Monrovia – The protracted legal wrangling between the Government of Liberia and two petroleum importers might be a probable cause for the country to lose a significant portion of the Millennium Challenge Compact grant.
Report by Alpha Daffae Senkpeni, [email protected]
According to the Compact, Liberia is obligated to providing US$15 million which will match with another US$15 million in grant for road and bridge maintenance across the country.
Road Fund is a development module adopted by many developing countries to maintain public infrastructure. And with complimentary funds from the United States government through the Compact, Liberia would see periodic maintenance of roads and bridges in the coming years.
The MCC Liberia Compact, signed in October 2015 and entered into force in January 2016, seeks to address two binding constraints impeding the country’s economic growth. They are the lack of access to reliable and affordable electricity and inadequate road infrastructure.
With two-and-a-half year remaining for the US$257 million five-year-grant to elapse, each party – government and MCC – will have to provide US$7.5 million in each of the remaining years to support the road maintenance project.
Power Sector Shows Progress
Under the Compact, Liberia is already enjoying an appreciable boost in the energy sector following the refurbishment of the Mount Coffee hydro, which is now supplying relative reliable electricity to the national grid.
Electricity tariff is now US$0.38 per KwH, down from US$0.49 per KhW. That’s about 25% cut in the price and the Liberia Electricity Corporation has promised a further reduction in the price.
While the energy component of the Compact appears to be making inroads, the road project is experiencing some hiccups largely due to delays created by a certain lawsuit filed against the collection of revenue for the road fund.
Passage of the Road Fund Act in 2016 and subsequent setting up of the governance structure, procedures and policies are considered significant steps by the government.
But the framework could only become impactful to the project once the US$15 million grant is matched by the Liberian government’s contributions.
Roads: A Binding Constraint to Economic Growth
Liberia’s road network is appalling with the number of unpaved roads in the country posing severe constraints for Liberians in rural communities across the country.
According to the World Bank, there are a total of 734 paved roads as compare to the 9,182 unpaved roads in the country, justifying Liberia’s urge for interventions into its road sector.
A recent Work Bank survey for Liberia’s financial needs estimated by road classification shows that US$2.230 million is needed to rehabilitate and or upgrade paved primary roads, while US$1.203 million is needed to rehabilitate existing rural roads and or construct new ones.
Experts say curbing the challenges of roads in the country would enhance economic revitalization including growth in food production, farm-to-market access and cut in traveling time for traders.
The Road Fund module could make substantial interventions based on its policy framework, which is legislated by the government and supported by the MCC.
The independence of the funds makes it improbable to divert the money to other competing priorities as provided by the Act and the Compact, which also calls for the establishment of a private account at a commercial bank in the country. This is intended to avert bottlenecks and diversion of the funds.
Boniface Satu, head of the Road Fund office – clothed with the responsibility of managing the fund – , says progress has been made to raise revenue through a US$0.25 tariff levied on a gallon of petroleum product sold in the country.
“The government is committed to making sure that she provides her portion of the fund but as you known, we’re in fiscal year 2018/2019 and the government has already captured that amount in our national budget which means the fund will be source for road maintenance as stipulated in the ACT and captured in the budget,” Satu said.
Lawsuit is a Hurdle
However, two importers of petroleum products have been arguing at the Temple of Justice that there are missteps in the structure of the fund, thereby creating a stalemate for the collection of tariff placed on the sale of petroleum products.
During the court proceeding on April 24 this year, lawyers of Srimex Oil and Gas Company and Aminata & Sons questioned the collection of fees from their respective clients.
One of the lawyers argued that the deduction from the petroleum companies was intended for roads maintenance projects but said that the necessary administrative framework was not put into place to safeguard the money.
Apparently cognizant of the delays, the MCC, in a May 7, 2018 communication to the Ministry of Finance and Development Planning, expressed concerns about the “slow pace” of government meeting up with “five conditional precedence” which includes the setting up of the Road Fund office and movement of the funds collected to an independent account.
The former, which is a key conditional precedent, is yet to be achieved by the government, leaving actors within the sector to suggest that the delay is largely due to the current litigation, which verdict is expected to be brought down by the high court soon.
‘House in Order’
However, Satu says the Road Fund office is putting its house in order and is now receiving support from international partners like the World Bank, African Development Bank and GIZ.
At the same time, the responsibility to collect the U$S0.25 tariff on petroleum products has been switched from the Liberia Petroleum Refinery Company to the Liberia Revenue Authority, he said.
“The Road Fund has the ability to generate the needed revenue for us to be able to make our contribution of the matching fund,” Satu said, expressing confidence that regardless the outcome of the lawsuit, the impact will be nominal on raising the fund within the next two years.
“Even though the case is ongoing, we know it will be favorable to the road fund and we have been assured that the case will be resolve to trash out all those issues that are surrounding the collection of the tariff,” he said.
Risks of Forfeiting Grant
Regardless the outcome of the case, Liberia risks forfeiting the US$15 million grant if the government does not work within the timeframe of the compact which is scheduled to end in the year 2021.
According to the compact, the fund will remain in the United States Treasury once Liberia fails to meet its end of the bargain as stipulated in the agreement.
Article 5.1(I) of the agreement, states that there shall be termination, suspension and expiration if “the Government (Liberia) fails to comply with its obligations under this Compact or any other agreement or arrangement entered into by the Government in connection with this Compact or the Program”.
A visit last month by the MCC’s Chief Operating Officer to Liberia renewed the confidence of the Liberian government about the United States commitment to the agreement, which was signed during the administration of former President Ellen Johnson Sirleaf.
The visit also saw several discussions between the MCC and President George Weah’s administration over its implementation performance.
Jonathan Nash, COO of MCC, during his visit, didn’t talk much about the delays with the press but called on the government to remain committed to the implementation of the current compact.
“I’m here to engage with President Weah and his administration to review the progress that has been made to date and to take a look ahead at the challenges and opportunities that lie ahead for the completion of the particular compact,” he told reporters in Monrovia on June 19.
“We want to make sure that the government is able to implement the remainder of this compact with success so that the benefits are afforded to the Liberian people.”
Meanwhile, ahead of the court’s verdict there are palpable concerns about government’s consistency in meeting up with all of its responsibilities in order to contribute to the road maintenance funds.
And as Mr. Nash emphasized during his visit to the country, “maintaining performance on the scorecard” is equally important as “sustaining a good implementation performance of the current compact” in order to be considered for another five-year grant from the United States government through the MCC.