10 Apr 2014

Parliament has adopted a motion by acting Minister of Finance and Development Planning, Mr Vincent Seretse requesting for ratification of a government guarantee for a US$100 million (over P800 million) loan extended to Okavango Diamond Company (ODC).

When tabling the motion on April 9, Mr Seretse said government took a decision in 2011 to set up a company called ODC which was wholly owned by government. The company, he said, was set up to market 11 per cent of government’s portion of Debswana's diamond production.

Therefore, he said in 2012, a loan amounting to P540 million was given to ODC out of the Public Debt Service Fund (PDSF) to cover operational costs and purchase of diamonds. However, Mr Seretse said due to foreign exchange fluctuations, it was proven that the P540 million PDSF loan facility extended by government was not adequately serving ODC. As a result, he said a request was made for a foreign currency facility of US$100 million.

Furthermore, he said ODC had indicated that a US dollar facility was necessary to accommodate the US dollar online payment system and also to allow ODC to access the competitive US dollar financing offered by commercial banks and achieve one of its objectives of being a globally competitive diamond trading company.

“The Pula loan could not cover the two planned purchase cycles as well as operational costs. This is because ODC is required to pre-finance the purchase of two production cycles from Debswana before realising a sale,” he said.

He explained that ODC buys partially sorted diamonds from Diamond Trading Company Botswana (DTCB) and then sorts the goods into its own sales assortment. Thereafter, he said ODC invited customers to Botswana to view and purchase via an auction process. Therefore, due to this staged marketing of rough diamonds, he said there was normally a time lag between purchase and sale of ODC goods.

“Consequently, government extended a guarantee to enable ODC to secure funding from Standard Chartered Bank amounting to US$100 million,” he said.

The minister further explained that Finance and Development Planning minister, Mr Kenneth Matambo, signed the Guarantee and Subordination Agreement on December 11, 2013, adding that the guarantee for the loan facility covered a period of 10 years from date of signature.

“It is assumed that ODC would have accrued adequate capital to procure goods without a need to utilise the loan facility after the 10 year period,” he added.

The funding, Mr Seretse said ODC required it for the December 2013 sale as it had exhausted its available funding- having utilised the government loan and having drawn down once on the unguaranteed Standard Chartered Bank facility.
If ODC had failed to purchase diamonds in December 2013, he said “this would have disrupted the Debswana sale and would have in turn affected the government dividends that were due from Debswana.”

To date, he said ODC had drawn down three times from the loan facility, including in March 2014, to cover its March commitment to DTCB and to Debswana. He also said it was imperative, in December 2013, that “ODC be urgently provided with the facility in order that ODC honours its purchase commitment on behalf of the government as the shareholder of the company.”

Mr Seretse explained that the minister of Finance extended a government guarantee as per Paragraph 22 of the Finance Management Act, 2011, which he said states that “The Minister may extend a Government guarantee if the facility is believed to be in the public interest.”

Furthermore, he said Paragraph 22 subsection 2(b) also states that “The Minister may provide a guarantee in terms of subsection (1) without prior authorisation or ratification of the National Assembly where he or she is- (b) of the opinion that it is practically possible to secure prior approval of the National Assembly before providing a guarantee as provided in subsection (1), subject to subsequent Parliamentary authorisation or ratification given through resolution.”

Taking into consideration the urgency surrounding the need for financing in December 2013, Mr Seretse said “it was therefore not possible to secure parliamentary approval before guaranteeing the loan offered by Standard Chartered bank.”

He also added that, Finance minister signed the Guarantee Agreement on condition that ratification would be facilitated in the next sitting of parliament.

When debating the motion, the MP for Palapye, Mr Moiseraele Goya; Boteti North, Mr Slumber Tsogwane; Lobatse MP, Mr Nehemiah Modubule; MP for Shoshong, Mr Phillip Makgalemele; MP for Tonota North, Mr Fidelis Molao and Gaborone North MP, Mr Keletso Rakhudu shared the same sentiments that ODC needed to be assisted as it was an important development that would make Botswana proud.

They also said the setting up of ODC was a good decision that would help to market the country’s diamonds and advised that regular reviews and monitoring be carried out to ensure that the funds were put to good use. ENDS