The recently announced approval of the intention of the Oyo state government to issue a N10Obn bond to finance certain medium/long term infrastructural projects calls for concern and swift action from well meaning citizens and residents of Oyo state to prevent GSM led government from plunging the state into eternal bankruptcy. Ordinarily, i would have remained silent on this as usual, as this may be misconstrued by PDP apologists as another expected blind criticism from the opposition. However, the implications of this step by the government do not deserve silence as they could be far reaching, highly destructive and create perpetual financial insolvency leading to an unending economic slavery and bondage for the present and future generations of our dear state. As the saying goes, “evil triumphs when the righteous are quiet”.

The lack of transparency on the part of government in the provision of certain important facts on the proposed bond and the rationale for choice of the intended projects amount to economic insensitivity and financial recklessness on the part of this government.

A bond, in a layman’s language is a fixed commercial interest rate loan obtained by the borrower directly from a group of investors for a fixed tenor (usually btw 5 to 20 years)to fund projects with clear sources and terms of repayments. If the projects are not self liquidating, the sources and mode of repayment, either instalmental or bullet back end repayment have to be clearly stated. The implications of a default also must be clearly documented to the satisfaction of investors. From the above, the issuance of a bond should not be shrouded in secrecy and there are certain facts the government must make available to critical stakeholders on whose neck this loan is being hanged. The citizens of the state is number one among these stakeholders.

A number of facts about this proposed bond need to be disclosed by the government for financial transparency. This will enable the stakeholders to be clear as to the real implications of this step. For example, what is the likely interest rate on the bond, what is the proposed tenor of the bond, what is the source of repayment of the bond, what is the regularity of interest servicing on the bond, what is the mode of principal repayment, instalmental or bullet, what is the implication of a default on interest and principal, what is the financial returns on these projects, if any, who are the parties (consultants) to the bond issue, what are their commisions, what are the other issuing expenses, and what is the net recievable on the bond after deducting the issuing expenses? These and others are the questions begging for answers. I’m very sure that in the process of providing the answers, the goverment, the citizens and the approving authorities at the federal level will discover that this intended action of Oyo state government is either not well thought out, wicked or a product of financial illiterates running our affairs.

Having asked the above questions, it is quite easy to demonstrate the lack of capacity of the present financial status of Oyo state government to fund projects using a commercial bond of this volume and magnitude. Servicing the interest alone is a major burden on the government finance before we start talking of principal repayment. At the prevailing rate, the best interest deal this goverment can get from the market is between 12% and 13% per annum. The most recent commercial bond concluded last week by NOVA Merchant Bank was at 12% just because of the prevailing low interest regime. This is authoritative as I personally participated in the book-building. Most of the existing federal and state government bonds were issued at between 14% and 16%. Even at the lowest rate of 12%, Oyo state government will have to be paying an interest of N12billion per annum or N1billion per month on the proposed N100billion, until the principal is fully repaid especially if principal repayment is back end. And this interest repayment has to be immediate as it is usually paid twice a year, at 6months interval. There is no moratorium allowed on iterest repayment on a bond issued. How will a government that is struggling to pay salaries alone, from the FAAC and IGR combined meet this interest obligation. Meanwhile, our monthly combined revenue is already burdened by the interest and principal repayment obligations on the existing debts. Even if this bond is issued in two tranches as they mentioned, an interest of N500million will need to be paid on monthly basis on a single issue till the bond is redeemed. A large percentage of the inherited debt by GSM taken by Ajimobi’s government were predominantly government and world bank related compassionate loans with concessionary single digit interest rates. That is why servicing these loans have not been problematic for the government. A Bond is however a commercial loan at commercial interest rate and devoid of repayment concession, deferral or debt forgiveness.

Now, how will the government pay the principal. Even if the principal is agreed to be paid back end, a sinking fund or reserve is expected to be created by the government from its revenue on a yearly basis into an exclusive reserve account to make up for the repayment at the terminal end of the bond. This will give the investors the satisfaction that they will be paid on the terminal date. If the tenor is 5years, a N20billion annual reserve should be created, if it is 10years, it is N10billion reserve and if the tenor is fixed at 20years, N5billion annual reserve should be created. How on earth will the government afford to set aside this annual reserve given its current finances? It is my prayer that our state doesn’t go into recievership at the end of it all. It is crystal clear that the evil plan of this GSM led government with a 4year tenor is to create a huge and unnecessary debt burden on subsequent governments of the state after they might have been long gone. Like i mentioned earlier, it is not likely that the federal approving authority gives approval to this bond with this kind of conditions. If they do, it will be most unfortunate.

I’m also amazed at the projects listed on the proposed bonds and i wonder the kind of conversation that take place at the EXCO meetings of this government. What is the business of Oyo state government in expanding a federal airport? I agree that Ibadan airport needs upgrading to international airport standard, but we dont have the power to do this at the state level. It is not our property. All we need do is to lobby the federal government through our serving minister, able senators and honourables at the federal level via a sponsored bill which i believe had been raised in the past. Once it is approved, the expansion responsibility with associated cost and funding plans become that of the federal government. What is the essence of expansion when the status remains a local airport? And the federal government has also declared of its non-readiness to refund expenditure incured by states on federal assets any longer. On the Circular road, what has happened to the PPP (Public Private Partnership) arrangement left behind by our late revered leader, former Governor Abiola Ajimobi? A project of that duration and magnitude should never be funded by the state government fund. It should be handled as a commercial self-liquidating project with private sector funding on a BOT (Build-Operate-Transfer) basis. If it is not viable or attractive for private sector involvement, why funding it?

For the Iseyin-Ogbomosho road and Ajia/Ife road/Amuloko road listed, these are reasonably short length road infrastructures that can be gradually funded from the annual state road budget at a reasonable pace without issuing a commercial bond. Does the government have plans to toll these roads? While i agree that these are important roads that must be done, there is no urgency in funding them via a bond issue as they are minor social projects. My take here is that GSM is playing a fast one on our people to arouse their sympathy to support this intended reckless step. He believes the Iseyin and Ogbomosho indigenes as well as residents of Ajia and Amuloko axis will sympahise with his government and supoort the bond issue. This is pure deceit and wickedness. The 65km Ibadan/Iseyin road awarded at N9.9bn is being funded via the state budget. But a surprising fact about the 21km Ajia/Ife road/Amuloko is the award amount of N7.5bn when a 65km Ibadan/Iseyin road was awarded at N6bn by Ajimobi’s government recently upgraded to almost N10bn by GSM. The rulling class has to be careful in this state. Our people are watching.

In conclusion, the GSM government so far has not displayed the kind of integrity of a government that means well for his subject. It is surprising that someone that leveraged on the volume of government indebtedness as a major campaign point during election has suddenly decided to match and surpass the volume of loans taken over 8yrs by his predecessor, in less than one and a half years of his resumption to the office. It is equally condemnable that someone that promised monumental growth in IGR and revenue self sufficiency within 6months of his government during the campaign has not come up with a single strategy on how to grow IGR to fund critical government operations in over one year of being in office, but will rather pile up debts for the coming generations to battle with after he might have been long gone and relocated. Thank God, they all dont have a single commercial stake in this state. This is not only wicked and deceitful, it is equally ungodly as our people deserve better treatment. They are just being taken for granted by this insensitive and clueless set of people. As a citizen of this state, I will rather be abused by a governor than being sent on eternal financial slavery and economic bondage by another seemingly or deceptively introvert governor. This is the benefit of hindsight. I still wonder why this government can not see the huge economic opportunities and potentials to grow the state IGR to enable them fund expenditure. It is sheer laziness, ignorance, financial illiteracy, commercial incompetence and lack of innovation of this cabinet. This is a story for another day.

Adebayo A. Adelabu FCA, FCIB

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