The Millennium Development Authority (MiDA) has stated that Al Koot, Qatar-based insurance & reinsurance company, duly notarised the Guarantees provided by Power Distribution Service in accordance with Qatari law verifying their authenticity.
It said in order to ensure the enforceability of the Guarantees, MiDA insisted on having the Guarantees notarised, which was duly done.
MiDA followed diligence procedures
In a statement dated August 8, 2019 reacting to recent publications on the Electricity Company of Ghana (ECG) Private Sector Participation (PSP), MiDA stated that throughout the transaction, it followed all the necessary due diligence procedures at all times to ensure that the interest of Ghana was duly protected.
MiDA welcomed investigations
MiDA welcomed investigations into issues surrounding the Guarantees, and advised the public to be circumspect in drawing conclusions not supported by facts and evidence while investigations are ongoing.
Challenges to acquiring Guarantees
A key element for the transaction was the Public Utility and Regulatory Commission’s (PURC) Major Tariff Review.
According to MiDA, PDS argued that PURC had been unable to review tariffs, and that at prevailing tariffs, its projected losses were too significant to enable it to arrange a project financed letter of credit facility, which would have enabled it to issue letters of credit as the Payment Securities as envisioned by the Transaction Agreements.
PDS proposed Payment Securities
“Through CalBank, PDS, therefore, proposed to provide Payment Securities issued by insurance companies, with local insurance companies taking the lead as is required by Ghanaian law, and reinsured by one or more re-insurers.”
Why Demand Guarantee structure was approved
“After several iterations and meetings among CalBank, Donewell (the local insurance company), PDS, the joint CP Committees, the MiDA Board and government, a Demand Guarantee structure was approved.
“The approval also took into account the need to meet the final transfer deadline date of March 1, 2019 communicated to GoG by Millennium Challenge Corporation (MCC),” it noted.
MiDA explained that the issued Demand Guarantees were accepted by ECG, Ministry of Finance, and the Office of the Attorney-General and Ministry of Justice before the Transfer Date of March 1, 2019.
“It is worthy to note that each step of the transaction process prior to the handover of assets to PDS required in-depth reviews of various pertinent issues, including submitted documents.”
Processes ECG should follow to verify the authenticity Demand Guarantees
“ECG and GoG’s advisors, the International Finance Corporation (IFC) and Hunton Andrews Kurth of the USA, also discussed, prior to the Transfer Date, the process that ECG, as the direct beneficiary of the Demand Guarantees, should follow in order to verify the authenticity of the signatures on the Demand Guarantees prior to the Transfer Date.
“MiDA also played various roles aimed at authenticating the Demand Guarantees,” it noted.
Uniform rules for Demand Guarantees
MiDA explained that to ensure that ECG and the Government of Ghana had the requisite legal protection for the guarantees, the Guarantees were governed by international rules stipulated in the Uniform Rules for Demand Guarantees.
Guarantee is irrevocable on issue
“These rules provide several layers of legal protections for ECG, including the fact that the Guarantee is deemed to have been issued and effective when it leaves the control of the Guarantor; that the Guarantee is irrevocable on issue, even if this is not stipulated on the Guarantee; and that the Advising Party (in this case Cal Bank) represents and warrants the authenticity of the signatures of the Issuer.
“Therefore, as soon as the Guarantee was issued to ECG, the Guarantee became an irrevocable legal instrument,” it added.
Additional layer of protection
MiDA said that despite the fact that the Guarantee was governed by the Uniform Rules for Demand Guarantees, an additional layer of protection was provided by the inclusion of a legal cut–through provision granting ECG access to Al Koot directly.
“Essentially, what this means is that ECG ordinarily would only have had recourse to Donewell, who will in turn have recourse to their re-insurer. However, in this instance, ECG could make claims directly to Al Koot,” it said.
MiDA said it is important to note that in international transactions of this nature, the parties are required to carry out their respective due diligence on the various aspects of the transaction.
“Due to the cost of the Guarantees and the time within which transfer usually occurs, it is industry practice and typical for Guarantees to be issued on the Date of Transfer or very close to the Transfer Date, making it impossible to carry out extensive due diligence on Guarantees received.
“The presumption in law is that a Guarantee which is tendered is valid.
“This is based on the principle in law that the Parties are acting at all times in good faith,” it said.
ECG wrote to Al Koot to verify Guarantees on February 28
In the instance of the ECG Concession, MiDA said the Guarantees were received at approximately 4pm on February 26, 2019, and on February 28, ECG wrote to Al Koot to verify the validity of the Guarantees.
It said this process commenced prior to the Transfer Date, not because there was any indication of any problem with the execution of the Demand Guarantees, but simply because it is the normal process in transactions of this nature.
Conditions Precedent (CP) Committee
The Transaction Agreements as executed by the parties and approved by Parliament had 45 Conditions Precedent to the Transfer Date.
Conditions Precedent converted to Conditions Subsequent
MiDA said PDS, ECG and Ghana had 180 days from July 3, 2018 (i.e. December 30, 2018) to satisfy the Conditions Precedent (CP), or otherwise waive or covert the CPs to Conditions Subsequent.
To ensure that the parties worked to meet this deadline, the CP Committee was set up by the Government of Ghana.
The Ghana CP Committee was inaugurated by the Vice-President on July 30, 2018.
The 21-member committee was drawn from the Office of the Attorney-General and Ministry of Justice, Ministry of Finance, Ministry of Energy, Energy Commission, PURC, and ECG.
MiDA as co-ordinating unit for CP Committee
MiDA’s said its role on the committee is that of a co-ordinating unit, aggregating information, providing advice to government and facilitating the timely execution of activities by the parties to the Transaction Agreements.
The Ghana Conditions Precedent Committee has since the Transfer Date been converted into the Conditions Subsequent Committee.
December 30, 2018 Transfer Date not met
By December 18, 2018, it was clear that the parties would not meet the Transfer Date deadline of December 30, 2018.
Deadline extended to February 1, 2019
The parties, therefore, agreed to extend the deadline to February 1, 2019. However, by January 30, 2019, it became evident that the parties would again miss the new deadline.
Conditions Precedent not satisfied
According to MiDA, the major CPs that remained unsatisfied included tariffs set in accordance with the PURC Rate Setting Guidelines, List of Portfolio Power Purchase Agreements, BSA Payment Security, Lease Payment Security, and Transfer Date Moveable Property Price.
MiDA singled out BSA Payment Security and Lease Payment Security
Although the above major CPs all had grave impact on the transaction, MiDA singled out the BSA Payment Security and the Lease Payment Security, and recommended to government that the two CPs should not be converted to Conditions Subsequent.
“In other words, MiDA recommended that the Transfer Date should be postponed once again until these key documents were submitted,” it said.
March 1, 2019 new deadline
A new deadline of March 1, 2019 was approved by the MiDA Board and the stakeholders.
In allowing the extension of time, the parties agreed that it was in the best interest of Ghana that the Transfer Date was delayed by one month to ensure that PDS submitted compliant securities prior to the Transfer Date.
Source: The Finder