nation will benefit from financing to be provided under Tranche A to ensure the implementation without further delay of the Early Phase Gas Infrastructure Project that is deemed necessary to eliminate the flaring and/or re-injection of natural gas at the Jubilee Field. The project will also facilitate the mobilization of a public-private partnership to expand gas processing capacity to accommodate future gas production from several relative large hydrocarbon discoveries in the Tano Basin, including Sankofa, Tweneboa, Dzata. Also provided for under Tranche A is financing for complementary infrastructure development projects that will comprehensively enhance the surveillance capabilities of statutory bodies that are responsible for assuring the oil and gas industry of security and logistics in the oil enclave. Financing to be provided for under Tranche A will also be applied to special ICT-based technology transfer projects, such as the deployment of the Western Corridor Oil Enclave platform of the proposed Integrated National

Security Communications Enhancement Project, and the proposed AMA Intelligent Traffic Management Project. 5.2 The nation will also benefit from financing to be provided for under Tranche B for the implementation of core infrastructure modernization projects associated with: (i) the establishment of the proposed Sekondi Industrial Estate under the auspices of the Ghana Free Zone Board, anchored by a 2 million tons per year Alumina Refinery; (ii) large scale irrigated farming alongside multi-modal transportation (rail, barge, pontoon) systems in the Volta River Basin, including the proposed Accra Plains Irrigation Project; and (iii) upgrade and modernization of coastal fishing harbours and landing sites. 5.3 The main benefits from the Facility and selected projects include the following: a) Adding value, within a relatively short period, to the nations discovery and gas in order not to repeat the mistakes associated with the exploitation of other natural resources over several centuries, notably minerals. b) Avoiding loss or damage to the Jubilee wells from the possible reinjection or flaring of gas. c) Starting the implementation of projects envisaged under the GSGDA at a very fast paceincluding the selection of projects that can be placed on PRMA/ABFA programs. d) Building critical infrastructure and passing on the benefits of oil and gas discovery, including employment, in the Western region and the nation as a whole. e) Reducing the impact of commercial projects on the public debt through an on-lending program for most of the projectswith a view to rationalizing the use of concessional and non-concessional loan facilities. f) Beginning to put a financing structure in place to accord with Ghanas middle-income status.

6.

Financing Structure

6.1 The Framework Agreement for the CDB Comprehensive Project Finance Facility provides for a US$3 billion Loan Facility for infrastructure development in support of the oil and gas sector, valued-added minerals processing ventures, and agro-industrial projects. The Master Facility Agreement will form the basis for the subsidiary individual facility agreements that will be signed for qualifying projects. 6.2 The agreed financing terms are summarised below: US$3 BILLION

TOTAL FACILITY AMOUNT Tranche A Tenor Grace Period Interest Rate -

US$ 1.5 billion 10 years 3 years 6 months Libor + 2.85% (10 years SWAP 3.326% p.a.) = 6.176% p.a. 0.25% p.a. 1.00% p.a. US$ 1.5 billion 15 years 5 years 6 months Libor + 2.95% (10 years SWAP 3.694% p.a.) = 6.6440% p.a. 0.25% p.a. 1.00% p.a.

Upfront Fees Commitment Fee Tranche B Tenor Grace Period Interest Rate -

Upfront Fees Commitment Fee -

6.3 Government counterpart funding: Government of Ghana is expected to provide 15% counterpart funding. The 15% equity contribution would be paid from the Owner Contribution Account under the Collection Account on pro rata basis. As noted later, it is proposed that this amount is paid from the ABFA to avoid the delays that are associated with disbursements from the consolidated fund. 6.4 Repayment Method: The repayment mechanism under the Master Facility Agreement will be consistent with the Petroleum Revenue

Management Act, 2011 (Act 815) (PRMA), providing for two simultaneous payments, with reasonable lags, comprising: a) 100 per cent flows into the Petroleum Holding Fund at the Bank of Ghana (BOG) from any commercial Off-taker Agreement for the lifting of Ghanaian crude oil and/or petroleum products; and b) multi-month transfers derived from the Annual Budget Funding Amount (ABFA) to a MOFEP Escrow Account to be established offshore for the purpose of servicing the CDB loan and/or meeting GOGs Counterpart Funding commitments (please refer to Appendix III) 6.5 Cash Flow Basis for Commercial Off-take Agreements: In principle, the parties agreed to apply projects cycle cash flow analyses to guide the determination of the schedule and quantities of crude oil to be lifted under any Commercial Off-take Agreement to replenish the Escrow Account arrangement. 6.6 On-Lending and Domestic Escrow Mechanism: As noted above, the Facility will be secured by proceeds into the ABFA under a novel Escrow mechanism that operationalizes the PRMA for future borrowing arrangements. At the same time, however, most of the Projects are selected with a view to securing further repayment of the Facility under a selffinancing and on-lending planto be incorporated in the subsidiary project or separate financing agreementsto mitigate the impact of the entire or substantial Loan amount as pure public debt. Examples of the mechanism being proposed include: a) Revenue from product sales: An estimated amount of revenue or proceeds from the specific (oil or gas) project (e.g., LPG and lean gas sales) can be put in an Escrow account to service the subsidiary onlending facility. b) Off-taker agreements: Institutions such as GRDA can enter into off-taker agreements with users of the facility (e.g., mineral, petroleum or timber entities) to generate revenue to service the on-lent amount. c) Tolls and user fees: The GHA, GPHA and BOST can apply user fees for road, harbour terminal and pipeline trans-shipment

services provided and other incomes (e.g., fees from service points) situated along major highways to service the on-lent amount. 6.7 Alternative Revolving Fund for Infrastructure Development: Alternatively, the repayment amounts will be set aside to create a revolving fund for further infrastructure developments programs under the GSGDA. Under plans being prepared by MOFEP to prepare the country for MiddleIncome status, it is envisaged that such CDB-type non-concessional facilities will be used to finance projects that have substantial positive rates of return to free concessional facilities for social infrastructure projects that often return benefits over relatively longer periods. 7. Conclusion

7.1 Cabinet is respectfully invited to consider, approve and recommend to Parliament for ratification a US$3.00 billion loan facility between the Republic of Ghana and China Development Bank (CDB) in accordance with Article 181 of the 1992 Constitution and sections 3 and 7 of the Loans Act (Act 335), 1970. 7.2 Cabinet is also respectfully invited to approve the use of the ABFA to repay the facility and to further approve the establishment of the relevant domestic on-lending and escrow arrangement to be put in place by MOFEP to accelerate the repayment of the Facility or facilitate the establishment of a revolving fund in the future for infrastructure development.

. HON. DR KWABENA DUFFUOR MINISTER FOR FINANCE AND ECONOMIC PLANNING

APPENDIX I [SCHEDULE 7 OF MFA] Tranche A Projects List

Project Title Project Implementation Approach Design-Build Contract Project Implementing Entity (Art. 14) Ghana National Gas Company Ltd. (Ghana Gas) Supervisory Body (Sector Ministry) Ministry of Energy

1. Western Corridor Gas Infrastructure Project; Early Phase Components [Offshore Gas Pipeline; Gas Processing Plant; Onshore Gas Trunk Pipeline] 2. Western Corridor Gas Infrastructure Project; Refinery Retrofit for NGL Processing 3. Western Corridor Oil and Gas Terminal Project, Pumpuni/ Takoradi 4. Integrated National Security Communications Enhancement Project; Helicopter Surveillance Fleet for Western Corridor Oil Enclave 5. Integrated National Security Communications Enhancement Project; Deployment of ICT Enhanced Surveillance Platform for Western Corridor Oil Enclave 6. Western Corridor Oil Enclave Roads Redevelopment Project 7. Accra Metropolitan Area Intelligent Traffic Management Project

EPC Contract

Tema Oil Refinery Ltd. (TOR)

Ministry of Energy

Design-Build Contract

Bulk Oil Storage and Transportation Company Ltd. (BOST) Ghana Air Force

Ministry of Energy

Direct Procurement (Helicopters)

Ministry of Defence

Design-Build Contract

National Security Council

Ministry of Communications

EPC Contract

Ghana Highways Authority (GHA)

Ministry of Roads and Highways

Design-Build Contract

Accra Metropolitan Assembly (AMA)

Ministry of Roads and Highways

APPENDIX II [SCHEDULE 7 OF MFA] Tranche B Projects List

I. INFRASTRUCTURE DEVELOPMENT FOR INTEGRATED INDUSTRIAL MINERALS PROCESSING VENTURES: Project Project Implementing Entity Implementation (Article 14 of FA) Approach Design-Build Contract EPC Contract Supervisory Body (Sector Ministry)

Project Title

1. Western Railway Line Modernization Project 2. Takoradi Port Rehabilitation/Retrofit Project 4. Drilling Rigs and Laboratory Equipment and Instrumentation Surveys of Industrial Mineral Deposits

Ghana Railway Development Ministry of Transport Authority (GRDA) Ghana Ports and Harbours Authority (GPHA) Ministry of Transport

Direct Procurement

Geological Survey Department Ministry of Lands, (GSD) Naturals Resources and Forestry

3. Sekondi Industrial Estate Build-Operate Shared Infrastructure Transfer Contract and Utility Services Project

Ghana Free Zone Board (GFZB)

Ministry of Trade and Industry

II. INFRASTRUCTURE DEVELOPMENT FOR ACCELERATED AGRICULTURAL MODERNIZATION Project Project Implementing Entity Implementation (Article 14 of FA) Approach Design-Build Contract Design-Build Contract Ghana Irrigation Development Authority (GIDA) Ghana Ports and Harbours Authority (GPHA) Supervisory Body (Sector Ministry) Ministry of Agriculture Ministry of Transport/ Ministry of Agriculture

Project Title

1. Accra Plains Irrigation Project 2. Coastal Fishing Harbours and Landing Sites Project 3. Tema-Akosombo-Buipe Multi-modal Transportation Project

Design-Build Contract

Ghana Ports and Harbours Ministry of Transport Authority (GPHA)/ Volta River Authority (Volta Lake Transport Co. Ltd.) & Ghana Railway Development Authority (GRDA)

The final list of projects to be financed by Tranche B of the Facility shall also be confirmed by agreement after further consideration and discussion between the Borrower and the Lender.