Nigeria: Oyo Govt – Why We Opted for Bond, ADB Loan

The Oyo State Government has justified the N50 billion bond being sought from the capital market, saying that it was meant to execute some development projects that would change the face of the state.

The state Commissioner for Finance, Mr. Zachaeus Adelabu, in a statement issued in Ibadan Monday, listed the capital projects to be executed with the bond to include the Urban Mass Transit scheme of the government; development of agricultural silos of 10,000MT in each of the three senatorial districts and construction of ultra-modern markets.

Others, he said, include the building of agricultural processing plants in each senatorial district of the state; construction of Ibadan Circular Road; construction of a five-star hotel, canning-agro-processing factory, housing estate, as well as construction of logistics centres-industrial parks across the state.

The commissioner also explained that the $56.24 million African Development Bank (ADB) loan is meant to fund the Urban Water Supply and Sanitation Improvement Project in Ibadan, with the state paying its own counterpart funding.

He noted that all previous interventions in the water sector in Ibadan had always been limited to the rehabilitation or expansion of water treatment facilities without corresponding attention to the reticulation system.

Adelabu said the bond had been approved by the Securities Exchange Commission (SEC) after verifying the specific projects, all of which he said would be self-financing, adding that it had also been guaranteed by the Federal Government.

He explained that in the long run, the bond option would be cheaper for the state government than commercial loans granted by financial institutions, and better suited to fund projects with long-term impacts and benefits when compared to short-term funds.

“The regulatory requirements for bond financing will force the state to utilize the proceeds for developmental/commercial projects specifically identified during the bond issue planning phase and strengthen our resolve for improved transparency and accountability,” the commissioner said.

Adelabu further explained that the bond would be in two tranches, with the first tranche of N30 billion to be finalized this year and the second in 2013.

“There is really nothing strange about a state taking bond, as long as it is not a mismatch of portfolio in which case short term loans are taken to finance long term projects. In our own case in Oyo State, we won’t do that. The bond we are taking is meant for developmental projects,” he said.

Explaining the ADB loan, Adedibu said the chaotic water situation in the state capital inherited by the current government necessitated the partnership with the continental financial institution.

“As a result, most of the pipelines which were laid more than 50 years ago are now seriously leaking, thus resulting into unaccounted-for water in the city of Ibadan which stands at about 50 per cent. This is apart from the fact that the existing pipeline covers less than 50 per cent of the city.

“The project, therefore, seeks to improve access to water supply by increasing the percentage of safe water supply from the current 25 to 80 per cent by 2017 through the extension of the distribution network to new areas of Ibadan city and the replacement of old and unserviceable pipes in the existing network,” the commissioner stated.