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Loan Default: DMO Says China Won’t Take Possession Of Projects In Nigeria


Nigeria has said there will never be a situation where China will have to take possession of the projects financed with its loans.

The Debt Management Office (DMO), while reacting to reports that China may take over projects financed with its loans secured by Nigeria, assured that the federal government has made adequate plans for the repayment of the debt.

According to the DMO, as at March 31, 2020, the total borrowing from China stood at $3.121 billion at an interest rate of 2.50 percent per annum, with a 20-year maturity and a 7-year moratorium.

The agency said the low interest rate reduces the interest cost to government, while the long tenor enables the repayment of the principal sum of the concessional loans over many years.

“These two benefits make the provisions for debt service in the annual budget lower than they would otherwise have been if the loans were on commercial terms,” the debt office said.

Speaking further, the agency noted that there won’t be a need for China to take ownership of the projects because Nigeria will not default in clearing the debts.

“Nigeria explicitly provides for debt service on its external and domestic debt in its annual budgets.

“In effect, this means that debt service is recognised and payment is planned for.

“In addition, a number of the projects being (and to be) financed by the loans are either revenue generating or have the potential to generate revenue,” the DMO said.

It listed the 11 projects financed with the $3.121 billion Chinese loans as the Nigerian Railway Modernization Project (Idu-Kaduna section), Abuja Light Rail Project, Nigerian Four Airport Terminals Expansion Project (Abuja, Kano, Lagos and Port Harcourt), Nigerian Railway Modernization Project (Lagos-Ibadan section) and Rehabilitation and Upgrading of Abuja – Keffi- Makurdi Road Project.

The DMO stressed that the impact of these loans was not only evident but visible, stating that for instance, the Idu–Kaduna rail line has become a major source of transportation between Abuja and Kaduna.

It further said the new international airport in Abuja has improved air transportation for the populace, while the Lagos–Ibadan rail line, when completed, will ease traffic on the busy Lagos-Ibadan Expressway.

“The projects also have the added benefits of job creation, not only by themselves but through direct and indirect service providers, a number of which are Small and Medium Enterprises (SMEs).

“It is widely accepted that investment in infrastructure is one of the most effective tools for countries to achieve economic growth and development. Using loans from China to finance infrastructure is thus in alignment with this position,” the statement issued by the agency last week said.

The debt office also said the loans were obtained from China after a rigorous process. It said this involved the Federal Ministry of Finance, Budget and National Planning, the MDAs under whose portfolio a proposed loan falls and also with the DMO.

“Thereafter, the approval of the Federal Executive Council (FEC) is sought. It is only after the approval by FEC that (the President) requests for the approval of the National Assembly (NASS) as required by Section 41 of the Fiscal responsibility Act, 2007.

“More importantly, it is only after the approval of NASS that the loans are taken and Nigeria begins to drawdown on the loans.

“In summary, borrowing is a joint activity between the executive (FEC) and the legislative (NASS) arms of government,” it explained.

It further stated that, “The loan agreements are reviewed by legal officers of the Federal Ministry of Justice and the legal opinion of the Attorney General of the Federation and Minister of Justice is obtained before any external loan agreement is signed.”

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