Oyetola’s financial clean-sheet ~ by Adebayo Adedeji
“Whenever the bleak financial situation of Osun state is put into focus, government officials and supporters are quick to paint Governor Gboyega Oyetola as doing everything to avoid escalating the problem.
“They argued that unlike his predecessor, Rauf Aregbesola, Oyetola is not borrowing and so, deserves plaudit for his financial discipline in making do with the state’s lean purse and not adding to the debt binge…”
It is true that Osun was already stuck in a debt trap before Oyetola took charge…”
The above is culled from the recent polemic of a faction of Osun PDP against the government of Governor Gboyega Oyetola. The author of the querulous write-up, one Ibrahim Sarafa, acknowledges, though inadvertently, the glorious and giant strides of the current government in the provision of infrastructure for the people of Osun State. Sarafa, unreservedly, must be commended for, in a way, being truthful to his conscience, even though his paymasters had unleashed him to repudiate the financial ingenuity of the government.
What is the thematic concern “expounded” by the author? He believes, against claims and adulation of the people, the current government still obtains loans to finance her ace infrastructure projects. In his view, Bonds issued by the state government to offset the pension commitments owed by previous administrations expand the debt stock of the state. So also he reckons the Alternative Project Funding model is a liability to the state. I disagree. And I will state my position shortly.
The bonds, presented to Osun pensioners, in the strictest and truest sense of the word, are no debts. They are more of Commercial Papers indicating the willingness of the government to pay a definite sum at a stipulated time. They are somewhat equivalent to Manager’s Cheques ( otherwise known as Bankdrafts) because on presentation, even before the due date, they could be discounted at reasonably rates in the secondary market. They are cash on their own. All legal requirements, I learnt, were observed in issuing them. They are not failable. They can not be dishonoured unless they are presented before due date and the holders not ready to discount them before due date.
In equal breath, the Alternative Project Financing, the Osun experience, is not a debt. What neccesitates Alternative Project/Contractor Financing? Often times, financial institutions like banks, stock markets are reluctant to finance governments projects due to varieties of reasons. The financial institutions observe such projects are too risky, not able to meet convenants, or they just do not work out for some reason. So where would the government go? They seek alternative routes to fund the projects which require an especially costly initial investment and which are depreciated over long period of time ( i.e roads, in the case of Osun).
Alternative Project Financing is a child of neccesity in Osun State. It is an arrangement to manage financial peculiarity of the State considering her huge indebtedness to financial institutions. Or where would Osun have mustered the needed resources to fund her numerous projects scattered across the State when for every N100 received from the statutory federal allocation, N90 is deployed to settle financial commitments owed by previous governments ?
The Osun roads being financed through the Contractor Financing model are investment that entail a large amount of capital but with long-term need. They are executed at the bearest and lowest cost. It is not a debt and will not increase the State’s debt stock. It is a pay-as-you-earn kind of agreement between the government and the willing contractor. It does not come at any huge cost to the government, as erroneously and ignorantly opined by the PDP hatchet writer. No interest is payable. Till date, the government has not accessed any loan on the project. What she does is to pay the contractor from the state’s monthly Internally Generated Revenue. In other words, it is part of what the state earns that she uses to finance her project.
No doubt, the Contractor Financing is an ideal route to follow in this global economic austerity. It makes fund available without being bugged down by the pedantic requirements of the traditional lending institutions like banks who are subjected to regulatory or funding constraints. The model discourages project abandonment, substandard job and also frees funds for other critical needs of government.
As Sarafa rightly affirms, Oyetola came into the saddle having had to battle with parlous and prostrating financial condition occasioned by huge debt profile of the defunct regime. To manage the situation, as a sound financial expert that he is, the governor has to improvise and adopt the most desirable model of contract financing. This deft and sensible economic decision must be applauded and not cast with opproprium as the confused main opposition PDP are struggling to do by engaging in discussion above their head and understanding.
The Alternative Project Financing Approach model is gaining ground in the country. Many state governments have begun to adopt it for the purpose of economic engineering. One of such states is the PDP government of Oyo State. There is the N5.4 billion Lekan Salami Stadium project and the N8.5 billion Airport-Ajia road project being financed by the same Peculiar Concern Limited handling Osun projects. So the PDP claim of APFA encouraging over-bloated contract sum is at best preposterous, if not mischievous, unless they will agree their government in Oyo State equally inflated their contracts. Again, their claim of borrowing by Osun government is unfounded and stems from patent ignorance and foolhardiness.