13 May 2014

Nigeria: Gombe N30 Billion Bond - Controversy Trails Planned Second N10 Billion Tranche

Plans by the Gombe State government to access the capital market for N10billion bond, being the second tranche of a N30 billion infrastructure bond, has generated widespread controversy as indigenes lament that the move will deepen the state's current debt burden.

The N30 billion bond was floated in October 2012 with a seven-year repayment period.

The same month, N20 billion was accessed in the first tranche offer which put the state under a repayment burden of N400 million deductible every month from its monthly allocation from the federation account.

The bond is guaranteed by the federal government through the Federation Allocation Account Committee (FAAC) which has an Irrevocable Standing Payment Order (ISPO) issued by the state to authorise direct deduction of said amount at source from the its monthly allocation.

Now, the state government is about to access the balance of N10billion under the second tranche of N30billion bond which will lead to monthly repayment of about N700 million from its monthly allocation from the federation account, thus further increasing its financial burden.

LEADERSHIP also gathered that besides, the bond repayment, the state also has other debt obligations of which deductions are also made from its monthly federal allocation amounting to about N35million per month.

Part of these obligations include the $33.65 million (N5.38 billion) owed to multilateral agencies for which repayments are made every month.

The situation is further compounded as the state's IGR is not remarkable while the capacity to pay salaries and other demands in the state will have to come from the monthly federal allocation.

The bond arrangement was put in place through one of the commercial banks in which the state government has interest.

Though some of the indigenes agreed that the state government had the right to go to the capital market to access bond, they queried the financial burden, the judicious use of the proceeds of the bond and its impact on the state economically and socially.

Mr Murtala Aliyu, former deputy speaker of the House of Representatives, Hon Usman Nafada, alleged that the governor used N4 billion to renovate a primary school - Central School in Gombe - and another N4 billion to renovate School of Basic Studies.

Aliyu said, "What is the rationale for using N8billion to renovate to two schools? Gombe State is in deep financial trouble. The state is deep in debt but prefers to continue with its spending spree beyond its means."

"Gombe State University founded by Danjuma Goje was ranked among the best 10 in the country. Sadly, lack of adequate funding and a policy of the Dankwambo administration to deliberately ignore the university, if only to spite the founder, is not in any way contributing to the educational upliftment of the state."

Nafada also flayed the argument that the state's internally generated revenues (IGRs) can be used to augment its revenues, pointing out that though the state's IGR was about N200 million monthly, over 70 per cent of it comes from the PAYE.

"As salaries are paid from the federation allocation in the form of personnel costs provided in the budget, the IGR can be said to be directly linked to, or is a deduction from, the salaries paid out of the allocation received from the state's share of the federation allocation. Simply put, the state's IGR is not more than N60 million."

The state government had in October 2012, when it floated the N30billion bond, said it was to address its contractual liabilities and develop critical infrastructure in the state.

The seven-year tenor bond offer, which had a fixed rate of 15.5 per cent per annum, was arranged by one of the leading commercial banks.

When contacted over the matter, the state government debunked the allegation, saying that the issues raised by some of the indigenes in the state is unfounded and baseless and

Speaking through the special assistant to the state governor on media affairs, Alhaji Mansur Lawal, the state government said: "The money was judiciously spent on projects that have direct bearing on the lives of the citizens and three weeks ago we published a six pages photo splash in the media showing some of the projects that the money was used for, such as schools, roads, hospitals and so on."

"This is allegations are from mischief makers - those who are political opponents - and we don't want to join issues with them," he said.

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