Ghana: Government terminates PDS contract with ECG
The Government of Ghana has terminated the Concession Agreement with the Power Distribution Services (PDS) Limited over the take-over of the assets of the Electricity Company of Ghana (ECG) for distribution of electricity in the southern sector of the country.
The move was necessitated by a forensic audit conducted by the Millennium Challenge Corporation (MCC) and Government of Ghana’s investigations into the issuance of Demand Guarantees for the Concession Transaction, which revealed that the Payment Security for the Transaction was invalid.
The investigations re-affirmed the earlier report that, there was no approval by Competent Signatories to the Demand Guarantees issued by Al-Koot in Qatar, therefore, the Transaction lacked the required authorisation and approval of the Company.
More so Al-Koot has an underwriting policy and guidelines which required the approval of the Central Bank of Qatar, but no such approval was granted by the Central Bank of Qatar.
In view of that, President Nana Akufo-Addo and Chief Executive Officer of the MCC, Mr Caircross agreed that the existing Concession between PDS and ECG, which involved the transfer of the latter’s assets worth three billion dollars should be discontinued, while a suitable replacement was sought before December 31,2019.
A statement issued and signed by Mr Ken Ofori-Atta, the Minister of Finance, in Accra, said the Government of Ghana remained strongly committed to the Ghana Power Compact and the Private Sector Participation (PSP) of the country’s energy sector.
“We also wish to reiterate the position communicated to the CEO of the MCC by the President of Ghana during their meeting on the sidelines of the United Nations General Assembly in New York on September 23rd to the effect that, the current concession had to be terminated in view of the facts uncovered regarding the failure by PDS to satisfy conditions precedent under the relevant transaction documents.
“However, every effort would be employed to ensure a suitable replacement within the relevant timelines in order to complete the Compact,” it said.
It said the Government’s decision to terminate the PDS Concessions was based on two key points, thus the meeting between the CEO of MCC and President Akufo-Addo on September 23, in New York, USA, produced an understanding that the existing concession would be discontinued and a concession restoration and restructuring plan would be executed within existing timelines before December 31, 2019.
Secondly, the facts uncovered by the forensic audit justified the discontinuation of the current concession, but should not diminish Government’s commitment to private sector participation in the energy sector.
Investigations also revealed that the local shareholders of the PDS concession funded the $11.5 million of the $12.5 million payments it made to procure the Demand Guarantees using funds taken from operating accounts.
The statement further stated that the actual details of the purported insurance cover for the Transaction furnished by PDS showed gross deception and unprofessional conduct on the part of PDS.
Therefore, the termination of the Transaction Agreement between ECG and PDS was carried out in accordance with Article 2.6 and 5.1 of the Programme Implementation. Agreement (PIA).
The Millennium Challenge Compact was signed on 4th August, 2014 between the Millennium Challenge Corporation (MCC) acting on behalf of the Government of the United States and the Government of Ghana acting through the Minister for Finance, which had the object of achieving lasting economic growth and reducing poverty through increased private sector investment.
The Programme Implementation Agreement (PIA) was entered into by the parties to the Compact, which provided further details on the implementation of the Compact.
There was also a Lease and Assignment Agreement (LAA) and the Bulk Supply Agreement (BSA) entered into between the Electricity Company of Ghana (ECG) and Power Distribution Services Ghana Limited (PDS) and the Government Support Agreement (GSA) entered into between the Republic of Ghana and PDS.
The private sector arrangement was to introduce a Concessionaire into the power distribution sector, who would inject private capital into the operations of the ECG.
The two key advisors to the managers of the Compact were the Millennium Development Authority (MiDA), the International Finance Corporation (IFC) and Hunton and Williams, an international law firm based in New York.
Through an international competitive tender, Meralco of the Philippines was selected as the concessionaire.
In order to satisfy the local content requirement under the transaction, a special purpose vehicle, Power Distribution Services (PDS), was incorporated in Ghana to be the operator.
The PDS has shareholding in, Meralco Philippines with 30 per cent shares, AEnergia S.A (Angola)-19 per cent shares, GTS Engineering Services of Ghana, Santa Baron Ventures of Ghana and TG Energy of Ghana- together have 51 per cent shares.
In consequence thereof, the Transaction Agreements were executed with over forty Conditions Precedent, five of them considered critical and essential, were required to be fulfilled by PDS under the LAA and BSA.
Two of the essential and critical Conditions Precedent were the provision of a BSA Payment Security and an LAA Payment Security (Conditions Precedent 24 and 31 respectively).
They were preconditions to the occurrence of the Transfer Date and the exercise of the rights and obligations of the parties in terms of the Transaction Agreements, constituted security for PDS’ obligations under the BSA and LAA.
Conditions Precedent 24 and 31 required PDS to furnish to ECG payment securities in the form of either a Demand Guarantee or a Letter of Credit issued by a Qualified Bank.
Owing to difficulties experienced with raising a bank guarantee, PDS formally requested MiDA to accept a demand guarantee issued by an A-rated insurance company. Upon the advice of IFC and Hunton and Williams, the MiDA Board accepted the request of PDS.
Consequently, PDS submitted the Payment Securities in the form of Demand Guarantees issued by a Qatari insurance firm, Al Koot Insurance and Reinsurance (Al Koot) on 27th February, 2019, two days before the Transfer Date of 1st March, 2019.
Following failure to receive satisfactory confirmation by IFC and Hutton and Williams of whether adequate due diligence was performed on the validity of the Demand Guarantees purportedly issued by Al Koot, by a letter dated 28th February, 2019.
ECG took the initiative to ascertain from Al Koot itself proof of or confirmation of the due authorisation for the execution of the Demand Guarantees by that firm.
ECG also requested Al Koot to confirm compliance with relevant laws and regulations to which the Demand Guarantees would be subject, in relation to the substantial exposure in the total sum of $350 million that Al Koot undertook in favour of ECG.
ECG did not receive the requested confirmation and proof of due authorisation from Al Koot by the Transfer Date.
Therefore, out of a desire to ensure the occurrence of the Transfer, ECG was compelled to confirm acceptance of the form of the Demand Guarantees, with an expectation that upon receipt of satisfactory reply from Al Koot, would subsequently confirm the Demand Guarantees in substance and in form.
By a letter dated 13th March, 2019, forwarded to ECG by MiDA, Al Koot purported to confirm the Demand Guarantees.
Dissatisfied with the purported confirmation by Al Koot, ECG on 24th June, 2019 through MiDA, requested for relevant documents proving due authorisation by Al Koot to the alleged signatory to the Demand Guarantees, Yahaya Al Nouri.
However, on 24th June, 2019, ECG received a letter dated 16th June, 2019 from Al Koot in which it made among others, assertions such as: Al Koot is not authorised by its constitutional documents to underwrite counter party and trade risk, and the guarantees purportedly issued in respect of the transaction is not an approved product line.
Furthermore, the Demand Guarantees were not executed by authorised signatories of Al Koot.
In a letter dated 13th March, 2019 forwarded by MiDA to ECG purporting to confirm the issuance of the Demand Guarantees was part of the misrepresentation in respect of the purported issuance of Demand Guarantees to secure the transfer of assets of ECG to PDS, as the signature on the letter was forged.
Al Koot denied the existence of the Guarantees; Al Koot refused to accept any present or future legal obligations in connection with the purported Guarantees; Criminal action will be instituted by Al Koot against personnel and all reinsurers who might have aided and abetted the fraudulent issuance of the unlawful Guarantees.
Having regard to the fact that in terms of Articles 2.6 and 3.2(l) of the LAA, the existence of a valid Payment Security is a condition precedent to the occurrence of the Transfer Date and the failure of PDS to deliver and maintain the Payment Securities constituted a Company Event of Default, ECG by a letter dated 30th July, 2019, suspended the LAA and BSA.
In consequence thereof, by a letter dated 31st July, 2019, the Ministry of Finance on behalf of the Government of Ghana suspended the GSA, pending the completion of a full inquiry into the circumstances of the letter written by Al Koot. A formal complaint was accordingly lodged with the Criminal Investigation Division (CID) of the Ghana Police Service.
Towards establishing the primary fact of whether a valid Demand Guarantee was provided by
PDS as a condition for the occurrence of the Transfer of assets of ECG to PDS, the Government of Ghana mandated her mission in Qatar to visit the official premises of Al Koot in Doha. Al Koot, at the meeting with officers of the Ghana Embassy in Qatar held on 30th July, 2019, affirmed the content of their letter of 30th July, 2019.
Consequently, Cabinet on 1st August, 2019, constituted a team led by the Minister for Interior to visit Qatar on a fact-finding mission.
During the visit to Qatar, Al Koot, among others, confirmed that: The first time the matter of the purported issuance of demand guarantees as security for the LAA and BSA came to Al Koot’s attention was when it received the first letter from the Electricity Company of Ghana (ECG) dated 28th February, 2019.
The company had no previous record of such a transaction. No application for such a facility was received by the company from any entity.
The letter dated 13th March, 2019 in purported reply to the ECG letter of 28th February, 2019, was a fabrication and part of the fraud perpetrated by the proponents of the false Demand Guarantees.
The staff of Al Koot who forged the signature on the letter purportedly emanating from Al Koot dated 13th March, 2019, Yahaya Al-Nouri had since 21st July, 2019, been suspended without pay.
It was not possible for the demand guarantees to have been issued by the company for Al Koot does not have the capacity to engage in such a transaction based on their net worth, the company is not authorised to issue demand guarantees and does not have the mandate to engage in counter party and trade risk contracts which involve the issuance of demand guarantees.
That the alleged signatory to the Demand Guarantee, Yahaya Al-Nouri by himself did not have capacity to commit the company financially in any transaction of big value. As Manager of Reinsurance, Al-Nouri had capacity to bind the company to the tune of only the equivalent of about $15,000.
There was no approval by competent signatories or by the Board. The guarantees were witnessed by a junior officer of the company who were working under Al-Nouri for only a month and the transactions, accordingly, lacked due authorisation and approval of the company.
It said Al Koot had an underwriting policy and guidelines, which requires the approval of the Central Bank of Qatar and no approval was granted by the Central Bank of Qatar.
The Government of Ghana dispatched a delegation led by the Minister for Foreign Affairs and Regional Integration to Washington to meet the MCC to discuss matters affecting the Transaction and the Compact and their findings and proposed next steps.
The MCC expressed the intention to conduct an independent forensic audit and emphasised on due process as the only permissible way to terminate the transaction with PDS.
The auditors chosen by MiDA to undertake the forensic audit requested by the MCC, completed its exercise and presented a Summary of Findings Report, which was prepared after a study of the documentation given to the Ghanaian delegation.
It confirmed the position of Al Koot on the purported Demand Guarantees as having been issued without due authorisation and in excess of the mandate of the firm.
It said Based on a review of Section 8 of Al Koot’s Delegation of Authority, Al Nouri did not have authority to bind Al Koot in relation to the Demand Guarantees and Al Koot’s Underwriting Guidelines,would avoid coverage of guarantees and product warranty and quality.
However, as noted in a legal analysis by a Qatari law firm, K&L of a “Cassation Court” judgment, the doctrine of apparent authority could apply where an employee submitted a purchase order with company stamps in circumstances, where she indicated that she represented her employer.
The same Qatari law firm, K&L indicated that it was difficult to determine whether or not Al Nouri had apparent/due authority to bind Al Koot and there was no information available to FTI to suggest that PDS, Cal Bank or Donewell and/or personnel from MiDA committed fraud in relation to the Demand Guarantees.
On the strength of all the information gathered about the purported Demand Guarantees provided by PDS as security for the transfer, the Government of Ghana is of the firm opinion that there is no valid Payment Security.