PDS 'Milks' ECG To Pay $12m Demand Guarantee
It appears the new managers of the Electricity Company of Ghana's (ECG) assets‒ Power Distribution Services (PDS) Limited‒ is relying heavily on cash flow from the sale of electricity to meet its financial obligations under the power concession agreement.
According to a consulting firm, FTI Consulting, which was engaged to probe the recent brouhaha over the botched PDS demand guarantees submitted for the management of ECG assets under the Millennium Development Authority (MiDA) concessionaire agreement, PDS lacks adequate capital to undertake US$350million investment for the protection of the ECG assets.
“PDS is not having a certain level of capital required for the issuance of a cash-backed letters of credit, which was an option offered by some financial institutions that PDS had approached. We were informed during interviews that PDS was offered the opportunity to secure cash-backed letters of credit if it could deposit US$350 million in its bank account,” FTI stated in its report.
In lieu of that, PDS engaged its bankers (Cal Bank) to facilitate the insurance cover as payment security for the Lease Assignment Agreement (LAA) and Bulk Supply Agreement (BSA) before the transfer of ECG assets.
Cal Bank therefore contacted its business partner, Donewell Insurance, which also engaged Jordanian insurance brokers, Jo Australia Reinsurance Brokers, to seal a reinsurance deal with Al-Koot, a Qatar-based insurance firm.
However, the whole transaction could not stand because the Qatar based insurance company has ruled out capacity to underwrite the US$350million insurance cover, throwing the PDS takeover of ECG assets into disarray.
Ghanaians are awaiting pronouncements from the government, after it was established that the reinsurance deal with Al-Koot did not go through, having recognised that US$12.25millon Demand Guarantees posted by PDS was not valid
The FTI report quoted that PDS could not secure the Demand Guarantees or Letters of Credit as per the requirements of the LAA and the BSA from a bank because of not having a certain level of capital required for the issuance of cash-backed payment security.
The FTI, commissioned by MiDA to look into the confusion generated by the suspension of the PDS deal because of lack of financial security, in its report indicated that of the US$12.25 million raised for the Demand Guarantees as charged by Cal Bank to PDS as fees for raising the payment securities, only one million dollars (8%) was funded by an equity contribution by a PDS shareholder. The rest of the money totalling US$11.25million was paid using money paid by ECG customers.
The report said, “US$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 US$4.25 million (35%) was also paid directly from operating cash flows generated by PDS after the transfer date.”
This indicates that only one million dollars had been paid by the new mangers of ECG's GH¢22 billion assets to take control of power distribution in the ECG enclave, raising questions about the financial capability of the new operators.
Meralco, the Filipino, 49 per cent owner of PDS, was not mentioned as having contributed a dime in the transaction even though the company has been given a mouthwatering consulting job by PDS.
The report also established the sharing formula of the US$12.25 million, with seven million dollars paid to Donewell for the cost of the insurance premium, while US$5.25 million was retained by Cal Bank.
“The total insurance premium of seven million dollars was posted to Donewell's Cal Bank account on February 27, 2019. As reported by Donewell, a portion of this amount was distributed to four local Ghanaian reinsurers and Jo Australia (the reinsurance broker),” the report stated, without mentioning whether Al-Koot got its share of the proceeds.
The consultant ruled out underhand dealings in its investigations.
“We have not identified any information to suggest that either PDS, Cal Bank, and/or Donewell committed or conspired to commit fraud or other malfeasance in relation to the Demand Guarantees.”
A delegation sent by government to Qatar to authenticate the US$12.25millon Demand Guarantees posted by PDS indicated in its report that the guarantee was not valid as it was fraudulently procured by Yahaya Al-Nouri, a staff of Al Koot Insurance and Reinsurance Company in Doha.
PDS, a local and foreign consortium, in March 2019 took over power distribution functions of ECG under a concession agreement which ran into trouble four months into the agreement over insurance security.
Government of Ghana in July suspended the transaction following the “detection of fundamental and material breaches of PDS' obligation in the provision of Payment Securities (Demand Guarantees) for the transaction which has been discovered upon further due diligence.”
According to the delegation, there was no valid guarantee issued by Al Koot in the name of PDS as the documents purported to be coming from the Qatari insurance company was forged by a staff, Yahaya Al-Nouri, who until recently was manager of reinsurance.
Al-Koot has indicated that the company was not in a capacity to underwrite PDS guarantee valued at US$350million when its total net worth is about US$170million.
The company explained that Al-Nouri's capacity to commit the company to any deal does not exceed US$15,000 as a manager and can only recommend a similar amount for approval.