OUR attention has been drawn to the recent publication credited to Mr. Ganiyu Ola-Oluwa, the Chairman of the Peoples Democratic Party, PDP, in the State of Osun, accusing the current administration in the state of propaganda and misinformation, particularly concerning the manner of financial management of the erstwhile administration of the PDP in the state.
As much as we had decided to ignore these disparagers, their absurdities and unending and unfounded allegations, it is important to react to the referenced publication made in Thisday of Monday September 3, 2012.
This is considered necessary given that the issue of the N18.38billion term loan facility, obtained from United Bank for Africa, UBA Plc by the administration of Prince Olagunsoye Oyinlola, raised in the publication, is of course in the public domain.
We, therefore, have to set the records straight on the issue to avoid misinformation, capable of diverting the attention of the citizens of the state from the lessons that need to be learnt on why usurpers should not be allowed to run the economy of a state.
PDP’s claim of disbursing only the sum of N10 billion from the N18.3 billion term loan obtained by the Oyinlola administration is gratifying as it further raises some questions on the genuineness of the intention of that administration on the facility amount. This is so considering the fact that the monthly repayment obligation of more than N619,294,837.82 on the facility was calculated by the bank based on the whole facility amount (irrespective of the undisbursed portion).
Thank God, PDP agreed that the loan passed to our administration was N18.3 billion out of which the party admitted that Oyinlola spent N10billion, therefore, it is no brainer to know that to bring N18.3billion loan down to N8.3billion, you require to pay N10billion which is higher than the amount left unspent by that administration when we came in.
Our review and findings on the projects being financed with the facility showed that the level of work completed by the contractors (as indicated by the various certificates of completion) is abysmally low when compared with the level of disbursement.
In addition, the manner of management of the facility by the lender (UBA) led to our decision to negotiate a fresh and well-structured N8.3billion term loan from First Bank of Nigeria, FBN, Plc to take out UBA.
For avoidance of doubts, the referenced facility from FBN was obtained at an interest rate of 10 per cent per annum and 12 months moratorium period with five-year repayment period. So you can, therefore, see that the claim that the loan was negotiated at 13 per cent per annum was patently false. The long tenor of our refinancing makes the yield lower and therefore, a saving for Osun.
Aside from the fact that the purpose of the facility as clearly indicated in the facility offer letter shows that it was meant for “part financing completion of key projects in the state which include road construction, free trade zone, technical education projects, etc”, the utilisation of the facility for counter-part funding required to facilitate some developmental grants (such as UBE and FADAMA) is spurious and unthinkable.
As a matter of fact, it is financially suicidal to use medium term loan to finance normal recurrent social obligations. This is a case of financial mismatch and a reflection of the state’s inability to meet its short term obligations under the PDP-led administration.
As logical as the claim of shorter tenor of three years on the referenced facility and the likelihood of lower interest charges on same is, it is, however, unreasonable to negotiate such substantial term loan with a short tenor of only 36 months.
This is so given the lower level of the state’s portion from the statutory allocation from the Federal Government. How can a state survive by using more than 32 per cent of its revenue for servicing term loan, at a time when the state’s personnel and overhead costs was already over 100 percent of its statutory revenue?
The unspent portion of the N18.3billion term loan was certainly PDP administration’s recipe for disaster on the suffocating monthly obligations on the term loan. Our administration’s decision to partly liquidate the N18.3billion term loan and restructure the balance with FBN Plc was borne out of our determination not to ground the state and neglect the social responsibility of government to the citizens of the state, in the name of “spurious” projects PDP administration embarked on.
It is necessary at this point to point out that the allegation that our administration took N25 billion from FBN is either borne out of ignorance or deliberate falsehood (or both). The referenced N25billion facility is a credit line and only the sum of N8.6billion used to pay down the UBA facility, was drawn to date.
You need to note that the state’s obligation is limited to this amount, contrary to what obtained on the last administration’s N18.3billion facility. The writer’s position on the credit line further revealed his shallowness of knowledge on financial and treasury management. How does a credit line become a loan when it has not been drawn?
Our strategy of restructuring the referenced term loan is first to convert it to a long term obligation that it should be, and then take it out by sourcing a cheaper debt instrument (developmental bond) from the Capital Market.
This is under processing. The PDP administration is a lame duck that lacks the initiative and vigour to go through the rigorous process of developmental bond programme, suitable for major developmental projects.
As a matter of fact, the Oyinlola-led administration’s decision to take the term loan on the verge of its illegal second term in office is tantamount to financial recklessness with questionable intentions.
For posterity sake, why should a government whose illegal tenure is less than 12 months obtain N18.3billion term loan of three years tenor? Anyway PDP’s regime in the state was characterised by its lack-lustre attitude and cluelessness in governance.
In addition, the claim of expectation of over N2billion reimbursements from some capital projects, and refund of excess interest charges on some offshore facility, which he said were meant to cater for part liquidation of the term loan is funny and ridiculous. How on earth can any serious government base its expectation on extra-ordinary revenues? Moreover, one wonders if the structure of the referenced term loan took into cognisance those expected receivables as sources of repayment.
As customary of PDP administration’s manner of financial squander in the state, the receivables would have also gone down the drain in usual style, had it been they came before Oyinlola-led government was disgraced out of office. Afterall, the state also frittered away the bulk of excess crude oil revenue earned during PDP regime.
It is very important to let the world know that although the state plans to access money from the capital market, it has not taken any amount yet. As a matter of fact his comment on the bond programme revealed knowledge gap about the dynamics of capital market. We are only accessing 30Billion.
Although, we are planning for future needs of the state and anticipating increase in revenues by creating a future shelf or room of N60billion. The approval we are processing is for N30billion and that’s what the state’s revenues can carry for now. It is a disciplined process and approvals are not granted recklessly. One therefore wonders where he got the information that the state has issued N60billion, 10 year bond at 15 per cent p.a.
This is a frivolous allegation similar to the N25billion loan he alleged Governor Aregbesola has taken to help his fuzzy maths. Osun’s only loan is N8.6 billion and it was used to offset the unreasonable loan Oyinlola took on crazy terms, period!
For your enlightenment, Bond issuance programme is a rigorous and transparent exercise, which requires a lot of documentation and scrutiny by various regulatory authorities such as Securities and Exchange Commission (SEC), Debt Management Office (DMO) and Nigerian Stock Exchange (NSE), among others. The various advantages of bond over bank facility and our administration’s transparency are of course the impetus for the proposed capital market borrowing. It is cheaper on the long run, interest rate is fixed and certain, and there is no exchange rate risk.
The Promissory note facility mentioned in the publication is meant for spontaneous financing. This enables contractors to move to site without being mobilised, based on negotiable instruments (promissory notes) issued to them by the state. This is possible based on the ingenuity and credibility of the current administration under the leadership of Ogbeni Rauf Aregbesola.
I think we should ask if the Oyinlola-led administration in the state had such level of initiative, integrity and enviable credit rating to attract such confidence and trust of contractors and investors. Records of unpaid contractors’ liabilities our administration inherited when we came on board exist for verification.
In summary, we will like our detractors to provide answers to the following questions to further justify their intentions on the referenced term loan:
What is the rationale for the N18.3billion reckless term loan, obtained at the 24th hour of the Oyinlola administration? Why was the entire loan drawn by the PDP administration fully prior to commencement of projects, even when the construction periods of the various projects for which it was meant were between 12-24 months?
How prudent and transparent was the PDP administration in the state going by the manner of management of the facility by the lending bank – paying interest on both the drawn and undrawn portion of the facility?
Why did the PDP-led administration negotiate for a short term loan of 36months to finance long term social infrastructure development? Why criticise the ingenuity and ability of our administration to attract favourable credit terms from both our contractors and financiers when it is clear and unarguable that the PDP administration in the state had no integrity to attract such?
It is high time the PDP in the state and their advocates realised that there is limit to the denials of their financial recklessness while in power in the state of Osun and recognise the financial repair being carried out by Ogbeni Rauf Aregbesola Administration. If anything, they should bury their heads in shame for financial recklessness and nearly bankrupting the state before God threw them out of power, to the relief of all and sundry.
•Mr Bolorunduro is the Commissioner for Finance, Economic Planning and Budget, State of Osun.