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Wednesday, October 26, 2011

World Bank warns against prospect of $3bn “white elephant projects"

Mohammed Amin Adam, an Energy Expert(left), Sebastien Dessus, resident Chief Economist of the World Bank(right)
The World  Bank has urged Ghanaians to  expand public discussions on the controversial record loan facility from China to focus more on interrogating the efficient use of the funds and the nature and scope of the projects selected in order to achieve the desired national development results.
Speaking at a public forum on the $3 billion Chinese Development Bank loan for infrastructural development, organized by the Danquah Institute, the resident Chief Economist of the World Bank, Sebastien Dessus, warned against the pursuit of “white elephant projects.”
He, therefore, called for competent assessment of such infrastructural projects to ensure that Ghana consistently gets value for money and that such investment spending does not disturb future national budgets and the country’s ability to pay off its debts.
Sebastien Dessus said, “There is no doubt that the $3 billion CDB loan presents both immense opportunities and challenges and it is thus expected that political parties and observers might have different views on it.”
However, he called for the debate to move on from merely evaluating the terms and conditions of the loan agreement to the quality of projects that the funds would be used on and “the control of citizens and Parliament” on such major public expenditures.
To emphasize the need for proper evaluation of the projects that this multi-billion dollar commercial loan facility is meant to finance, the World Bank has expressed concerns over the usual waste in public investment, citing as evidence, “The perennial issue of unfinished or poorly maintained roads in Ghana.”
Earlier on, an Energy expert, Mohammed Amin Adam, touched on a related challenge by expressing doubt over the capacity of Ghana to utilize the loan facility within the programmed time framework.
Earlier, the Executive Director of the Danquah Institute, Asare Otchere-Darko, disclosed that “over $4 billion of investment funds available to Ghana from her development friends, including some $2 billion from the World Bank and African Development Bank, are just sitting there waiting to be accessed and utilized by the Ghana government.”
The head of the policy think tank, which organized the public forum, said the obvious weaknesses in institutional capacity to make use of such relatively cheap credit facilities (including soft loans and grants) make it even more worrying when no clear implementation rollout plans have been made available on how Government intends to manage the various public investment programmes outlined in the $3 billion commercial loan facility from China.
For his part, the World Bank economist made it clear that it is “certainly not the role of the World Bank to decide or state whether such borrowing plans are adequate,” while welcoming “the quality and usefulness of the current debate” on the $3 billion loan, which, according to Sebastien Dessus, is “reflective of the vibrant and competitive” nature of “Ghanaian Democracy.”
The World Bank’s interest, he said, is to help Ghana “derive the largest social returns from the projects to be financed by the loan.”
The World Bank has called for a disciplined and competent approach on the part of Government in order to enhance the quality of public investment.
According to the World Bank, Ghana has, so far, fallen short in implementing a good public investment management framework.
Such a framework should have a “sound project selection, avoiding wasteful ‘white elephant’ projects”. Once projects are selected they must be designed swiftly and completed on time to save cost.
Value for money demands that such projects are subjected to “competitive procurement practices and cost efficiency,” Sebastian Dessus said. With a minimum of 60% of the contracts under the $3 billion facility already earmarked for Chinese firms, it is doubtful how far projects under this facility would face any vigorous competitive tendering process.
Lastly, once completed, there is the need for Government to see to it that such assets are operated and maintained with efficiency, he said.
In order to do so, a number of steps needs to be taken, Sebestian Dessus stated. First is to make sure that the project fits into Government’s own Medium Term Development Plan (GSGDA).
There is some doubt as to how far some of the subsidiary agreements under the $3 billion Master Facility Agreement, approved by Parliament last August, fall in line with the GSGDA.
“Second is to develop pre-feasibility studies,” which he explained as involving data gathering, project alternative, risks, costs and benefits, regulatory requirements, and identification of missing data.
“Third is to develop feasibility studies,” involving, the compilation of all data, the search into alternative technologies for the project, undertaking preliminary design, and ensuring that the risk, social and environmental impacts of the projects are properly assessed, he said.
Sebastien Dessus mentioned the fourth step as the need to “subject project appraisals to an independent review,” such as Parliament.
The fifth step has to with budgeting. He argued that any such project must be seen by how its funding would influence the national budget, both capital and current expenditure, over a period of years.  This is crucial to maintaining a life-saving equilibrium between social spending and capital expenditure, for instance.
While acknowledging the need to accelerate Ghana’s infrastructural development, he called for a prudent balance between that and Ghana’s ability to pay off its national debt. It is, therefore, necessary to observe an objective debt sustainability analysis in this regard.
Sixth step is to appreciate Ghana’s “implementation capacity: procurement plans, implementation monitoring vis-a vis-plan, and built-in mechanism for adjustment,” he added.
Since the projects outlined under the 12 subsidiary agreements are to be built, operated or maintained by the contractors, it is important that Ghana is not shortchanged in this arrangement.
This calls for ensuring that “mechanisms for hand-over of management responsibility, assets valuation, monitoring of service delivery,” are all put in place to remove the risk of ‘white elephant’ projects and enhance the critical value-for-money component of the projects. This would also mean making sure that the facilities are ready for operation upon completion.
Finally,” the World Bank economist said, there must be a comprehensive “completion review to check that investment was effective.” This includes continues “impact evaluation to compare outputs and outcomes of the project with its objectives as a way of to improving the design of other future projects,” he advised.
Sebastien Dessus said the general “role of the World Bank is to help the country build the necessary institutional capacity to manage in the most effective way its public investment program, from both a micro and macroeconomic perspective.”
The public forum by the Danquah Institute, with support from Citi FM, took place at Citizen Kofi, Osu, Accra, last Tuesday.

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