University of Ghana Hospital: A matter of recovery and sustainability

Seth Tekper, former Minister of Finance under President John Mahama's administration

There is ongoing focused discussions on the management and financial arrangements for the proposed University of Ghana Teaching Hospital (of Excellence). Officials and the Minority in Parliament have explained the need for a paradigm shift, to use the hospital to pursue excellence and sustain the investment while catering for low income persons. I address myself to the substantive proposal to use the Special Purpose Vehicle (SPV) mechanism to make the investments feasible and sustainable.


UG Teaching Hospital and “smart” borrowing

As immediate past Minister for Finance, I chaired meetings on the matter among the ministries of Finance, Education and Health, and the University authorities. There were two principal objectives from a finance perspective: 

recovery of guaranteed loans: setting up a mechanism to recover the whole or partial amount of the initial loan of US$217 million from hospital fees and other incomes (e.g., canteen, parking, etc.) that will accrue to the Hospital under the ‘smart-borrowing’ proposals approved by Cabinet and Parliament.

Discussions on additional loan: given the limits on borrowing under the IMF Programme, prevailing on the university to use part of its internally-generated funds (IGF) to secure extra US$24 million loan for a crucial phase of the project to make the hospital operational.

Often, Ministers (or deputies), Vice Chancellor, and other senior officials attended the meetings in person to get the necessary buy-in for the innovation to recover the loan from hospital incomes.

Need for SPV

The core mandate for the Ministry of Health is supervisory while that of the University is knowledge delivery, which aspect brings in the Ministry of Education since a ‘teaching’ hospital is a university is a tertiary institution.

From experience, the typical MDA position of taking over assets without the loan liability is partly to blame for the nation’s debt burden or headache and major investments that are poorly managed.

Hence, MoF’s view for bridging the core health, education, and finance mandates is a conventional SPV—encompassing management structures that add an entrepreneurship. However, the answer is not in placing the SPV under the absolute control of Legon or MoH or MoF (as fiduciary agent).

In comparison, a compromise SPV can bring business and specialist skills from private schools, hospitals and allied institutions to ensure effective management. After all, some private institutions are working towards this “excellence” goal.

Cabinet and Parliamentary decisions

The ministries under reference sent the hospital’s self-financing proposals to Cabinet and, subsequently, to Parliament as part of the 2016 Budget and the Mid-Year Review and Supplementary Budget. As a result, the hospital is mentioned in paragraphs 14 and 197 of the 2016 Budget.

The original Legon Hospital loan is guaranteed entirely by the State, which means repayment from the Consolidated Fund.

A self-financing mechanism relieves this debt burden but does not mean that all incomes will be used to service loans and social goals ignored.

With effective revenue collection mechanisms, loan repayments need not impede management and financial performance. Nonetheless, the meetings discussed a possible ‘revolving fund’ to reinforce the hospital’s independence and efficiency.


Discussion on arrangement

As noted, the meetings aimed to achieve synergy among various sector objectives. While no firm decisions were taken because of the transition in 2017, there were substantive proposals, including.

a. Automation: Payments of fees and charges to the hospital services will be automated as part of an integrated accounting and management information system. It was agreed that the contractors will give this priority attention to minimize the risk in handling physical cash.

b. Escrow or Debt Service Account (DSA): The proportion of fees for repaying the loan will be projected from cashflows and paid automatically into a DSA. MoF is a mandatory signatory to assure lenders that funds set aside to service loans will not be misapplied.

c. SPV: This semi-independent management tool described earlier will have a board that embraces the ministries of Health, Education, and Finance; the University; and the private sector (as is common with SOEs and agencies).

The key question remains whether the push by Legon to establish a management structure was premature or even preemptive. We note that, to date, the University has not been paying for the ICT loan from the fees accruing to the project.


UG Hospital not unique

The above arrangements are not unique to the Legon hospital. The following are some programmes, projects, and institutions that use DSA/DSRAs to service existing and new loans for self-financing projects—and, indeed pure national debt—under the smart-borrowing’ initiatives.

a. Cocoa and gas: COCOBOD has perfected the use of DSRA/DSA since the 1990s to borrow annually at low rates to finance crop purchases. Further, the China EXIM Bank and CDB loans for the Bui Dam and Atuabo Gas Plant are based on similar structures.

b. Sovereign bonds: MoF has a GOG DSRA/DSA linked to the Sinking Fund (oil revenues under the Petroleum Revenue Management Act, PRMA) to manage our bonds. The high-profile application was payment for the last instalment of the 2007 bond on due date on October 4, 2017.

c. Energy Sector Levy Act (ESLA): ESLA Act makes provision for a DSA to manage energy sector SOE debt and road arrears. For this reason, the last administration did not set up an SPV but left the option open to multiple Banks and Creditors to manage transfers from the DSA.

d. Airport (new Terminal 3) and GPHA port expansion: The airport T3 loan recovery plan involves payment of airport levies (and potential Terminal 3 leases into an Escrow/ DSA. Similarly, the port expansion loans are to be secured from port levies such as demurrage.

e. Repair of Ghana Embassy properties: MOF and Ministry of Foreign Affairs also organized a bid for a loan to repair several overseas state properties that were in various stages of disrepair. The facility is underwritten by passport and other fees that are collected and paid into an escrow or DSA.

f. Kumasi Supermarket: The means of repayment for this guaranteed loan for the supermarket include payment of part of rentals, tolls and fees from the operations into dedicated a DSRA/DSA.

g. Ghana Water Company Ltd: The company and then Ministry of Water Resources, Works and Housing agreed to set up a DSRA to repay existing loans and to facilitate eventual borrowing on GWC’S balance sheet.

These arrangements, including toll roads, are potentially feasible and attractive ‘smart” borrowing options because some revenues are in convertible currency. As with COCOBOD, this makes it possible to borrow externally at current low global rates. It is possible that some revenues from a hospital of “excellence” can attract some fees in foreign currency to improve the sustainability of the investments.



The Sinking Fund and DSRA/DSA are in the new Public Financial Management Act. It is also envisaged that the Ghana Infrastructure Investment Fund (GIIF) will take over and separate commercial and social infrastructure loans—the latter remaining as pure public debt. The Sinking Fund and GIIF depend on our oil revenues and they are Ghana’s Sovereign Wealth Funds (SWF) that must follow successful practices in places such as Singapore (TEMASEK), Trinidad and Tobago, and United Arab Emirates (UAE).

As a Middle-Income Country (MIC) with dwindling grants and concessional loans, we must stop adding the loans for projects with revenue potential to public debt, for taxpayers to pay for them from the Consolidated Fund. Continuing to treat the Consolidated Fund as fungible for all budget needs will only encourage mediocrity in managing commercial projects. We must stop the transfer of assets to agencies and SoEs without making them assume responsibility for the underlying loans. Another worse practice is to channel our oil revenues into consumption and not fund initiatives like the GIIF and Sinking Fund adequately.

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