Economic Confidential, May 2007

COVER

EXTERNAL DEBTS: PWC to Audit All Transactions

…Lagos State Accounts For Highest Debt Service Payment In Five Years

…FG, Seven States Can’t Repay Share Of Debt With Share Of Excess Crude

By Tunde Akin

As President Olusegun Obasanjo prepares to handover Nigeria’s outstanding external debt of US$3.035 billion to the incoming administration come May 29, the Debt Management Office (DMO) has commissioned a very comprehensive and independent audit of all the financial transactions associated with the Paris Club and London Club debts exit.

According to DG DMO, Dr. Mansur Muhtar the scope of the audit will cover all the payments made to all the creditors at various stages of the transactions, and also payments made to all the financial intermediaries, including investment banks, payments made to financial and legal advisers and all commission charges arising out of these transactions, which were paid to government agencies or non-governmental agencies. He said DMO solely decided on its own to get an independent audit of all these transactions and applied for Mr. President’s approval which it got. Dr. Muhtar said PriceWaterhouse and Coopers (PWC) was selected as the audit firm that will carry out the exercise after going through a selection process that conforms to due process requirements.

In another development it is revealed that the 36 states of the federation paid $1.171 billion in servicing their external debts between 2002 and 2006. The DMO disclosed this in a report titled “Actual Debt Service Deductions Between 2002 and 2006.” The Federal Government and the 36 States’ allocations from the Federation Account are monthly deducted by the Federal Ministry of Finance and the Office of the Accountant General of the Federation in servicing their debts during the five year period.

In the report, the DMO disclosed that the 26 states paid $168.07 million in 2002, $273.49 million in 2003 and $278.82 million in 2004 to service their Paris Club debt. It further indicated that $281.31 million and $169.24 million were paid by the states in 2005 and 2006.

It added, “The monthly deduction for 2006 was stopped in July pending the outcome of States’ External Debt Reconciliation being undertaken by a committee established by the Revenue Mobilisation Allocation and Fiscal Commission.”

The Paris Club, an informal group of creditor governments from major industrialised countries which was formed in 1956, had on June 28, 2005 granted Nigeria a debt relief of $18billion from her total debt of $30.8billion. The debt relief was with a condition that the country repays $12.2 billion arrears and interest.

The country exited the Paris Club debt on April 21, 2006 after paying the third and final tranches of $4.519 billion. The country had earlier in October and December 2005, paid the first and second tranches of $6.243billion and $1.331billion, respectively.

Details of the DMO report reveals that Lagos State accounted for the highest debt service payment of $95.367 million during the five year, as the state government paid $15.894 million, $22.878 million, $21.70 million, $21.786 million and $13.106 million in 2002, 2003, 2004, 2005 and 2006, respectively. Abia State paid $94.391 million to closely followed Lagos State, while Imo State paid $80.679 million.

State-by-state analysis of the debt service payment between 2002 and 2006 showed that Enugu paid $56.420 million; Kwara, $54.482 million; Edo, $53.586 million; Adamawa, $47.747 million; Benue, $47.335 million; Borno, $40.406 million; Ebonyi, $37.418 million; Kogi, $36.711 million; Rivers, $35.635 million; Delta, $34.613 million and Anambra, $33.822 million.

Of the 36 States, only Kaduna, Katsina and Nasarawa States were not indebted to the Paris Club. But, the three states had their allocations deducted during the five year period to the tune of $6.908 million, $5.723 million and $23.283 million, respectively. They are expected to be refunded the amount paid between 2002 and 2006 after the conclusion of the states’ external debt reconciliation.

The Federal Ministry of Finance and the Office of the Accountant General of the Federation have resumed this year the monthly deductions of debt service payment for multilateral debt. The resumption was as a result of the delay in the completion of a committee’s work on reconciling of states’ external debts.

After exiting the Paris Club debt, the need to reconcile all debt figures in order to pay off the surplus states and adjust the balances accordingly from the excess crude became necessary. But, because the reconciliation was taken an unduly long period of time after six to nine months, FG resumed the deductions in respect of multilateral debt, which is still due and apportioned in accordance with the amount owed by the states.

Meanwhile, a report jointly prepared by the DMO, the Federal Ministry of Finance and OAGF indicates that only seven states of the federation and the Federal Government cannot pay their share of the Paris Club debt with their share of the excess crude oil proceeds. The affected states include: Abia, Imo, Kogi, Kwara, Niger, Osun and Plateau.

The report is titled “Settlement of Paris Club Debt After Debt Relief.” It stated that the money for the repayment of $12.2 billion to the Paris Club was sourced from the Excess Crude Proceeds Account on the basis that it would be recouped from the Federal and State Governments’ share of the excess crude.

The report revealed that the combined statutory share of the Federal and State Governments’ of the Excess Crude was $11.554 billion, as against the Paris Club debt repayment of $12.124 billion.

According to the report, the federal government and the seven states of Abia, Imo, Kogi, Kwara, Niger, Osun and Plateau have a combined liability of $2.607 billion when their share of the Paris Club debt are deducted from the excess crude.

Details of the report showed that out of the Federal Government’s share of the Paris Club debt of $9.971 billion, its statutory share of the excess crude stood at $7.666 billion, leaving a deficit of $2.305 billion.

While Abia, Imo, Kogi, Kwara, Niger, Osun and Plateau States owed the Paris Club the sums of $208.53 million, $121.59 million, $120.84 million, $118.28 million, $179.55 million, $134.92 million and $137.93 million, their statutory share of the excess crude are $95.51 million, $105.14 million, $103.91 million, $94.59 million, $120.36 million, $97.43 million and $103.70 million, respectively.

The report gave the outstanding liability of Abia, Imo, Kogi, Kwara, Niger, Osun and Plateau States as $113.02 million, $16.45 million, $16.93 million, $23.68 million, $59.19 million, $37.49 million and $34.22 million.

Apart from Abia, Imo, Kogi, Kwara, Niger, Osun and Plateau, the other states have positive balance in their excess crude account. The states, which have surplus excess crude after the deductions of their share of the Paris Club debt, are Adamawa ($11.87 million), Akwa Ibom ($58.36 million), Anambra ($67.43 million), Bauchi ($106.06 million), Bayelsa ($40.35 million), Benue ($37.34 million), Borno ($79.09 million), Cross River ($90.36 million), Delta ($69.72 million), Ebonyi ($46.51 million), Edo ($19.04 million), Ekiti ($62.71 million) and Enugu ($1.65 million).

Others are Gombe ($64.10 million), Jigawa ($96.49 million), Kaduna ($130.61 million), Kano ($143.92 million), Katsina ($124.57 million), Kebbi ($100.12 million), Lagos ($35.94 million), Nasarawa ($89.50 million), Ogun ($8.66 million), Ondo ($68.61 million), Oyo ($112.29 million), Rivers ($52.74 million), Sokoto ($102.89 million), Taraba ($50.61 million), Yobe ($96.04 million) and Zamfara ($99.68 million).