Recession: Sustainable solutions and long-lasting recovery
The company will develop the project under a turn-key engineering procurement and construction and sell power under PPA if it is a power project or collect fares (railway project) or collect road tax (road construction).
The project financing structure will include equity and debt – senior debt and subordinated debt with tenors e.g. 15 and 20 years respectively. The government and the project sponsors will only contribute to the equity portion in a debt to equity ratio e.g. 79-21 depending on the agreed structure. The concession may have a tenor of say 30 years and over. The involvement of development finance institutions such as the World Bank, IDA, IFC, MIGA will raise the profile of such projects and make them attractive to cross-border lenders. The government equity contribution could be in kind based on its previous development work. The combined strength of both development agencies and commercial lenders (capital market) will result in a robust project structure. AfDB is also a source of project finance for member countries. We should commend the bank for coming up with a loan of $4.1 billion on a concessionary interest rate of 1.2% to help fund the 2016 budget deficit and to bridge other funding gaps.
The government should not consider selling the refineries to finance recession as an option. There are other cheap funding options that have been discussed. I will continue to emphasise the fact that privatisation of the refineries will lead to hike in products prices due to inherent structural issues that have negative effect on refinery projects. Investments in refineries are unattractive because of low margins. Privatisation is not an option because of possible continuous hike in petroleum products due to low profit margins. The breakeven point of a refinery project is very high and requires “whole-life-costing” and cannot be compared to telecom project which has a short payback period and low breakeven point. A commercialised NNPC is the sure route to lower product prices for the citizens. Federal Government should go by the modern public finance theory which requires governments to invest in projects with high costs that affect the poor negatively. There were solid proposals made to the government in 2003 to bring in the original construction companies that built the refineries to rehabilitate and upgrade the plants to their installed capacity. The proposal never saw the light of the day. The refineries are not functioning at installed capacity because of regular government interference. I believe the government was more prepared to pay subsidy than fixing the refineries.
My take on the performance of President’s ministers is that it is too early to start criticising some of them even to the extent of recommending for their sack and replaced by experts. The pertinent question is who are the experts? Are they the experts that presided over an economy that has been plunged into a recession? Is it not time we start proffering sustainable solutions to the country’s development challenges? Experts without positive contributions to development should no longer be recycled. I agree there were times we achieved economic growth of about 6% but that was on paper. GDP growth as a measure of performance of our experts in the Nigerian context has been disappointing and should no longer be used to raise the profile of our failed experts.
During the so-called period of growth, the budget did not help businesses grow and create jobs; schools, hospitals, infrastructure, and public utilities are mere shadows of what they should be despite high oil prices. The poor and unemployed were excluded from the country’s so-called economic growth. In the face of deep structural weakness in the economy, I believe it was unnecessary to have carried out a disastrous naira devaluation policy considering that Nigeria is net importer of industrial and household goods and agricultural products. Because of their past actions, the economy has ended in recession and the naira is on the brink of sinking. The 1994 Mexican collapse was said to be one of the worst crises since the Great Depression in the United States. It is sad to state here that the Mexican government that plunged the economy into one of the worst recessions was run by economists who were trained in leading American universities.
It is high time we start judging our experts by their contributions to national development and GDP growth that created jobs for the teaming youths, and inclusive growth that touched the life of the man on the street. Of course, the President and his team should be open to constructive criticisms as no individual is perfect but not obstructive criticisms. We can bring the best out of the current ministers by encouraging and engaging them constructively.
Judging from the level of decay and development liabilities that have been accumulated over the years, it will be unfair to ask the President to forget the past and take sole responsibility for a recession that has wiped out over half of the wealth of the citizens and exacerbated poverty across the land. Regular reference to the past without a doubt is a constant reminder that will help guide the President’s steps and actions to avoid the mistakes of his predecessors.
On the issue of whether to sell some of the government shares in NLNG to fund part of the stimulus package to address the recession, I would first like to state here that the NLNG project is a project very close to the heart of the Federal Government of Nigeria and well-meaning citizens and associates of Nigeria. This was exactly what I was told when I was asked to relocate from OPEC in Vienna to London to join the NLNG team in 1993, and I served on the project from 1993 to 1999 both as the head of London office shareholders Escrow Scheme and General Manager Finance NLNG head office in Lagos. The NLNG project has come a long way encountering monumental challenges.
• Koko is a chartered accountant.
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