FG’s Contingent Liabilities To Hit N6.1trn By December—Investigation

The Contingent Liabilities of the Federal Goverment is expected to rise by N3.52trn from N2.579trn last year to N6.1trn by December this year, analysis of figures obtained from the Ministry of Finance, Budget and National Planning by THE WHISTLER has revealed.

In recent times, the Federal Government in a bid to prioritise the development of infrastructure had adopted new and more creative ways of financing.

As a result of this, there had been an increase in the use of off-balance sheet products such as Credit Guarantees, Letters of Comforts and other financial instruments by the government.

These financial instruments which constitute Contingent Liabilities are also deployed to encourage private sector participation in the development of critical infrastructure and projects and other sectors of the economy through Public-Private Partnerships, Concessions and other structures.

These partnerships, according to the government had provided significant social and economic benefits to Nigeria.

Contingent Liabilities are sources of fiscal risk to the government and can cause a substantial burden on the budget if they crystallise.

Analysis by this Newspaper of the Medium Term Expenditure Framework and Fiscal Strategy Paper showed that the Federal Government’s exposure to Contingent Liabilities in 2019 stood at N2.579trn.

But with the issuance of additional guarantees for various developmental projects by the Federal Government, the Contingent Liabilities is being projected to hit N6.1trn by be the end of December this year.

An analysis of the N6.1trn showed that the bulk of the liabilities are in power sector, gas project, pension arrears to Ministries, Departments and Agencies of government, legacy exposure to the successor companies of the defunct Power Holding Company of Nigeria and the housing sector.

A breakdown of the N6.1trn liability showed that power sector Contigent Liabilities under the Put-Call Option Agreement accounted for the highest amount with N2.45trn.

The N2.45trn indebtedness for the 2020 fiscal year represents an increase of N1.958trn when compared to the 2019 figure of N495.64bn.

This is followed by a liability of N1.03trn for Payment Assurance Facility for the Nigerian Bulk Electricity Trader Plc.

When compared to the N623.59bn NBET liabilities for last year, the N1.03trn represents an increase of N419.41bn.

Similarly, the Federal Government’s liability for the Nigerian National Petroleum Corporation’s Ajaokuta-Kaduna-Kano Gas Pipeline Project is estimated at N884.49bn while that of Pension Arrears to MDAs is projected at N812.49bn.

The Federal Government’s Guarantee for the NNPC-AKK Gas Project covers 85 per cent ($2,456,944,166.11) of the total cost ($2,890,522,548.36) of the Project, according to figures from the finance ministry.

Also, the Contigent Liabilitybof the Federal Government under the Nigeria Ports Authority-Lekki Deep Sea Port is estimated at N288bn this year while Legacy Exposure from PHCN Successor Companies was put at N584.93bn.

Findings also revealed that the Power Sector Contigent liability under the Partial Risk Guarantee was estimated for this year at N107.82bn as against the N73.46bn which it was last year.

The liability of the Federal Mortgage Bank of Nigeria was put at N5.23bn this year while that of the Federal Capital Development Authority Katampe Infrastructure Project was put at N7.4bn.

The Federal Government provided the Guarantee for the Bond issued by FMBN to refinance mortgages provided for purchases of non-essential residential houses.

Out of the N32bn Bonds issued, N5.238bn is the amount that is currently outstanding.

For the FCDA, the Guarantee was issued on behalf of the Authority in the sum of N61.2bn in respect of a bank facility for Deans hanger Projects Limited for provision of infrastructure in Katampe District, Abuja.

Out of the N61.2bn, the current outstanding amount confirmed by FCDA is N7.44bn, according to figures from the Ministry of Finance.

Further analysis of the figures showed that the Federal Government also issued Guarantee to NEXIM for N3.85bn master line of credit from the African Development Bank to finance part of the cost of the Export Oriented Small and Medium Enterprises financing programme of NEXIM.

The facility is expected to be fully repaid by next year.

For the Nigeria Mortgage Refinancing Company, it also got a guarantee from the Federal Goverment to raise long term funds from the Capital Market by issuing Bonds for the purpose of refinancing mortgages created by Eligible Mortgage Lenders.

About N19bn made up of N8bn-Series 1 Bond and N11bn Series 2 Bond has been utilised out of total Guarantee available in the sum of N440bn.

As part of efforts to further develop infrastructure, it was learnt that there will be a growing use of off-balance sheet products such as Guarantees, Letters of Comforts and like instruments, by the Government, as from this year.

Thus, it is expected that Contingent Liabilities will increase, as more off-balance sheet products are used to support infrastructural development

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