By Njie Malick
NAWEC is currently engaged in negotiations with a Turkish company called Kinesis Enerji to invest to the tune of $600 million to provide energy for NAWEC. The Government has ignored all the advice against this project. There are 10 other projects on the table that are more favourable at a cheaper price than this project which in its current form may bankrupt an already bankrupt NAWEC but saddle the government with a substantial amount of debt for a very long time. The future demand of this project on the exchange resources of the country will further cost the country more money and may lead to higher prices to the average citizens. The government must stop and rethink its stance on this project before blindly signing a contract that will cripple our country for a long time below is a risk assessment done on the project.
Kinesis appears to be bringing very little to the table: no explicit equity stake and no info. about the amount of debt to be issued or the expected return on equity.
- Requires a Government guarantee for the contract term of 20 years equivalent to $600 million (roughly 60 percent of GDP)!
- Requires NAWEC to provide a Letter of Credit that would likely also need to be guaranteed by Government.
- Passes on its property taxes to NAWEC!
THE DEAL WOULD SIGNIFICANTLY WORSEN NAWEC’S FINANCIAL POSITION AND IS CLEARLY NOT A QUICK FIX
- NAWEC would bear all exchange rate risk for both fuel and service charges.
- No quality assurance or service level contract—Kinesis not accountable for service delivery
- Prospective NAWEC monthly payment obligations under the Kinesis deal alone (approximately US$6.7 million per month) is significantly more than NAWEC’s average monthly receipts.
- The Gambia’s shallow FX market (average monthly FX sales of around US$13 million per week) cannot support just one company raising US$6.7 million per month.
- NAWEC is required to assume the cost of maintaining the hitherto unspecified site maintenance costs and assume full responsibility for payment of Kinesis’ property taxes (even though this is supposed to be a private entity).
- The first generation capacity would not come on stream for 2 years and would take 4 1⁄2 years to complete!
THE DEAL EXPOSES GOVERNMENT TO EXCESSIVE RISK
- Given the high payment obligations under the deal, which are beyond NAWEC’s capacity to pay, the guarantee is likely to be invoked, requiring government’s intervention.
- US$6.7 million per month will increase the Government’s deficit significantly, further reducing the space for priority social spending and likely crowding out private sector credit.
- Kinesis and its suppliers and contractors are to be fully tax exempt, which implies a huge potential loss of revenue for the Government.
THE KINESIS DEAL AND OTHER LARGE INVESTMENT DEALS UNDER CONSIDERATION WOULD LIKELY LEAD TO DEBT UNSUSTAINABILITY
- The Kinesis deal violates the concept of the SMP, which, inter alia, is designed to help The Gambia achieve debt sustainability, and calls for consultation with the Fund before assuming any new debt or contingent liabilities.
- The assumed high payment obligations under the Kinesis deal will widen the overall deficit, deplete international reserves, and would result in further accumulation of PPG non-concessional external debt.
- Government loan disbursements so far this year, even in the absence of Kinesis, have been higher than anticipated, leading to a higher level of debt distress. Kinesis would likely result in outright debt unsustainability for The Gambia.
- Similarly, the EXIMBANK’s deals for the GPA (US$180 million) and NAWEC (US$216 million) could further compound debt unsustainability—these two loans would add another US$396 million (approximately 40 percent) to the debt/gdp ratio.
THE FUND CANNOT LEND TO UNSUSTAINABILITY
- The SMP would go off-track because the assessment criteria are not discretionary.
- Budget support from development partners would evidently be at risk, as such support is typically linked to having an agreement with the Fund
- The Fund cannot lend to unsustainability.
- The authorities could not then transition to an ECF.