Governors selling future generations for quick fund in some states

Olusegun Aganga

An atrocious act of citizen and state mortgaging has been suspected following discoveries that many governors may have borrowed for the future generation to pay up. The crime has been committed at least in about nine  States of the Federation.

Just in case you don’t know, Nine Nigerian States have accessed the Nigerian capital market for funds via bonds and so far have raised N108 billion from 1999 to date.

These states claim they raise this money for the financing of infrastructure projects in order to facilitate easy processing with governors ensuring collateral provisions through the state assets

It has been discovered that many of the states resort to such actions after the treasury of their state has been looted dry.

The implication is that future generations are now being saddled with bondage of debts servicing. The future of the citizens of those states is being mortgaged, and no one is asking questions!

According to statistics obtained from the Nigerian Stock Exchange (NSE), in the last 11 years, the nine states that successfully issue bonds between 1999 to 2009 include : Edo (1999) N1billion; Delta (2000) N3.5billion; Yobe (2001) N2.5 billion; Ekiti (2002) N4billlion (in 2 tranches of N2.5b in 2002 and N1.5b in 2004); Lagos (2002) N15billion, Cross River (2003) N4billion, Akwa Ibom (2004) N6billon, Kebbi (2006) N3.5 billion, Lagos (2009) N50 billion first tranche of a N275 billion; Imo (2009) N18.5billion bond issue is Series 1 of a N40billion Medium Term bond issuance programme.

In most of these states, the reasons for borrowing the funds were not specified. Most were classed under the omnibus heading: “for various projects”.

In fact, many more States have approached the capital market for funds, but they have not been able to access the market for long term fund (bond) because of their inability to tidy up their financial statements which is part of the conditions that must be fulfilled before approval is granted to them by the Commission. (Vanguard 7 March 2010)

According to Vanguard, “This is a major factor inhibiting the states government from accessing funds from the capital market. Most of the states government don’t have financial statement that shows how their states are run financially. Many have carried out caricature projects while many can’t even boast of carrying out any project they professed to use the huge sums for.

State that wants to issue bonds must have at least three years financial summary of its activities.

This is to ensure that the state issuing the bonds becomes responsible and accountable and investors are satisfied with its performance.

Meanwhile, more state governors who are in a race to issue bonds from the capital market include: Ogun, Bauchi, Kano, Niger and Kwara states. These states, last year, expressed preparedness to hit the capital market with bonds issuance so as to fund cash soaking long-term infrastructure schemes.

In Ogun State, the mad rush for bonds has assumed a theatre of the absurd.

On Monday, 6 September 2010, 11 members of the Ogun State House of Assembly held an unscheduled sitting after which it was announced that the Speaker had been impeached and suspended with the remaining 14 members opposed to the state governor.

The current imbroglio plaguing the Ogun state House stemmed from such state sell out following a proposed  N100 billion bond, the state government wanted commit itself to take.

The House of Assembly under the leadership of Egbetokun, especially the Group of 15 members not on good terms with Daniel’s administration, had consistently opposed the bond on the basis that the state does not need to commit itself to such indebtedness.

Opponents of the bond issue however gave a caveat that they would support it only if the state government would agree to an open debate during which it would explain to the people what the bond being sought would be used for.

Only two weeks ago, members of the G15 Assembly members wrote to the Presidency complaining of intimidation and under-funding of the assembly by the executive arm of government.

In the letter dated August 24 with reference number HA.225/T/1 and sent directly to President Goodluck Jonathan, the House members drew the president’s attention to what they called “certain ugly developments which for long have been brewing in Ogun State but which have assumed a very worsening and dangerous dimension”.

The letter signed by Egbetokun, Hon. Remmy Hassan (Deputy Speaker), and Hon. Sewendo Fasinu (Majority Leader) lamented that “governance has become barbaric, irresponsible, defiant, riotous, chaotic and largely undemocratic”.

It is alleged that Otunba Gbenga Daniel and other state governors have decided to mortgage the future of their states for immediate gain. It is a must that every state that borrows from the capital market must repay the debt and evidently not during the tenure of such government thereby shifting pay back responsibility to new incoming governor.

The reason is that “there are rules on the issuing of bonds by the SEC. One of these rules include “an Irrevocable Standing Payment Order (ISPO)”.

An ISPO means that the fixed bond repayment is deducted by the FGN from state’s allocation before the net amount is released to the State.

According to spoke’s person of SEC, Mr. Lanre Oloyi “The deducted amount is paid directly into the trustees account by the apex government on a monthly basis. The state therefore has no say in repayment once the ISPO is in effect so investors have strong guarantees that they will get their returns.” In this fun, many states are starved of funds as they deliver their budgets

It would be recalled last year , Governor Gbenga Daniel of Ogun State visited the floor of the NSE to hint about his plans to raise funds for the state through bond issue, but his state is finding it difficult to access the needed funds due to non approval from the State House of Assembly.

The Vanguard newspaper quoted above even said that some of the states who feel they cannot meet the requirements for the issuance of bonds are currently lobbying to see if SEC could avert some of the rules and afford them the assess opportunities.

According to Vanguard, “Some states are mounting pressure on SEC to see it they can get approval so as to allow them avert some of the rules. But SEC is still insisting that they should engage professionls to help them prepare statement of accounts. Even when they scale through they still need to get approval from the federal government that will issue them ISPO.”

The Newspaper said the ISPO was one of  the reasons why the Ogun and Abia states could not access funds from the capital market.