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THE WORLD BANK

PPIAF- SNTA

PPIAF Sub National Development Technical Assistance Program Grant P129833

ASSESSMENT OF THE VIABILITY OF PPPs AND SUB-NATIONAL LENDING IN GHANA


                • Kwasi Bosompen

                • Ricardo Montes Belot

                • Walter Bodden Joya

                • Ana Cristina Mejía de Pereira

March, 2012
THE WORLD BANK

PPIAF - SNTA


ASSESSMENT OF THE VIABILITY OF PPPs AND THE SUB-NATIONAL LENDING IN GHANA




Contents


ASSESSMENT OF THE VIABILITY OF PPPs AND THE SUB-NATIONAL LENDING IN GHANA 2

List of Acronyms 3

1. Introduction 4

2. The Institutional Aspects of Non sovereign lending and Municipal Financing 8

3. The Project Generation Process 14

4. Summary of Contents of the PPP Policy of the Government of Ghana 15

5. Commercial Private Banking System 24

6. Conclusions and Recommendations 28

ANNEX 2 34


List of Acronyms



BOG: Bank of Ghana

CA: Contracting Authority

DAs: District Assemblies

DMTDP: District Medium Term Development Plan

GSGDA 2010- 2013: Ghana Shared Growth and Development Agenda, 2010 – 2013

GOG: Government of Ghana

IFC: International Finance Corporation

IFF: Infrastructure Finance Facility

MDAs: Ministries, Divisions and Agencies

MAs: Metropolitan Assemblies

MMDAs: Metropolitan, Municipal and District Assemblies

MOFEP: Ministry of Finance and Economic Planning

NDPC: National Development Planning Commission

NIP: National Infrastructure Plan

PAU: PPP Advisory Unit

PDF: Project Development Facility

PFA: Project and Financial Analysis Unit

PID: Public Investment Division

PMU: Project Management Unit

PPIAF: Public Private Infrastructure Facility

PPP: Public Private Partnership

SME: Small and Medium Enterprises

SOE: State Owned Company

SPV: Special Purpose Vehicle

SNTA: Sub National Technical Assistance

TDC: Tema Development Corporation

VGS: Viability Gap Scheme

1. Introduction



1.1 Background information

Within its Medium Term Development Policy Framework (DMTDPF) and the Shared Growth and Development Agenda, 2010 – 2013 (GSGDA), the Government of Ghana highlighted the constraints in mobilizing the needed financial and technical resources to meet the rising cost of financing the infrastructure deficit. Hence, it was the objective of the MTDPF to actively promote Public-Private Partnerships (PPP) to address the financing and capacity issues and ease the burden on the budget.


In pursuit of the above in June 2011, the Ghanaian Government issued a policy and it is preparing a law that establishes the criteria and procedures to provide public sector institutions with guidelines in engaging in public-private partnerships (PPPs). The main objective of the policy is to implement infrastructure projects and improve the capacity of services provision.
As a follow up, a World Bank Mission visited Ghana early in 2012 to assess the legal and practical feasibility of an effective participation in PPPs at the sub-national level of the Government (Metropolitan, Municipal and District Assemblies (MMDAs) and SOEs) and the possibility that private commercial banks currently operating in Ghana, can provide non sovereign financing to such PPPs.
The Mission was financed through a generous Sub National Technical Assistance (SNTA) grant. The Sub-National Technical Assistance (SNTA) program was launched in 2007 under the Public Private Infrastructure Facility (PPIAF) and it helps sub-national entities to access market-based finance without sovereign guarantees. The program is aimed to improve the borrowing capacity of local governments and utilities by providing financing for credit ratings, creditworthiness enhancement programs, assistance in the preparation of financing without sovereign guarantees, and for knowledge generation and dissemination.

The objective of the Mission is to produce a summary of the available information on local governments and financial markets in Ghana, and identify potential infrastructure investments that could later be supported directly or indirectly by the International Finance Corporation (IFC) sub-national window, such as with bank guarantees, non sovereign loans, equity or other means. The Mission also reviewed the legal framework for financial operations of SOEs. The report will be shared with all the stakeholders to agree on principle on the best options available and which of the projects could be proposed as a pilot and be supported by additional resources.

Ghana is a lower middle income country that has a recent and impressive economic growth. There has been a rapid urbanization of major cities like Accra, Tema, Sekondi-Takoradi, Kumasi, Cape Coast and Tamale due to a high rural to urban migration and the over concentration of jobs in the main cities and towns. The Government has recognized the evolving challenges of this rapid process of urbanization taking place. The Government has enacted a national policy of decentralization which has been issued recently by the Central Government and supported directly by the National Development Planning Commission as well as with a programmed of budget transfers to the District Assemblies Common Fund (DACF). The challenge of the metropolitan urban centers is then how to develop infrastructure and municipal services that would satisfy the needs of their citizens and would be sustainable both in finding the financial resources for the investment, operations and maintenance of public works.

The decentralization policy (Act 462, 1993) seeks to strengthen local development, with a transparent implementation using composite budgeting, so central government functions can effectively be transferred to a local level. As this policy is supported by major Development Partners with financing toward these very useful policies, the larger metropolitan areas are challenged with urban needs, such as lack of water and sanitation services, public illumination, traffic solutions, development of markets and parking.

Finally, the assessment also look at State Owned Enterprises (SOEs), in which the Government of Ghana is a shareholder, as many of these arrangements remained from the privatization of state owned companies in the last decades and also from newly formed companies. In short, when SOEs have a minority stake from the Government of Ghana, and the company is incorporated and registered as a Ghanaian enterprise, these companies do operate under commercial law and their financial obligations are not required to have a sovereign guarantee.
1.2 The District Assemblies (DAs)

Ghana is divided into a hundred and seventy (170) DAs. The Local Government Act distinguishes DAs by population size, namely Metropolitan Assemblies (MAs) which have more than 250,000 inhabitants; Municipal Assemblies which have more than 95,000 inhabitants; and District Assemblies which have more than 75,000 inhabitants). Of the 170 DAs, six (6) have Metropolitan status (Accra, Tema, Kumasi, Sekondi-Takoradi, Cape Coast and Tamale,) and 24 have municipal status.


The highest political authority in the district is the District Assembly who has deliberative, legislative and executive powers and their main functions include the formulation and execution of plans, programs and strategies for the effective mobilization of the resources necessary for the overall development of the district, and the levying and collection of taxes, rates, duties and fees.
Each District Assembly must have a District Chief Executive (or Mayor) who is appointed by the President with the prior approval of not less than two-thirds majority of members of the Assembly. The Mayors are responsible for the day-to-day performance of the executive and administrative functions of the District Assembly. An Executive Committee of a District Assembly is responsible for the performance of the executive and administrative functions of the District Assembly.
For every District, there is an administrative center (city or town), with satellite communities of urban, semi-urban or rural areas in the surrounds. The Metropolitan Assemblies are almost entirely urban and the Municipal Assemblies are also largely urban although they have substantial rural or semi-rural communities. The District Assemblies are the least urbanized, characterized by few towns or cities and rural communities.
The MMDAs in Ghana have a major problem of several years of under-investment and under-maintenance in basic infrastructure. Private lending for municipal projects in Ghana is almost totally absent, weak, ineffective and it has many constraints. The Mission thus assessed the structure, legal framework and borrowing capacity of the Metropolitan Areas, with an objective to understand the pattern of projects, private sector participation, and involvement and finance mechanisms. Until the issuance of the new decentralization policy, the local governments have not been empowered to initiate projects of significant impact on the quality of life of their population. It is expected that under the new policy framework, local governments acquire the capacity to initiate a process of infrastructure improvements of their cities that will contribute to an orderly expansion of metropolitan areas.

It is important to recognize that law in Ghana imposes some restrictions on the financial management of Local Governments, thus the pressure for the Local Government is how to generate revenue that can be channeled to attend the increasing local needs derived from the urbanization process.




REGION

METROPOLITAN AREA ASSEMBLY

MUNICIPAL ASSEMBLY

DISTRICT ASSEMBLY

Greater Accra

2

6

2

Ashanti

1

6

20

Eastern




6

15

Western

1

2

14

Central

1

6

10

Brong Ahafo




7

15

Volta




3

15

Upper East




2

7

Upper West Region




1

8

Northern Region

1

1

18

TOTAL

6

40

124

Table 1: MMDAs in Ghana by geographical region

Source: Ministry of Local Governments and Rural Development

The DAs in the ten (10) regions of Ghana and their geographical distribution is shown in the Table 1, above. The DAs are body corporate and they have a perpetual succession with a common seal that may be sued in its corporate name. They may acquire and hold movable and immovable property and may dispose of the property and enter into contractual arrangements or any transactions1. The functions of the DAs are as follows:




  • Overall development of the district through the Regional Coordinating Council

  • Present Development Plans to the NDPC for Approval

  • Preparation of budget and District Plans for MOFEP approval

  • Formulate the District Plans and mobilize resources for their implementation

  • Initiate programs for infrastructure, municipal works and services

  • Implement approved projects through joint development


1.3 Municipal Authorities and District Assemblies interviewed
The Mission interviewed and researched the MAs and the TDC below:
1.3.1 Accra Metropolitan Assembly (AMA)
With an estimated population of about 3 million in a built up area of 400 sq. km, the AMA is comprised of 60 members representing eleven (11) Sub-Metropolitan District Councils and a Metropolitan Chief Executive. The latter just like other Metropolitan Executives is nominated by the President and approved by at least two-thirds of the members of the District Assembly. The City of Accra shows a strong urbanization pattern typified by moderate and scattered densification in the inner city core, involving the replacement of residential by commercial users, and uncontrolled and low density peripheral growth. AMA engages communities and NGOs locally identified as the “Private Sector” and development partners in the implementation of small projects such as markets, car parks and garages.
1.3.2 Sekondi-Takoradi Metropolitan Assembly (STMA)

The Sekondi -Takoradi Metropolitan Area occupies the south-eastern part of the Western Region. The population of STMA is estimated at 410,000 covering an area of about 385 sq km. The city is confronted by weak infrastructure and services provision and a rapid pace of urban sprawl. STMA has undertaken joint ventures from the private sector in terms of Corporate Social Responsibility (CSR) programs but not as a business relationship. Example of those projects include an engineered landfill facility at Sofokrom at the cost of GHC$2.536 million; Shippers Roundabout jointly funded by the Assembly, Tullow Oil Company and its Jubilee partners at the cost of GHC$500,000 as well as a slaughterhouse. The Assembly has already signed a Memorandum of Understanding (MOU) with two companies for the construction of the Takoradi market. They also have planned bridges and flyovers to link the central business area to ease vehicular and human traffic.



1.3.3 Tema Development Corporation

Tema Development Corporation (TDC) was set up in 1952 as an endowment of 63 square miles of land for the development of Tema Township. It functions under Legislative Instrument 1468 of 1989. Its functions include: a) To plan, layout and develop the Tema area; b) Construct roads, public building and markets; c) Prepare housing schemes and develop industrial and commercial sites; d) Provide public utilities such as sewerage and street lights; and e) Manage its rental units, the central sewerage system, planning and leasing plots for private and large-scale real estate development. All the land transactions by TDC are on leasehold basis for a period of 60 years with an option to renew for additional years. In case of serviced residential lands and houses, the lease terms differ between Ghanaians (80 years) and Non-Ghanaians (50 years). Land within TDC is usually free of claims and comes with a title which allows for borrowing in the mortgage market and if a housing project is developed by TDC, it usually comes with a warranty of 6 months after completion of the units.


Currently, the TDC has obtained authorization to hire consulting services to review the original master plan that served to guide the city development. The review of the plan and new proposals for changes will take around 12 months.




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