01 Sep 2024

Government is looking into extending a 10-year guarantee of P2.325 billion (US$ 175million)  to the Okavango Diamond Company (ODC).

Presenting the request on the extension in Parliament on Thursday, Minister of Finance, Honourable Peggy Serame, said the legal basis was derived from Public Finance Management Act of 2011.

“The Act provides that where the minister is satisfied that it is in the public interest to do so, he or she may on behalf of the government guarantee the repayment of the principal money and the payment of the interest and other charges, incidental thereto on any loan raised either within or outside Botswana, in the manner and conditions he or she may think fit,” Minister Serame said.

She told Parliament that Section 23 of the Public Finance Management Act further explained circumstances under which such a guarantee may be granted obligations of the beneficiary of the guarantee and those of the guarantor under the arrangement and related issues.

“ODC is a rough diamond marketing company wholly owned by the government. It was established in 2012, with the primary mandate of providing government with a direct route to market for its rough diamond allocation from Debswana,” she said.

She added that ODC was mandated to provide government with key insights into global market prices and trends, which were crucial for decision making, all part of a broader strategy to transform the country into a leading rough sourcing destination.

She further said at inception, ODC was entitled to purchase, sell and market 12 per cent of Debswana’s total run off mine production to the global market.

“This allocation then increased to 15 per cent and ultimately reached 25 per cent in 2020,” she said.

She added that in order to be in a position to purchase its entitlement of Debswana’s production, ODC had negotiated a 10-year revolving capital capacity with Standard Chartered Bank Botswana Limited, with a capital limit of  about P1.859 billion (US$ 140 million).

She explained that the facility which was arranged in October 2013 and had since matured in October 2023, was secured by (US$ 100 million) P1.328 billion guarantee from government.

“That guarantee however was never called upon but was beneficial in supporting ODC to secure favourable pricing terms during negotiations with Standard chartered bank Botswana limited for the credit facility,” she said.

She said following the conclusion of the landmark new 10-year sales agreement for Debswana’s rough diamond production through to 2033, and the 25-year extension of the Debswana mining licenses through to 2054, ODC’s entitlement to Debswana’s rough supply was poised to increase to 30 per cent in the short term, and thereafter gradually increase to reach 50 per cent by 2033.

She said since the prevailing credit market conditions were rather adverse, ODC had since requested for an extension on the government guarantee by a further 10 years, as well as raising of the guarantee amount from the US$ 100 million (about P1.328bn) on the previous working capital facility, to US$ 175 million (about P2.325 billion).

“Cabinet has approved this ODC request, through Presidential Directive CAB 32/2023, which will crucially support ODC’s increased entitlement of 30 per cent to Debswana as well as assist the company in negotiating favourable rates in the local market on a new working capital facility,” she said.

Moreover, she said following the maturity of the US$ 140 million (about P1.859 billion) working capital capacity in 2023, ODC had appointed Standard chartered bank to structure and coordinate a new US$ 300 million syndicated revolving working capacity facility.

She said it was important to note that failure to have the government guarantee approved by the winter meeting of parliament will be detrimental to ODC’s operations for a number of reasons such as since ODC was currently only able to afford purchases up to USD 70 million (about P929.6 million), using its own cash reserves.

She added that the proposed US$ 300 million (about P3.984 billion) credit facility, backed by a US$ 175 million (P2.325 billion) government guarantee would support larger volumes of diamonds that ODC could purchase from Diamond Trading Company Botswana (DTCB) at each cycle.

Again, she said that may have a negative impact on investor sentiment and recovery of the industry was expected to start from quarter four of this year and be sustained into coming years.

“Projections indicate that if the guarantee was to be granted, total public debt including guarantees would reach 24.2 per cent of GDP by the end of 2024/2025 and thereafter remain with the statutory limit over the medium-term,” she said.

She also indicated that domestic debt including guarantees, would consequently increase to 15.3 per cent of GDP by the end of 2024/2025 and thereafter remain within the statutory limit over the medium term period. Ends