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Loans: DMO clears air on Chinese loan controversy

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Modupe ASUDO

LAGOS-THE Debt Management Office (DMO), the Agency saddled with responsibility of coordinating and managing Nigeria’s debt has issued a detailed clarification on the lingering controversy over Chinese loans. especially between the lower legislative chamber and the select Ministries, departments and Agencies.

According to the office, its attention  has been drawn to statements and reports credited to several persons on the subject of Loans obtained from China and has considered it necessary to provide a sequel to its Press Release on the same subject. it went on to urge the general public is encouraged to be guided by the facts in this Press Release.
How Much Loan has Nigeria Taken from China?

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As at March 31, 2020, the Total Borrowing by Nigeria from China was USD 3.121 billion. This amount represents only 3.94% of Nigeria’s Total

Public Debt of USD79.303 billion as at March 31, 2020.
Similarly, in terms of external sources of funds, Loans from China accounted for 11.28% of the External Debt Stock of USD 27.67 billion at the same date. These data, show that China is not a major source of funding for the Nigerian Government.
What are the Terms of the Loans from China?
The Total Borrowing from China of USD 3.121 billion as at March 31, 2020, are concessional Loans with Interest Rates of 2.50% p.a., Tenor of Twenty (20) years and Grace Period (Moratorium) of Seven (7) years. The Terms and other details of the Loan are available at dmo.gov.ng.
These Terms are compliant with the provisions of Section 41 (1a) of the Fiscal Responsibility Act, 2007. In addition, the low interest rate reduces the Interest Cost to Government while the long tenor enables the repayment of the principal sum of the Loans over many years. These two benefits make the provisions for Debt Service in the Annual Budget lower than they would otherwise have been if the Loans were on commercial terms.
What Were the Loans Used For?
The USD 3.121 billion Loans are project-tied Loans. The projects, (eleven – 11 in number as at March 31, 2020), include: Nigerian Railway Modernization Project (Idu-Kaduna section), Abuja Light Rail Project, and Nigerian Four Airport Terminals Expansion Projects (Abuja, Kano, Lagos and Port Harcourt), Nigerian Railway Modernization Project (Lagos-Ibadan section) and Rehabilitation and Upgrading of Abuja – Keffi- Makurdi Road Project. See a Full List of the Projects at dmo.gov.ng.
The impact of these Loans are not only evident but visible. For instance, the Idu – Kaduna Rail Line has become a major source of transportation between Abuja and Kaduna. Also, the new International Airport in Abuja, has improved air transportation for the populace, while the Lagos – Ibadan rail line when completed, will ease traffic on the busy Lagos -Ibadan Expressway.
The projects also have the added benefits of job creation, not only by themselves but through direct and indirect service providers, a number of which are Small and Medium Enterprises. It is widely accepted that investment in infrastructure is one of the most effective tools for countries to achieve economic growth and development. Using Loans from China to finance infrastructure is thus in alignment with this position.
What Is the Process by which the Loans were obtained?
The principal process and requirements for borrowing by the Government are expressly stated in the Debt Management Office Establishment (ETC) Act, 2003 (DMO Act) and the Fiscal Responsibility Act, 2007. Section 21 (1) of the DMO Act, “No External loan shall be approved or obtained by the Minister unless its terms and conditions shall have been laid before the National Assembly and approved by its resolution” and Section 41 (1a) of the FRA, “Government at all tiers shall only borrow for capital expenditure and human development, provided that, such borrowing shall be on concessional terms with low interest rate and with a reasonable long amortization period subject to the approval of the appropriate legislative body where necessary”, are instructive in this regard.
For detailed information on the borrowing process and required approvals please go to “External and Domestic Borrowing Guidelines for Federal Government, State Government and the Federal Capital Territory and their Agencies” at dmo.gov.ng/publications/other-publications/borrowing-guidelines
To summarise, the Federal Ministry of Finance, Budget and National Planning works with the MDAs under whose portfolio a proposed loan falls and also with the DMO. Thereafter, the approval of the Federal Executive Council (FEC) is sought. It is only after the approval by FEC that His Excellency requests for the approval of the National Assembly (NASS) as required by Section 41 of the Fiscal responsibility Act, 2007. More importantly, it is only after the approval of NASS that the Loans are taken and Nigeria begins to draw down on the Loans. In summary, Borrowing is a joint activity between the Executive (FEC) and the Legislative (NASS) Arms of Government.
How Rigorous is the Loan Documentation?
The Loan Agreements are reviewed by legal officers of the Federal Ministry of Justice and the Legal Opinion of the Honourable Attorney General of the Federation and Minister of Justice is obtained before any External Loan Agreement is signed.
Can China Take Possession of the Projects Financed by them if Nigeria Defaults in the Servicing of the Loan?
Firstly, Nigeria explicitly provides for Debt Service on its External and Domestic Debt in its Annual Budgets. In effect, this means that Debt Service is recognised and payment is planned for. In addition, a number of the projects being (and to be) financed by the Loans are either revenue generating or have the potential to generate revenue.

Business

Nigeria pays US$4.9 billion on petrol subsidy in 2024- NNPCL

It was however noted by Biztellers.com.ng, that although subsidy is back in effect, the main reason for that is the increasingly weak state of the Naira and the country’s extreme dependence on products importation. Also unlike the previous subsidy era, where several oil marketers were getting free subsidy refunds for unverified product importation, this subsidy era is witnessing only one importer, the NNPCL, which in effect is the sole receiver of government subsidies. 

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Yemie ADEOYE

INSPITE of the official position of the Nigerian government that the controversial petrol subsidy is gone for good as announced by the President on assumption of office, the state owned Nigerian National Petroleum Corporation Limited, NNPCL has disclosed that petrol subsidy is still fully operational in Nigeria, although, under a different identity.

Umar Ajiya, Chief Financial Officer at the NNPCL, disclosed that it cost the company a staggering N7.8 trillion (US$4.9) to cover this price gap in the first seven months of 2024.

Rather than simply referring to these claims as subsidies, he stated that the company is merely managing the price difference in petrol imports on behalf of the federation, stressing that this should not be misconstrued as a return to subsidy payments.

This revelation has reignited discussions on whether the NNPC is indirectly offering subsidies, a concept typically defined as selling a product below its cost price.

Documents reviewed by Biztellers.com.ng showed that the term “subsidy” was used extensively in official correspondence between the NNPCL and the presidency, particularly in reference to the “shortfall.”

Recall that President Bola Tinubu reportedly approved NNPC’s request to utilize the 2023 final dividends due to the federation to offset these costs.

However, during a media briefing on Monday about the company’s 2023 audited financial statements, Ajiya refuted claims that the NNPC is involved in any subsidy scheme.

Ajiya further disclosed that the Nigerian government owes the NNPC N7.8 trillion ($4.9 billion) in subsidy-related debts for the period from January to July 2024.

In furtherance of his clarification to the News Agency of Nigeria (NAN), Ajiya insisted that no subsidy payments have been made to any marketer in the last nine years, citing the NNPC’s role as the sole importer of petrol under supply contracts.

He said, “In the last eight to nine years, NNPC Ltd. has not paid anyone a dime as a subsidy; no kobo has been disbursed by NNPC Ltd. in the name of subsidy. No marketer has received any payment from us for subsidy.”

“What has been happening is that we have been importing PMS, which has been landing at a specific cost price, and the government tells us to sell it at half price. So the difference between the landing price and that half price is a shortfall.

“And the deal is between the Federation and NNPC Ltd., to reconcile, sometimes they give us money, so there is no money exchanging hands with any marketer in the name of subsidy.”

Ajiya remained silent on how much of the $4.9 billion could have been remitted to the federation account if the NNPC had not been covering the “shortfall.”

It was however noted by Biztellers.com.ng, that although subsidy is back in effect, the main reason for that is the increasingly weak state of the Naira and the country’s extreme dependence on products importation. Also unlike the previous subsidy era, where several oil marketers were getting free subsidy refunds for unverified product importation, this subsidy era is witnessing only one importer, the NNPCL, which in effect is the sole receiver of government subsidies.

 

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Banking

CBN Denies Currency Devaluation

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CBN Pegs Interest Rate at 14%

 

The Central Bank of Nigeria (CBN) has refuted claims of devaluing the.

 

Earlier reports suggested that the CBN had devalued the Naira, lowering its exchange rate from N631 to the dollar, compared to the previous day’s rate of N461.60 at the Importers and Exporters (I&E) window.

 

However, the Central Bank of Nigeria (CBN) released a statement on Thursday through its Acting Head of Corporate Communications, Dr. Isa Abdulmumin, categorizing the report as false information.

 

In the statement titled ‘CBN Has Not Devalued The Naira’, he said the attention of the apex bank was drawn to the news report by an Abuja based newspaper edition of June 1, 2023, titled “CB Devalues Naira To 630/51”.

 

However, the CBN stated categorically that the news report was replete with outright FALSEHOODS and destabilizing innuendos, ‘reflecting potentially willful ignorance of the said medium as to the workings of the Nigerian Foreign Exchange Market.’

 

“For the avoidance of doubt, the exchange rate at the Investors’ & Exporters (I&E) window traded this morning (June 1, 2023) at N465/USS1 and has been stable around this rate for a while.

 

“The public is hereby advised to ignore the news report by Daily Trust in its entirety, as it is speculative and calculated at causing panic in the market,” the CBN spokesman added.

 

He, therefore, advised media practitioners to verify their facts from the Central Bank of Nigeria before publishing in order not to misinform the public.

 

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Banking

BREAKING: CBN Increases Interest Rate By 0.5%

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CBN Pegs Interest Rate at 14%

 

The interest rate in Nigeria has been raised to 18.5 percent, up by 0.5 percent, from 18 percent where it was pegged in March 2023.

 

The Central Banks of Nigeria’s (CBN) Monetary Policy Committee (MPC) resolved to this effect at its third meeting of 2023 in Abuja, on Wednesday.

 

Governor, CBN, Godwin Emefiele, made the disclosure in the communiqué of the MPC’s meeting,  thereafter.

 

While engaging the media at the end of the two-day meeting, Emefiele, said the committee voted to keep the asymmetric corridor at +100 and -700 basis points around the MPR.

 

In the view of the MPC, rising inflation rate is traceable to the high energy cost and challenges around the supply chain, among others, which lie outside the corridors of the CBN.

 

Emefiele said, “The current trend in price development would continue to be monitored by the bank with greater collaboration with fiscal authority to address the drivers of inflation.”

 

Biztellers reports that the CBN had effected six consecutive interest rate increases, which has seen the rate move from 11.5 percent in March 2022 to 18.5 percent in May 2023.

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