FEC initiates programme to clear N3.4 trillion inherited debts

The Federal Executive Council (FEC) on Wednesday approved the establishment of a Promissory Note Programme for the settlement of an estimated N3.4 trillion local and contractual debt obligations inherited by the government.
The Supervising Minister of Finance, Zainab Ahmed, said at the end of the FEC meeting in Abuja that the debts include outstanding pension liabilities (N400 billion); unpaid salaries and third-party deductions (N24.95billion); staff claims (N270 billion); part of contractors claims (N45.36 billion) and fuel supply accrued interest and foreign exchange differential for petroleum products marketers (N514.29 billion).
Others include part payment of state governments claims (N487.85 billion); outsourced liabilities for the Federal Ministry of Health (N9.04 billion); major contractors (N596.51 billion); Export Expansion Grant (EEG) Scheme (N350.12 billion); judgement debt (N112.96 billion) and those for the electricity distribution companies (DISCos) N26.71 billion, and their Generation counterparts (N495.67 billion).
The Minister told journalists that transaction parties had been appointed for the programme and the bond issued to settle the debts. He did not give further details about the names of the benefiting individuals or specific agencies.
If approved by the FEC, Mrs Ahmed said total cost for the appointment of transaction parties for the programme of about N689.96 million, including fees and expenses in implementing the Programme, would be sourced from the proceeds of the Federal Government Securities issuance.
Highlighting some of the benefits of the programme, Mrs Ahmed said it would provide stimulus to the economy and unlock investment across some sectors currently having liquidity issues.
“The programme will have an immediate impact on the nonperforming loan ratios of banks as well as increase the banks capacity to lend. It will also enable the Federal Government to formally recognise and account for its true liabilities in line with the International Public Sector Accounting Standards (IPSAS),” the minister said.
To set up the programme, which conforms with the provisions of the Fiscal Responsibility Act, Mrs Ahmed said her ministry sought and obtained the necessary presidential approval before forwarding it to the National Assembly for final approval.
She recalled that as of December 2018, the National Assembly had approved the issuance of promissory notes to two categories of the creditors.
They include the refund of N488.74 billion to 21 state governments for projects executed on behalf of the Federal Government.
The refund excluded four states – Bauchi, Delta, Kogi and Taraba, which were not approved.
The other was payment to N348 billion to 74 oil marketing companies for fuel supply accrued interest and foreign exchange differentials.
Last December, the marketers had demanded the Federal Government pay them N800 billion they claimed to be their outstanding indebtedness.
However, the minister had clarified that the final figure approved for the marketers after the presidential initiative for continuous audit (PICA) and the Debt Management Office (DMO) verified their claims, was only N236 billion.
The Minister said the approved N348 billion to be paid to the marketers under the programme included additional N112 billion approved separately by the National Assembly.
Additional approvals
Before the submission of the Memo to FEC, the Minister said the National Assembly approved additional items, including N90.24 billion for the refund to Delta and Taraba State governments; N206.1 billion for the Payment for six contractors and N195.1 billion for the payment of Exporters Claims under the Export Expansion Grant Scheme.
The transaction parties, in three categories, include KPMG (an international accounting firm) for verification of the liabilities, as well as joint financial and legal advisers.
The financial advisers that would be responsible for the structuring of the Promissory Note include Zenith Bank/Zenith Capital, Coronation Merchant Bank/Access Bank and UBA/United Capital.
The Legal Advisers that would be responsible for the legal advisory services and litigations that may arise include SimmonsCooper Partners, D.D. Dodo & Co. and Perchstone & Graeys.
The Minister said the Bureau of Public Procurement has already issued Due Process “No Objection” for the appointment of the successful bidders and their respective fees and expenses.