Imperative of N250bn Bond for Ogun
Tunde Otegbeye
It is pertinent to begin by drawing memory from the ugly past in our dear state, especially as it pertains to how public funds were sourced and expended on white elephant projects. In September 2012, the immediate past governor, Ibikunle Amosun, wrote to the Ogun State House of Assembly, requesting to be granted permission to obtain N7.5billion loan from five banks.
The loan, which Amosun called ‘internal loan’, was to be used in financing the construction of eleven major roads across the state. The loan request was debated by members of the House in a motion tagged House Resolution 114/2012 before it was granted.
Also in September 2016, former governor Amosun requested for the approval of the Ogun State House of Assembly to access N14.16 billion budget support facility from the Presidency, to enable his government to meet its financial obligations to workers, pensioners and other stakeholders.
The House Speaker, Hon. Suraj Adekunbi, who read the governor’s letter during plenary, averred that the government had considered suitability of the facility “due to continuous drop in the monthly allocation from the Federation Account.”
Amosun, in the request, had said the loan repayment would be spread over a period of 10 years at a single digit interest rate.
He then asked the House to authorise the state’s Executive Council through the Finance Commissioner to ensure the successful completion of process of receiving the note issuance from the presidency for the loan facility.
He also stressed that the facility would be serviced from the statutory allocation due to the Ogun State Government.
Despite all this, however, the Administration of Prince Dapo Abiodun, which succeeded the Amosun administration on May 29, 2019, met deplorable state of roads across the state, indicative that the first loan might not have been utilised for its purpose as Governor Abiodun also inherited huge arrears owed the state’s workers, pensioners and stakeholders alike. Indeed, a demoralised workforce was the first challenge that Governor Abiodun had to tackle upon assumption of office and he was forced to explore his contacts in the country’s business community to source loans to restore sanity in the state’s civil service and to ultimately achieve stability for his own government.
In the midst of this challenge, the new Governor was overwhelmed by decayed infrastructure, including projects that were hurriedly constructed and hastily commissioned in the twilight of Amosun administration without regard for civil engineering procedures.
On assumption of office in May 2019, the Abiodun Administration met a whopping financial liability of N221.55 billion, excluding over N200 billion in contractor liabilities.
The N221.55 billion financial liabilities as at May 2019 comprise: Domestic loan of 107.6billion; External loan of N32.2billion; Gratuity of N51.04billion; Contributory Pension of N26.20billion; and Leave Bonus of N4.51billion.
Details of contractor liabilities are currently the subject of the Contract Review Committee which will publish its findings on completion of the review.
The questions then were, how will the incoming government source money to pay all these liabilities left by the Amosun administration and how would the civil servants who had worked many of their productive years not be able to get their gratuity and entitlements when they retired as there was no provision made for them?
During the one-year administration of Prince Dapo Abiodun, a total of N15 billion had been paid on these loans inherited from the previous administration. With this level of financial burden coupled with the level of recurrent expenditure, especially staff payroll running into billions of naira per month, in addition to the level of contractor liabilities which were spent on projects with no visible and clear economic benefits that generate revenue, it is clear that government must establish a long term financial plan for infrastructure that would drive the state’s economic revival and place the state well for revenue generation while implementing reforms to reduce recurrent expenditure.
The first step among many initiatives towards an efficient and sustainable financial management for the state was the loan restructuring and refinancing proposal approved by the House of Assembly on March 25, 2020, even as the world battles with the devastating effects of COVID-19 pandemic which has led to shut down of business activities and supply chain disruptions with significant reduction in federal government statutory allocations and internally generated revenue.
Some of the loans obtained by Amosun between 2015 and 2017, as contained in Governor Abiodun’s letter dated March 17, 2020, are Restructured Term Loan (FGN Bond) of N55, 405, 175, 055.11, obtained in 2015; Salary Bailout to State Government and Local Government of N9, 779, 580, 234.86 and N9, 139, 628, 430.00 respectively obtained in 2015.
Others are: Infrastructural Loan (Excess Crude Account) of N10, 000, 000, 000.00, obtained in 2015; Special Socio-Economic Development Intervention Loan of N20, 000, 000, 000.00 obtained in 2017 and Commercial Agriculture Credit Scheme of N5, 000, 000, 000.00, obtained in 2017.
The lawmakers unanimously agreed that granting Governor Abiodun’s request would allow the government to meet the shortfall in the price of crude oil at the international market.
Swift reforms initiated to boost revenue, which include renewed Land Use and Amenities Charge; reorganisation of the Ogun State Signage & Advert Agency; ongoing transformation of the Ogun State Internal Revenue Service and implementation of digital initiatives in revenue generation and payments, were also implemented to help diversify revenue base as well as block leakages, while enhancing robust financial transparency and accountability.
It is important to point out that the Road Refund Programme of the federal government had since been discontinued with effect from the end of the first term of the Buhari administration.
A whopping sum of about N10 billion was paid as financial charges by the immediate past administration of the state from the two road refunds paid by the federal government.
The two Road Refunds were paid through Federal Government Treasury Notes. The first tranche issued on December 28, 2018 for N15.02 billion, was discounted by the immediate past administration in January 2019 for N10 billion paying a whopping ‘charge’ of N5 billion while the second one for N22billion was discounted for N17 billion, thereby parting with another interest of about N5 billion.
It is important for the state to develop a robust financial plan which will cater for short, medium and long term financial requirements of the state in the foreseeable future.
By its very nature, bank loans are short term and expensive and can only cater for recurrent spending. It would be unwise to fund long term infrastructure projects with short term bank loans. As infrastructure projects tend to boost economic activities and generate revenue for the long term, global best practices and conventional wisdom suggest that these long term infrastructure projects are best funded with matching long term bond instruments and financing structures with up to 7-year maturity, relatively lower interest rates and improved regulatory oversight and accountability to ensure judicious utilisation of the funds.
-Otegbeye wrote from Ilaro, Yewa South, Ogun state