On 26th January 2021, an arbitration panel sitting in London, ruled against Ghana in a dispute between the country and a subsidiary of Swiss energy trading giant, Trafigura, about an aborted 107 MW power plant.
Since the arbitration outcome itself was not appealable, the only way around it was to ask a court to set it aside on the basis that the arbitral panel acted beyond the scope of their authority as conferred by the arbitration clause in the subsisting contract/agreement. The government failed to do this within the prescribed time. However, after the deadline had passed, it approached the High Court in London for special leave to bring a case to annul the arbitral decision on two grounds. Despite having been granted a short extension, it failed to instruct its lawyers on time and to comply with court orders leading to the dismissal of its case.
Following the High Court’s ruling, the arbitration award became cast in iron. Ghana, therefore, entered into negotiations with Trafigura and, in September 2021, made a part payment of ~$34.35 million out of the total sum, which at that time was about $138 million plus interest (accruing since November 2018) on the principal award sum ($134,348,661). The interest at that time was about 6.2% (today, it would have been more than 11%). However, failure to clear the full amount led Trafigura back to the High Court in November 2021 for further consequential orders.
The government then switched tactics to frustrating service of the orders. In March 2022, after Ghana chose to pay only $30 million of the outstanding amount, Trafigura initiated procedures to obtain the rest of its money by seizing and selling Ghana’s assets. It took about six months from the time of the High Court’s orders before Ghana was formerly served through the British equivalent of Ghana’s Foreign Ministry, the FCDO, in May 2022. Ghana ignored the service.
In April 2023, the High Court issued what is known as “interim charging orders” against Ghana’s assets and directed that the orders be served through the Ghanaian High Commission in London and via the email addresses of the officials at the Finance Ministry that engaged with Trafigura regarding the earlier part-payment.
In May 2023, the government hired White and Case, a law firm with strong ties to politically influential Ghanaians, to challenge the proceedings. On 23rd June 2023, White & Case applied to the High Court to invalidate the Court’s previous orders. The government’s position was essentially that under the law all legal processes targeted at a state in England and Wales have to be served through diplomatic channels. In the interim, the government paid $5 million to Trafigura.
In October 2023, the court dismissed Ghana’s case. It held that whilst a fresh action initiated against a state party does require that the state be notified through diplomatic channels to grant it a fair chance of responding, it would be unreasonable to expect every document in connection with a case to be submitted through diplomatic channels. For an arbitral award enforcement case, the ends of justice would be poorly served by the resulting delays. Ghana’s High Commissioner in London nonetheless assured the country that negotiations were going well and none of Ghana’s properties in the UK would be sold by Trafigura to defray the debts.
The truth is that Trafigura had realised long before then that negotiations by themselves do not move the Ghanaian government. What did was the accompanying power of legal threats. Thus, in March 2023, they had already moved a District Court in Amsterdam to enforce the arbitral award, in line with the New York Convention, a treaty that facilitates enforcement of arbitration awards in all signatory countries. Ghana was not represented at Court. The Court refused the request, mainly because Trafigura had not been too specific about which Ghanaian assets in the Netherlands it sought to seize (or “attach”) and could therefore not be completely clear that any such assets are not covered by the customary immunity enjoyed by States.
Trafigura took the matter to the Court of Appeal in Amsterdam. Once again, the government was served with a notice to appear but it did not take advantage to do so. This time, Trafigura tightened its case to focus on the recognition of an arbitration award that had already been granted and for which execution had even commenced in the seat of arbitration under the applicable law. Since the government of Ghana didn’t bother to submit a defence, the Court had no difficulty ruling in July 2024 for Trafigura. The road was now clear for the company to find any Ghanaian assets not protected under international law to attach. As of now, there is no evidence that it has been found in the Netherlands.
In January 2024, Trafigura also initiated proceedings in the United States to enforce the award. By this time, despite the payments made by the government up to that point, the country still owed the commodities giant nearly $129 million, due to the compounding effect of interest. True to form, following yet another court action, in February 2024, the government rushed to pay another $19 million.
Meanwhile, notwithstanding the earnest assurances of Ghana’s High Commissioner in London that negotiations had prevented any Ghanaian asset from being affected by the enforcement proceedings, one of Ghana’s most important commercial properties, Regina House, had actually been placed in receivership and all economic interests in that asset, such as rent paid by tenants, are being redirected to Trafigura. The government has failed to disclose this to the Ghanaian public.
In June 2024, Trafigura moved the US District Court in the District of Columbia to issue a default judgment. Its demands on Ghana now totalled in excess of $111 million. On 6th August 2024, the US District Court agreed. So, similarly to the London case, Trafigura could now go around looking for Ghana-owned properties in the United States to enforce against.
Ghana has significant sums of its foreign reserves, including sovereign wealth assets, mostly held in American banks. But within the labyrinths of the US Foreign Sovereign Immunities Act and the international law of arbitration award enforcement, it is not clear to which extent those assets are vulnerable on the grounds that they are “used in commercial activity”. The general rule seems to be that US Judges have significant discretion in the matter.
In recent times, state-owned entities, like the GNPC, have been given ownership of special purpose vehicles (SPVs) like the Jubilee Oil Holdings Limited in arbitration-friendly jurisdictions like the Cayman Islands. It would seem however that Trafigura has not found much by way of valuable assets owned by Ghana in the UK apart from Regina House, which has so far netted less than $2 million. Cocobod’s old subsidiary in London is apparently a husk. The simple truth is that small countries like Ghana usually don’t have a lot of juicy properties in enforcement-friendly countries around the globe.
It is also interesting to note that nearly four years since the arbitral award, Trafigura has made no effort at all to enforce it in Ghana itself, where governmental assets abound.
Dragging out the inevitable
The above discussion is already replete with hints of disorganisation in contemporary Ghanaian governance. First, it is absolutely unclear why Ghana thinks it is in its interest to drag out the payment schedule given the high interest rate. Despite paying nearly $100 million out of the original judgment debt amount of less than $140 million, the outstanding is still over $112 million today and rising every day. The decision-making seems to lack sound analysis.
Second, and perhaps more critical, the chain of events leading to the termination of the Trafigura contract and the government’s subsequent performance during the arbitration raises critical concerns about the quality of governance and accountability in Ghana, which is the main subject of this short essay.
A litany of errors
The contract at the root of this whole saga was signed in June 2015, and ratified by Parliament on 23rd July 2015, at the height of the power crisis termed “dumsor” in Ghana. The government was in the market for fast-track or “emergency” power solutions that could help ameliorate the situation quickly. Whilst the commitment to speed things up and deploy these solutions almost instantly was strong at the highest political levels, rewiring the institutional setup to actually deliver on this goal was beyond the leadership.
Instead of deployment in a few months, which was why the decision was taken to relocate a pre-existing power plant in Italy to Ghana in the first place, it took almost 17 months for the plant to arrive at the port. Just like what happened with the famous botched ambulance deal saga, the items got stuck at the port because of delays in securing tax exemptions as stipulated in the Agreement.
Even though the process of preparing a site to host the plant commenced in February 2015, ahead of signing the contract, it took more than a year before, in March 2016, the VRA admitted to the government and the investor that the land would not be suitable. A new location at Kpone was proposed the following month and construction activities commenced. In August 2016, the VRA ordered a halt to the construction for further review. As of November when the plant arrived, that “stakeholder review” was still ongoing. Amid the bureaucracy, the December 2016 election ensued, and governments changed. Everything immediately unravelled.
New King New Mess
In late January 2017, VRA finally communicated to Trafigura that they could not proceed to use the Kpone site. Unwilling to give up, the Swiss company found a place on a site owned by one of its affiliates in Ghana, Puma, and notified the government of ongoing clearing and construction activities for delivering the plant. Obviously, by this time, the crushing burden of dumsor on the country had lessened considerably. Thus, unknown to Trafigura, a government committee chaired by the Executive Secretary of the Energy Commission (PPA Committee) had been reviewing all the emergency power arrangements to determine whether and which the country should sustain.
In April 2017, the PPA Committee submitted a final draft of a report to Ghana’s Cabinet in which it claimed that the cost of terminating the Trafigura plant would be just $18 million and that this was more sensible than paying Trafigura $24.9 million a year for four years, as per the subsisting contract, to produce power that the country didn’t need. The government refused to provide an unredacted copy of this report during the arbitration. It has never disclosed it to the public either. As later events will show, this so-called expert technical analysis was completely bogus.
The PPA Committee’s advice notwithstanding, government actors continued to engage with Trafigura in the construction of the plant, egging it on at various points. Agreements with both PURC, the power pricing regulator, and Gridco, the national power grid operator, proceeded apace. Even after a Cabinet decision was taken, ratifying the PPA Committee decision, no one acted to stop Trafigura from incurring further costs. On the contrary, the Environmental Protection Agency issued a permit for the construction of the plant. The Ministry of Energy notified Cabinet that the project was proceeding smoothly towards construction and supported its application for a generation license from the Energy Commission, whose Secretary, recall, had chaired a committee recommending cancellation. The Ministry of Finance assured Trafigura that it could go ahead and pay the import duties for the power plant to the Ghanaian tax authorities (GRA) and get a refund later. Water was connected to the site by the state-owned water utility, and a tender to construct a pipeline to convey gas was launched.
Things come to a head
In the midst of all this, in August 2017, the Attorney General’s Department (AG) issued a fateful legal opinion recommending termination of the Agreement. The AG’s position was based on a number of positions: that Trafigura had no Energy Commission and other required licenses, that it was using second-hand equipment, and that it had yet to complete all conditions set out in the Agreement.
As the arbitration tribunal would later show, virtually all these claims were bogus since the government of Ghana had been fully involved, as expected of it in the Agreement, in the various decisions, and had provided full assurance that various licensing and permitting requirements shall be facilitated. The inter-agency dissonance and confusion that was so rampant throughout the process could not be blamed on an external investor. The government’s attempt to argue that a proper contract didn’t even emerge because both parties equally failed to deliver was proven to be false by a simple reference to the facts on record.
The AG crowned its bogus advice with the suggestion that Trafigura could be compelled to pay compensation to Ghana if the termination went ahead. Unbelievable!
Despite all this going on in the background, in typical Ghanaian fashion, Trafigura was still being entertained by various government actors. The Energy Commission acknowledged receipt of its application and advised that it was under active consideration. The Ministry of Energy continued to encourage it to construct the pipeline. One senior official even informed the Swiss company that even though the President had ordered the termination of various power agreements, the Trafigura one was exempt. The next month, in November, the Energy Commission set conditions for approving the license: gas acquisition and certification of the power equipment by the Energy Ministry.
On the back of these exchanges, Trafigura quickened its pace. China Petroleum was told to commence the gas pipeline construction and the Energy Ministry was impressed upon to make the necessary representations to the Energy Commission for the license to be expedited. On 2nd February 2018, in correspondence with the Energy Ministry, July 2018 was set as the commissioning timeline for the full-cycle plant.
Then the bombshell finally dropped. On 18th February 2018, the Energy Ministry wrote to terminate the Agreement. After strenuous protests by Trafigura, a Deputy Power Minister provided assurances that the President had issued a reprieve and they could thus resume operations. Thus, in April 2018, the company went back to site and doubled down on construction. However, in a totally twisted manner, the same government official, in July 2018, informed Trafigura of the government’s inability to revive the terminated Agreement. The company was advised to start all over and negotiate a brand new contract. Naturally, they demurred. So, on 13th August 2018, they exercised their own right to terminate the Agreement and proceed to arbitration.
Intrinsically chaotic
At every level, the operations of government and governance in Ghana exposed by this case reek of disorganisation, lack of coordination, the absence of strategic policy and management structure at the heart of government, and poor technical capacity.
As the commission simplified matters, the decision to cancel was based on pure commercial logic: it would be cheaper to do so. The problem was that the underlying calculations were pitifully bad because no one had done the work of actually verifying the investor’s costs to date.
At any rate, having taken such a purely commercial decision, the goal should have been to minimise risk by coming to terms with the investor quickly and in good faith to compensate them for their costs. The attempt to stiff the investor by relying on contorted arguments of breach was unconscionable, and the panel saw through it.
The AG’s was wrong on virtually every score. It does not even seem that the Department did the basic research to find out that the Energy Commission was disabled from licensing over a certain period, that permits were indeed issued to Trafigura, and that failures it sought to ascribe to the investor were clearly the fault of the government.
The AG’s shoddy preparatory work, so clear ahead of recommending termination, was also in view ahead of the arbitration. It so poorly prepared its expert witnesses that their entire testimony wilted under cross-examination.
Perhaps, knowing that the case was a hopeless one, the AG did not go for the expensive multimillion dollar billing international lawyers that in recent times we have seen them hire. So clear was the government’s lack of enthusiasm that despite the presiding arbitrator in the original UK case being appointed in January 2019, and the panel’s terms of appointment being signed off in June 2019, Ghana refused to pay its share of the initial fees deposit, despite repeated reminders, until December 2019. Lack of enthusiasm or not, the nearly $800,000 spent on lawyers and witnesses was wholly unnecessary given the complete lack of weight of the government’s case. This was clearly a contrived dispute that should never have been allowed to go before an arbitral panel.
The biggest insights from the whole fiasco are the following:
- Ghana needs a totally new regime to guide officials when entering into an international contract with high performance standards. The interagency chaos should be minimised through some kind of prior interagency committee once the subject matter of the contract foresees any interagency processes. Too many government workers have become used to being “sorted” before they “facilitate” any government-interfacing business that requires the least amount of effort. Officials taking advantage of interagency chaos to compound the country’s risks has been a constant feature in arbitral awards against Ghana, dating back, at least, to the late 80s when Antoine Biloune took Ghana to arbitration, also in Washington DC. Until this situation is removed through better operational design, more of these international judgment debts will come.
- Technical analysis involving commercial risks in government of Ghana legal engagements should be subject to review by independent analysts not beholden to the same government.
- The sheer lack of transparency in most government business breeds serious mediocrity.
- Good money should never be thrown after bad money. Whenever it is clear that a government agency is in the wrong, there must be some preventive mechanism within the Presidency that can expedite settlement regardless of which part of the government is involved. For example, why is the government continuing to drag out payment when it is not defending the case anymore, and thus allowing interest to pile? By the end of this year, Ghana is likely to have paid out an amount of money equivalent to the original arbitral award, yet the outstanding liability would not have changed from the time the award was issued.
In any serious jurisdiction where accountability matters, a number of senior government officials, past and present, would have been hauled to Parliament to answer tough questions about their judgement. It is so sad seeing as the continuing lack of accountability implies continuing costs for Ghana. Trafigura will not stop prowling until it has flayed every morsel of its monetary damages from the calloused palms of Ghana.
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Source: www.kumasimail.com
