BY VICTORIA ONU ABUJA
The Contingent Liabilities of the Federal Goverment is expected to rise by N3.2trn, from N4.18trn last year to N7.38trn by December this year, analysis of figures obtained from the Ministry of Finance, Budget and National Planning by The Point 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 crystalise.
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 2020 stood at N4.18trn.
But with the issuance of additional guarantees for various developmental projects by the Federal Government, the Contingent Liabilities is being projected to hit N7.38trn by the end of December this year.
An analysis of the N7.38trn showed that the bulk of the liabilities are in the 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 N7.38trn liability showed that power sector Contingent Liabilities, under the Put-Call Option Agreement, accounted for the highest amount with N2.7trn.
The N2.7trn indebtedness for the 2021 fiscal year represents an increase of N2.29trn when compared to the 2020 figure of N401.63bn.
This is followed by a liability of N1.07trn for the Nigerian National Petroleum Corporation’s Ajaokuta-Kaduna-Kano Gas Pipeline Project 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.
The government also has N880bn for Payment Assurance Facility for the Nigerian Bulk Electricity Trader Plc, compared to the N971.7bn NBET liabilities for last year.
Also, the Contigent Liability of the Federal Government under the Nigeria Ports Authority-Lekki Deep Sea Port is estimated at N328bn this year while Legacy Exposure from PHCN Successor Companies was put at N1.04trn.
Findings also revealed that the Power Sector Contingent liability under the Partial Risk Guarantee was estimated for this year at N151.9bn as against the N90.84bn which it was last year.
Further analysis of the figures showed that the Federal Government also issued Guarantee to NEXIM for N1.48bn 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.
As part of efforts to further develop infrastructure, it was learnt that there would 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.
The report stated, “In order to address the issues of infrastructure deficit in Nigeria in the face of fiscal constraint, the Government will continue to encourage the Private sector operators to participate in financing infrastructure development through the use of Public-Private Partnership arrangements.
“To motivate the private sector, the PPP arrangements may involve the issuance of Sovereign Guarantees which are explicit Contingent Liabilities.
“The Federal Government of Nigeria (FGN) has improved its ability to monitor and manage the Contingent Liabilities that could arise from these projects, and mitigate against the actualisation of the Guarantees.
“As at December 31, 2020, the Contingent Liabilities of Government amounted to N4.37 trillion, representing 2.87 per cent of GDP, compared to N2.86trn or 1.98 per cent of GDP in 2019.”
In recognition of the expected increase in the use of PPP arrangements, the MTDS 2020 – 2023 includes a Target Contingent Liability Limit of five per cent of GDP.
“This creates room for more of such operations when compared to the 1.98 per cent as at December 31, 2019.
“As part of efforts to account for the full exposure of FGN to contingent Liability, and to ensure proper management of same, a policy Framework on Contingent Liabilities is being developed,” the report said.
