Abu Nmodu in this report explains the controversy surrounding the plan by the Niger state government to obtain N21.5bn Sukuk bond to finance infrastructural projects in the state.
At the middle of the second quarter of this fiscal year, Niger state government annouced the state executives approval for seeking Sukuk bond facilities to stimulate some economic activities in the state, while also meeting up some infrastructural needs.
As soon as the intention was made known and the request transmitted to the state assembly, the issue started generating some controversies on the likely burden the Sukuk may place on the state.
On receiving the request amidst expected criticism, the State House of assembly set up a six man committee to interface with Executive arm of the government on the details of of the planned N21.5billion Development Sukuk Issuance programme that was contained in executive communication seeking for the House resolution.
The Speaker, Rt Hon. Ahmed Marafa Guni read the Executive communication to the House seeking for the approval of the facility in line with the objective of transforming the state so as to set it firmly on the path of sustainable growth and development.
In view of the nature of the communication , the Speaker after consultation with his colleagues constituted a six-member special Ad-hoc Committee, to interface with relevant government officials of Ministries, Departments and Agencies affected by the planned project.
He stated that the committee consultation should include other relevant stakeholders on the matter and to report back with recommendations to the plenary of the House for further legislative action.
The Special Ad-hoc Committee comprises of two members each from the three senatorial zone of the state and they are ; Hon. Abdulmalik Mohammed Kabir (Paikoro) Chairman, Hon. AdamuAbdullahiMammagi (Gbako) Secretary, Hon. BintaManmman (Gurara) Member, Hon. Mohammed A. Haruna (Bida II), Hon. Umar Mohammed Jiya (Mashegu) and Hon. NuraGarba (Kontagora II) Member.
The executive communication noted that in order to keep focus on the brand development objectives and the need to improve the standard of living of the residents of the state, which is in line with the collective efforts to rehabilitate and reactivate essential infrastructure through a number of Ministries, Departments and Agencies, obtaining the bond became imperative.
The targets are improvement of healthcare services in major townships, development of trailer parks and market as well as diversification of the state income strength through the development of mining city, with three mineral processing centres across the state.
The first fund plan of this initiative includes the provision of direct budgetary fund allocation from state resources to rehabilitate Chanchaga water treatment plant, rehabilitation of General Hospital Suleja, General Hospital Bida (Maternity) and Schools of Nursing Bida, Minna and Kontagora.
The second fund is the negotiation of Public Private Partnership (PPP) arrangement, backed with the bank performance guarantee or state guarantees in form of SPOs to commercially viable projects like the Suleja and Minna water supply scheme.
Few weeks after the committee was set up, the Niger State House of Assembly has refused to grant the request of Governor Abubakar Sani Bello on the N21.5 billion Sukuk bond due to some high interest the bond is allegedly meant to incur.
The Chairman of the House of Assembly Special Committee on Sukuk Bond request , Honorable AbdulMalik Kabir , who read the committee’s report said that the management fees, contingency, professional fees were not acceptable.
He added that the cost of underwriting and consultancy fees inclusive of the 17 percent interest rate which is to the tune of over N10 billion is on the high side, hence the rejection. ‘’These charges and fees are considered too much,’’ he had declared.
According to him, the monthly deduction from the FAAC would be N255 million, declaring that at the end of the seven (7) years repayment period, the state would have paid N31.5 billion for the N21.5 billion bond.
Consequently, he said that the interest of 17 per cent would translate to N8.9 billion, other fees and expenses would translate to N431 million while the professional fees would amount to N939 million.
The legislator explained that with the state debt profile at N57.9 billion, if the government is allowed to take the bond, it would put the state into financial comatose.
“With the payment of N750 million monthly as debt services, N255 million which would be the monthly deduction for the repayment of the Sukuk bond would be too much for the state to bear monthly.
“In view of our observation, the committee recommend that the request by the governor to secure N21.5 billion Sukuk bond should not be granted”.
While deliberating on the committee’s report, the member representing Rafi constituency, Danlami Bako observed that listing of the projects to be undertaken under the Sukuk bond indicated some priority misplacement, noting that the trailer park and the mining city project are not viable.
Meanwhile, the member representing Kontagora II, Honorable Nura Garba recommended that the request should not be completely thrown out, hence it should be reconsidered if the executive renegotiate the terms of the bond with Sukuk.
Apparently the position of the member from Kontagora II was in minority as the house declined the request in majority of voice vote.
As this was done the executive was quick to make its position known as the state government announced that before the said resolution of the house it has requested the legislature to step down the deliberations and consideration of the bond until further communication.
This request was contained in a letter signed by Governor Bello and dated 5th July, 2018, to the House of Assembly addressed to the Rt Honourable Ahmed Marafa Guni Speaker, the State House Assembly.
According to the state’s commissioner for Information and Strategy, Alh Danjuma Salad , the letter was duly received in the Honourable Speakers’s office at
exactly 3.20pm on Thursday, 5th july, 2018; a week before the house passed its resolution.
The commissioner said In the letter, Mr Governor expressed his “profound gratitude and appreciation to Mr Speaker and Honourable members for the seriousness with which the House attends to legislative business and other equally important affairs of the state and huge time it devotes to doing so, inspite of their enormous complex nature. But the request should be stepped down even though the desire to take the bond was in the public interest”.
He said the decision was to disabuse the minds of the people that the bond was not meant for re-election bid in 2019 as being rumoured.
The state’s commissioner for Finance, Alh Zakeri Abubakar has always posited that the bond was to lubricate the economy and resorted to the Sukuk bond, considered to be a better source of funding of the aforementioned projects.
Contrary to the claim by the state assembly that there is burden of the bond facilities taken by the previous administration as the reasons for refusing the SUKUK bond, the commissioner of Finance said that out of the N27 billion bond taken by the Dr. Mu’azu Babangida administration, the state government still has only N8.1 billion outstanding bond debt to be paid.
Abubakar explained that the N2.1 billion which is outstanding from the N9 billion bond would be repaid in 2021 while the N12 billion bond has an outstanding balance of N5.4 billion balance which would also be repaid by 2021.
He further hinted that at the inception of the Abubakar Sani Bello’s administration, the government sought for the elongation of the tenure of the payment of the bond, to reduce pressure on the government due to the economic downturn, hence the fear of burden as a result of the Sukuk bond was unfounded.
The commissioner said that the government planned to take N21.5 billion Sukuk Loan Bond to fund infrastructural projects across the states, even as negotiating a 17 per cent maintenance cost was negotiated with seven years repayment plan.
Abubakar said that the bond was meant to be released in two tranches over a period of two years, saying N12.5 billion would be released in the first tranche, while N9 billion would be released for the second tranche; Which therefore allayed the fear of the Sukuk bond fund been used for reasons other than infrastructural development and economic rujevenation.
An expert in political economy, Dauda Abdullahi told LEADERSHIP Sunday that Sukuk bond is a very desirable means of economically viable funding. He added that Sukuk is Islamic bonds, structured in such a way as to generate returns to investors without infringing Islamic law that prohibits interest .
According to him, Issuing and payment process of sukuk was based on an asset.
Another aspect of difference between sukuk and traditional bonds, according to another expert in the system, Mohammed Musa is that Sukuk indicates ownership of an asset while bonds indicate a debt obligation and Sukuk is priced according to the value of the assets, backing them while bond pricing is based on credit rating.
He said Sukuk can increase in value when the assets increase in value. And that in the other hand profits from bonds correspond to fixed interest, making them riba.
Notwithstanding, the controversy on the bond seems over by the tactical withdrawal of the executive and the brazen decision of the assembly based on genuine fears. The stepping down of the process might have denied the state of a viable alternative funding source.
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