Legon Hospital, Fruit Of ‘Smart Borrowing’ Approach – Terkper

Former Minister of Finance, Mr Seth Terkper, says the University of Ghana Teaching Hospital is designed to be a fruit of the ‘smart borrowing’ approach adopted by the previous administration to help relieve the taxpayer of having to pay for self-financing projects -- projects that can pay for the underlying loans from the incomes they generate.

He explained that this type of borrowing, which was christened ‘smart borrowing,’ was an alternative to the traditional borrowing approach, where virtually every loan had become pure public debt.

Unlike the traditional borrowing type, Mr Terkper said the 'smart borrowing’ approach gave the country enough fiscal space to borrow and invest in self-financing projects.The result, he said was the University Hospital, which was envisaged to repay its loan amount of US$217 million through fees and other revenues to be collected.

Other infrastructure

In an article yet to be published in the Daily Graphic, the former minister said this arrangement also berthed various infrastructure projects in the cocoa, aviation, water and sanitation and markets sub-sectors that are now at various stages of construction or completion.

In each case, he said Debt Service Reserve Accounts (DSR) and Debt Service Accounts (DSA) were established “to meet various loan commitments under existing recovery schemes as well as the new smart borrowing’ initiatives.”

Beyond bridging the country’s yawning infrastructure gap, Mr Terkper said the arrangement relieves the taxpayer of having to finance or refinance projects that should pay for the facilities.. This also impacts positively on the national debt stock, he added.

He was contributing to discussions on the University of Ghana Teaching Hospital, which erupted late January over which institution should be allowed to manage the facility.

He, however, explained that “a self-financing mechanism does not mean that all fees and charges will be used to service loans.”

“Given an effective revenue collection mechanism, loan repayments do not impose a major strain to management and financial performance,” he added.

As a result, he advised that the country stops transferring assets to institutions and state-owned enterprises (SoEs)“without they also agree to assume responsibility for the underlying loans for projects that can make a contribution to debt service.”

Let SPV manage hospital

On the question of which institution should be allowed to manage the hospital, Mr Terkper said a special purpose vehicle (SPV) that encompasses expertise from public and private sector was the best answer.

“The answer does not lie in placing the special SPV under the absolute control of Legon or the Ministry of Health (MoH) or the Ministry of Finance (MoF) as fiducial agent.

“On the contrary, an SPV can bring business and other specialist skills from private schools, hospitals and allied institutions to bear on investments, since some private institutions are working towards the “excellence” goal,” he said in reference to the hospital.

Similar fruits of ‘smart borrowing

While explaining that the financing arrangement that gave birth to the Legon Hospital was “not unique,” the former minister said the Ghana Cocoa Board, Ghana Water Company and the Ministry of Foreign Affairs, among others had used or were starting to use this same arrangement to provide various infrastructure through the DSRA and DSA process.

“COCOBOD has perfected the use of DSRA and DSA to borrow at low rates annually to finance crop purchases. In addition, the China EXIM Bank and China Development Bank (CDB) facilities for the Bui Dam and Atuabo Gas Plant infrastructure are also based on commodity-based cocoa and crude oil DSRA/DSA financing structures.

“The arrangement for loan recovery for the Terminal Three (T3) project by the Ghana Airport Company involves the payment of airport taxes (and later T3 leases) into an Escrow or DSA to service the loan. Similarly, the port expansions are to be secured from port dues and charges such as demurrage,” he said.

He explained that “what makes several of these arrangements feasible and attractive under the ‘smart borrowing’ rules is that the revenues, which are in convertible currency, make it feasible to borrow externally at current low global interest rates.”

As a result, he said “it is possible that some revenue from a hospital of “excellence” can also attract some fees in foreign currency to make the investment sustainable.”