By: Dr. Ousman Gajigo
Africa-Press – Gambia. Recently, a letter from the Managing Director (MD) of The Gambia Port Authority (GPA), Ousman Jobarteh, surfaced in which he raised objections about Albayrak taking a loan instead of providing equity as apparently stipulated in the concession agreement. Albayrak is the Turkish company operating the Banjul port.
The existence of such a letter should have been an explosive revelation. In a country with a serious government, several people in GPA’s management and board at the time of the concession negotiation should have lost their appointments due to this preventable apparent breach of contract.
An important part of the issue is understanding the distinction between a loan and equity within the context of the concession agreement that Albayrak signed with the GPA. From what I can gather from publicly available sources, the public-private partnership (PPP) between Albayrak and the GPA is a 30-year concession, which resulted in a new company (also known as a special purpose vehicle) called Alport that will manage the Banjul port. Albayrak is supposed to contribute financing (called equity) to Alport and will be entitled to 80% of the port’s revenue, while the government will receive 20%. The agreement became effective in February 2025. There are further important details that should be public information, but have not been released by the government.
In a PPP arrangement like the one above, equity financing from the private investor is important for several reasons. First, it is a testament to the investor’s financial strength. Second, equity from the private investor gives them a stake in the success of the long-term concession agreement. If the concession fails, equity investors are likely to lose their money because they are the residual claimants. Loan providers are not as invested in the project’s long-term future as equity providers. After all, any bank that provides a loan will be paid first before any equity contributor. Therefore, equity is highly risky.
When project finance, such as this concession, is being designed, a particular gearing ratio (the ratio of debt to equity) is set to manage the project’s risk. This is the ratio of external (loan) to internal (equity) finance. For Albayrak to negotiate such a loan and announce it well after the negotiations had been completed indicates that the whole concession arrangement with the company was poorly handled from the very beginning.
Given the difference between an equity and loan, it should be evident why it is quite problematic for an investor to switch from equity financing to debt financing. An investor that relies on a bank loan to finance its contribution to a project is not risking much. After all, the bank will be first in line to be paid. Furthermore, the loan will be secured with project’s assets, which in this case are the assets of the Banjul port.
So, the fundamental problem with Albayrak taking a loan instead of putting in equity is that it creates an incentive misalignment. By using loan (external finance), Albayrak will have incentives to maximize its short-term payouts from the concession agreement instead of safeguarding the ports’ assets for the long-term. After all, if things fall apart even only after a few years, the company would have few resources at stake since the loan must be repaid first. In such a scenario, Albayrak would not have much to worry about since it would be raking in 80% of the ports revenue.
At this point, one may be tempted to applaud Ousman Jobarteh, the MD of the GPA, for taking a tough stance against Albayrak attempting to take a loan. That would be a mistake. Ousman Jobarteh is one of the officials responsible for this debacle. This is because the management and board of GPA, as well as the Minister of Works, at the time of the negotiation, failed in their fiduciary duty to safeguard the country’s interests in such an important, long-term concession. The negotiation with Albayrak was poorly handled due to a combination of incompetence and corruption.
If high-level officials had done their duty correctly, the MD wouldn’t be writing such a letter well after Alport started operations. Before signing such a long-term and important project, there should have been a series of due diligence exercises. Contract clauses known as conditions precedent should have been incorporated in the arrangement. The possibility of an investor switching from equity to a loan should not have risen right under the nose of the government.
Undoubtedly, there are a series of problems with this concession. We simply don’t know how many there are or how serious because the concession agreement has not been publicly released, as it should. That unnecessary secrecy is a problem.
At the bottom of the problem has to do with the selection of Albayrak. There were at least two other companies in better financial situations under consideration, yet Albayrak was selected. What was the basis for their selection? According to many people with knowledge of this transaction, the company did not have the financial strength to undertake a project of this nature. Corruption most likely played a role in selecting the company.
If the company misinformed the GPA about the true nature of its financial capacity, what else did it misrepresent? For instance, did Albayrak truthfully convey its technical capacity to effectively operate the Banjul port or to undertake investments and operate the proposed Sanyang Deep Seaport? These are all valid questions to ask given that Albayrak is attempting to switch a loan for an equity, in apparent breach of contract.
Lack of negotiation capacity may seem like a valid excuse, but it is not. There are many ways the government could have conducted a thorough due diligence, even if cost and expertise were not readily available in the government ministries or agencies. In fact, institutions such as the African Development Bank will provide grants (free money) to governments to help them in such negotiations. The African Legal Support Facility at the African Development Bank exists precisely for such a reason, and their assistance is provided at no cost. These government officials should have been aware of such opportunities because I have assisted this very government in receiving such a negotiation help on a separate occasion.
What excuse is there for this debacle apart from corruption and incompetence?
Source: Kerr Fatou Online Media House
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