OPEC in controversial loans deal with the Government

OPEC in controversial loans deal with the Government

The Organisation of Petroleum Exporting Countries (OPEC) seems to have acquiesced to demand by the Michel administration to bail it out of a tight spot on the forex front, while at the same time allowing it to be dragged into our domestic politics.

As the election campaign was heating up, OPEC officials have been filmed visiting the controversial l’Ile Perseverance housing project which, it had already been intimated, would benefit from an OPEC loan to build the required infrastructure – roads, electricity, water and sewage. Following the last visit the Government published two loan agreements in the Government Gazette, while the National Assembly was in dissolution.

One of the agreements is for a US$5,650,000 soft loan repayable over a period of 18 years with a grace period of 4 years. The interest payable is based on the average of six months of the London Interbank Borrowing Rate (LIBOR) plus a premium of 0.4%. By any standard it is a loan on very concessionary terms. Better than the Seychelles Government’s Home Finance loan – which require you to start repaying the moment you receive the first disbursement. Certainly better than the US$200 million bond issue on which we have to pay over 9% annual interest.

The second OPEC loan is the more controversial. It is for US$10,000,000 and the term of repayment is over a 12 month period. This loan is controversial from the perspective of OPEC in that one cannot imagine any infrastructure project in Seychelles that could be started and finished in less than one year. It is evident the real purpose of the loan is being hidden from public scrutiny – hence the publication of the Gazette while the National Assembly is dissolved.

The two loans however, do not come cheap. The interests (a minimum of 200 basis points above LIBOR for the US$10 million), depicts the level of risks the OPEC Fund is attributing to the Seychelles economy. LIBOR is the acronym for the London Interbank Offered Rate which is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). A basis point is one hundredth of a percent.

Both OPEC loans have been raised under an act called the Development Fund Act. This Act has been and continues to be used as a slush fund by the SPPF government. The Development Fund, which is a real bank account, has never been the subject of proper audit and money can be withdrawn and spent at the whims and fancy of the President of the Republic. Unlike the Appropriations Act (the budget), the Development Fund is outside the scrutiny of the National Assembly. However, the purposes of the loans can be scrutinised by Members of the National Assembly.

Under the rules of the National Assembly (standing orders) all supplementary legislations published in the Gazette (regulations etc) must be submitted to the National Assembly and entered into the record of proceedings in order for them to have the force of law. In parliamentary parlance such a document is called a paper. Any member of the Assembly may request a debate for the whole Assembly to consider the content of the paper. So far the National Assembly has not used this method of check and balance of government actions.