Prepared for Free Article on 02/07/2022 at 08:59. Authorized users may download, save, and print articles for their own use, but may not further disseminate these articles in their electronic form without express written permission from Africa Confidential / Asempa Limited. Contact email@example.com.
Yet another Chinese loan-backed infrastructure project may be heading for cancellation as warnings of unsustainable debt grow
Although President Julius Maada Bio was an enthusiast for Chinese investment in infrastructure at the Forum on China-Africa Cooperation last September, the government has cooled on some major projects, the latest of which is a plan to expand Freetown port.
The scheme, agreed by ex-President Ernest Bai Koroma in November 2017, aims to expand Freetown's Queen Elizabeth II Quay with construction and finance from China under the Belt and Road Initiative (BRI). China's Tidfore Group is slated to spend US$708 million on the design and construction of four new terminals and yards. Finance would come from the Industrial and Commercial Bank of China and its Exim Bank on a sovereign guarantee by the Sierra Leone government.
China has told the government that there is no risk to government finances because the project is fully insured, and 'off balance sheet', official Freetown sources said. Sierra Leone finance ministry officials, however, point out that if that is the case, why would the government need to guarantee the loan? The government consulted the International Monetary Fund about the project. The Fund warned that such a loan could plunge the country into severe 'debt distress', Africa Confidential has learned.
The financial set-up is typical of BRI projects. But under a concession agreement signed in September 2017, the government in Freetown allowed a joint venture of Sky Rock Management Ltd, said to be based in Singapore and the British Virgin Islands, and National Port Development Sierra Leone Ltd, of Freetown, to manage the project as 'developers' and act as an intermediary between the Sierra Leone government and the Chinese contractors.
The agreement committed the 'developers' to start the project with $8.5m in cash, but government accountants cannot find any trace of the money, we hear. The agreement commits the government to a Development Levy Fee to be collected by Tidfore for 16 years, generating some $950m, a profit of 25% on the project cost, according to calculations by the Ministry of Finance seen by AC. Tax officials in Freetown, who did not wish to be named, complained that the levy, which would be charged over and above all usual port handling charges, would raise the cost of freight using the port so high that shippers would avoid using it, leading to an overall loss of revenue and threatening repayments of the loan.
AC could find no trace on the internet of Sky Rock Management Ltd. The only references to the National Ports Development Company, and its chairman David Ben Lulu, are in press releases from Koroma's State House and the ground-breaking ceremony on 25 January, 2018, at which Tidfore CEO Tan Lang was present alongside Koroma and Ben Lulu. Ben Lulu is said to be an Israeli businessman. He has told Freetown officials he was a generous contributor to Koroma's All People's Congress election campaign last year.
One of Ben Lulu's partners is Sahr Ngegba, who failed to remit to the government port revenues he had collected on its behalf. The Bio transition team report last year recommended he should 'be investigated and made to account for the US$10 million' his company, Transport and Ports Management Systems (TPMS) collected at the port (AC Vol 59 No 13, Koroma accused of grand corruption). Ngegba has been named in the Liberian press as having questions to answer over a similar levy he collected on incoming containers at the port of Monrovia.
On 18 March Sierra Leone's Anti-Corruption Commission announced it had made a settlement with Ngegba over the non-payment of sums to the government. It said he had paid the equivalent of $300,000, representing a backlog of three months, and that a further $365,000 should be paid to the ACC no later than 30 April. The statement added that the government had terminated TPMS's contract and that it was still investigating the way in which the original contract was altered by parliament.
The IMF's review of the contract last October noted that Sierra Leone is already at 'high risk of debt distress' and that agreeing to the loan 'would contribute to further deterioration of [its] debt dynamics'. The annual repayment on the Chinese loan, according to Tidfore, is to begin in 2019 at $3.8m, rising to $91.7m in 2023, which finance officials fear is unsustainable, and could lead to default, resulting in China taking possession of the port under a long lease, as it did with the port of Hambantota in Sri Lanka when that government could not find the money to repay loans for the port's construction.
Further complicating the matter, the French logistics company Bolloré already enjoys exclusive rights to manage the Queen Elizabeth II Quay, including 'performing operations…for any vessels carrying more than five containers and roll out-on roll-off vessels entering or leaving the port,' according to a concession agreement it has with the government. The Tidfore deal appears to cut across this commitment.
Ben Lulu has told the government, we hear, that if it does not issue a sovereign guarantee of the project finance, it cannot go ahead.
President Bio is anxious not to antagonise China further, having annoyed Beijing by cancelling the proposal to build a $300m Chinese-built and financed airport at Mamamah, a pet project of ex-President Koroma's (AC Vol 59 No 5, Flights of fancy). He is also cautious about the suggestion by China that it build and finance a $1.2 billion bridge across the Freetown estuary to Lungi International Airport as an alternative to the Mamamah airport idea.
All agree Freetown port needs expanding. At 1,067 metres (3,501 ft) end-to-end with a draft of just 9.1 metres, the quay, constructed by the British just before the end of colonial rule, is small and out of date compared to many others in the region.
So far, Bio's government has saved vast sums of public money while fiscal reforms have restored its relations with the IMF, which frequently felt it was being given the run-around by his predecessor, especially on Mamamah, which it believed was a waste of money. Koroma promised Fund officials in Freetown not to proceed with the airport, but when in China, pledged to complete it. On 12 March the World Bank Group committed $325m in increased financial support to Sierra Leone after Bio's visit there the previous day. This could be at risk if Freetown agrees to Beijing's ambitious designs on its infrastructure and finances.
Copyright © Africa Confidential 2022