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Recklessness in loan agreements: A case of the Aviation Sector

UK, Saudi Arabia, Brazil, India, Singapore, Argentina, Peru, Spain, Gabon and recently Zimbabwe are among the growing list of countries that have privatised their aviation…

UK, Saudi Arabia, Brazil, India, Singapore, Argentina, Peru, Spain, Gabon and recently Zimbabwe are among the growing list of countries that have privatised their aviation sector.
Nigeria plans to privatise or concession her airports in 2015 after an expensive remodelling programme that gulped billions of naira, sparking criticisms from citizens.
Even more ridiculous, according to some critics, is that prior to the commencement of the privatisation in the sector, government has gone on a borrowing spree to develop terminals it will eventually manage through the Federal Airports Authority of Nigeria (FAAN).
The Nigerian government last year took a $500 million loan from the Export-Import Bank of China to fund new terminals in four cities including the capital, Abuja, the commercial hub of Lagos, the southern oil centre of Port Harcourt and the northern city of Kano. The contract was won by China Civil Engineering Construction Corporation.
The facility was obtained on a concessionary interest rate of 2.5 per cent, repayable in 20 years with a grace period of seven years.
The rationale behind obtaining some of these loans in the past has often been contentious given the fact that most times these borrowings which are done to improve structures, only end up having these structures completely derelict and mismanaged.
The level of decadence of national assets, such as stadia, refineries, steel plants, aluminium smelter plants, roads, bridges and many others, speak volumes of the recklessness to which government has descended in obtaining and utilising these loans.
The concern of some experts, particularly the scramble for loans from China, is the quality of some of the projects to be executed as well as the Chinese reputation for corruption.
Loans have been obtained in the past for some projects that were ill-conceived, enmeshed in controversy and with negative impact on the citizens.
Going by precedence there have never been doubts over the capacity of China and the federal government to deliver on projects.
The federal government had in 2001 signed a Memorandum of Understanding with the Chinese government for the take-off of a rural telephony project aimed at providing connectivity to 218 local government headquarters across the country.
Apart from the $200m loan provided by the Chinese government, the federal government also provided 15% counterpart funding. The project was divided into sections that were executed by two Chinese firms, ASB and ZTE.
The second phase of the project expected to cover the local government areas that were left out in the first phase had been billed to gulp $300m, but the controversy that mired the first phase had hampered its take-off.
Another Chinese firm, China Great Wall Industry Corporation, had also in 2007 delivered a communications satellite to the country, which failed in the orbit 18 months after. The satellite was constructed with a loan of $200m and federal government counterpart funding of about the same amount.
Nigerians are the ones who bear the brunt from these failed projects financed through loans that tax payers money will eventually be used to repay.
Looking back at the Aviation Sector, the half hazard and shoddy manner of negotiations for the China loans put to question in whose interest the loans were obtained?
When the Senate Committee on Aviation, in the course of the year visited the Ministry of Aviation on an oversight, Nigerians were stunned to hear that the committee was unaware of loans obtained for the construction of terminals in the country had accrued interests amounting to billions of naira.
 Senator Hope Uzodimma, Chairman of Committee said during the oversight visit that his committee had no knowledge of the loan, and suggested that it reflected bizarre borrowing and management practices in the ministry.
The then supervising Minister of Aviation, Samuel Ortom, revealed that the ministry under the former minister accumulated hefty debts and as a result, projects embarked upon could no longer be completed while many others had to be suspended.
He explained that some loans obtained for the construction of four cargo terminals in the country had accrued interests amounting to $18.3 million. He said it was in the best interest of Nigeria to settle the debts and review some contracts.
Uzodimma questioned the borrowing of $100 million by the Debt Management Office (DMO) and the Chinese loan of $500 million which, he said, was obtained without approval by the National Assembly according to law.
However, Ortom told the committee that the loans for upgrading the Lagos, Abuja, Port Harcourt and Kano airports did not need to go through appropriation because it was part of a “counterpart funding” arrangement. The Senate was indisposed to the $18.3 million interest which the $100 million had already attracted.
From the exchanges between the committee and the ministry officials, it was unequivocally clear that prior approval was required in the first place before the ministry could have embarked on the loan drive but this was not the case.
“We also need, under the borrowing plan, an approval from NASS, we didn’t see where National Assembly was involved in the borrowing  by DMO, we need the president’s approval to borrow that money and we need the business studies and how you intend to pay the interest,” Uzodimma noted.
Demanding details of all the loans, Senator Uzodimma added: “On the terminals, the $500 million loan, we need to see the design, we don’t know the size of the airport; we don’t know where work has started on them. Immediately after the committee’s oversight came similar damning verdict by another committee, this time, that of the House of Representatives .
The House of Representatives Committee on Aviation chaired by Nkeiruka Onyejeocha visited project sites at the Murtala Muhammed International Airport in Lagos and from its findings alleged that apart from skipping due process some projects were sub-standard for the millions they were meant to gulp.
Onyejeocha said a terminal building being constructed in Lagos by a Chinese company looked substandard and too small. In addition, other members noted that the remodeled Murtala Muhammed International Airport terminal was leaking and the cooling system was not functional.
The lack of coordination exhibited by the respective arms of government in securing these loans, experts say, further puts the country in a state of indebtedness that leaves it at the mercy of debtors.
Aviation expert and Principal Consultant Altitude Associates- Aviation Mr. Alexander Ikeazor opined that the idea of the federal government obtaining a loan from China to construct new terminals at the nation’s airports, and handing the construction to a Chinese company does not appear to be economically sound.
According to him, “Nigeria then becomes indebted to China over the construction of new terminals at our airports. The federal government ought to have raised funds locally to fund the project, if by then the project is assigned to a Chinese company; it would be economically viable however. Then there would be a better sense of belonging by the Nigerian people over these airports.”
All these point towards the fact that there was some obvious lacuna in the processes that led to the loans being negotiated for.
Whether or not the money is being well utilised, the fact remains we borrowed money to fund these projects and Nigerians want value from what they will end up offsetting that they never bargained for.

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