The Oyo State House of Assembly has approved a fresh N100 billion loan for Governor Seyi Makinde’s administration to finance infrastructure projects, alongside a separate N300 billion facility to refinance an existing contractors’ loan, in a financial arrangement involving a combined N400 billion.
The approval, granted following a request by the governor
during plenary on Wednesday, will enable the state government to obtain the new
loan from United Bank for Africa (UBA) Plc and transfer its existing N300
billion contractors’ finance facility from Access Bank to the same lender.
The decision came as infrastructure financing and the
management of public debt remain important issues in the state’s fiscal policy,
with the administration seeking additional funds to complete ongoing projects
while reducing the interest rate on its existing contractors’ financing
obligations.
In his letter to the Assembly, addressed to the Speaker,
Adebo Ogundoyin, Makinde sought legislative approval for the two financing
arrangements, which have separate purposes and financial implications for the
state.
While the N100 billion facility is intended to provide fresh
funding for critical infrastructure projects and accelerate the completion of
ongoing developments, the N300 billion component is a refinancing arrangement
rather than an additional N300 billion in fresh borrowing.
Under the proposed refinancing terms, the existing
contractors’ facility obtained from Access Bank at an interest rate of 26 per
cent will be transferred to UBA at 22 per cent, representing a reduction of
four percentage points.
The reduction is expected to lower the interest rate
attached to the existing facility, although the actual financial savings will
depend on the outstanding balance, repayment schedule and other applicable
terms.
The separate N100 billion loan, however, will also attract
an interest rate of 22 per cent, subject to review in line with prevailing
money market conditions.
The fresh facility has a repayment tenor of 48 months, with
a management fee of 0.25 per cent per annum and an advisory fee of 0.5 per cent
annually, both calculated on the outstanding balance.
The terms also provided for a three-month moratorium on the
repayment of principal and interest. Interest accruing during the moratorium
will not be waived but will instead be repaid alongside the fourth, fifth and
sixth instalments of the loan.
The repayment structure means that the state’s obligations
will extend beyond the principal borrowed, with interest charges and applicable
fees forming part of the overall cost of the facility.
The provision allowing the interest rate to be reviewed in
line with market conditions also means that the final cost could depend on how
the agreed rate is applied over the repayment period.
During deliberations, the Deputy Speaker, Muhammad Abiodun
Fadeyi, joined other lawmakers, including Adebayo Babajide Gabriel, Olorunpoto
Cephas Rahman and Sunkanmi Babalola, in defending continued infrastructure
investment as necessary for economic growth and improved public service
delivery.
The lawmakers cited the LAUTECH Teaching Hospital in Oyo
town, the Rashidi Ladoja Circular Road and the Ido-Eruwa Road among the
projects whose timely completion, they argued, could deliver wider economic
benefits to the state.
They maintained that sustained investment in infrastructure
would improve connectivity, create employment opportunities, stimulate
commercial activities and ease the movement of people and goods across
different parts of Oyo State.
According to the arguments advanced during the debate,
completing ongoing projects would also ensure that funds already committed to
construction and other development initiatives translate into tangible benefits
for residents rather than leaving projects unfinished despite substantial
public expenditure.
The lawmakers stressed that infrastructure development
should be assessed not only by the amount of money committed but also by the
practical benefits delivered to communities, businesses and users of public
facilities.
The LAUTECH Teaching Hospital project, for instance, was
cited in the context of healthcare infrastructure, while the circular road and
Ido-Eruwa Road were referenced for their potential contribution to transport
connectivity and commercial activity.
The approval, therefore, gave the Makinde administration the
legislative backing to proceed with the proposed financing arrangements, with
the fresh N100 billion intended to support infrastructure delivery and the N300
billion refinancing designed to secure a lower interest rate on an existing
obligation.
However, the two components carried different implications
for the state’s finances. The N100 billion loan will create a new borrowing
obligation, while the N300 billion refinancing will restructure an existing
facility rather than automatically add the same amount to the state’s fresh
debt.
Although the reduction from 26 per cent to 22 per cent is
expected to ease the cost of the existing contractors’ facility, the new loan’s
interest rate, repayment period, management fee, advisory fee and moratorium
provisions will determine the total cost of the additional borrowing.
Meanwhile, the approval also placed renewed importance on
the implementation of the projects for which the new funds are intended, as
well as the government’s ability to meet repayment obligations while sustaining
spending on other public services.
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