Contractors fret over government debts as elections draw near

Contractors are threading carefully with the government as election uncertainties cloud payments for executed contracts.
The Federal Government previously promised to raise a N2.7 trillion bond to pay off backlog of debts owed to contractors, but the clash between the executive and legislature has delayed an approval.
“The executive would need approval of the National Assembly, which could be a bottleneck; also, to increase our debt profile to N2.7 trillion will be a huge burden on the country’s balance sheet,” Johnson Chukwu, CEO, Cowry Assets Management Limited, said.
Already, in the proposed 2018 budget, the Federal Government is planning to increase the country’s debt profile by borrowing N1.699 trillion, of which 50 percent will be sourced externally. This government debt burden in the 2018 budget is projected at N2 trillion.
“It is a tough call for the government, already in the 2018 budget the government is planning to borrow N1.6trillion, if we add the N2.7 trillion bond, it will amount to N4 trillion which is more than half of the 2018 budget,” Chukwu explained.
While the interest payment on loans and contract inflation could be an issue, Ayo Akinwumi, head of investment firm, FSDH, thinks otherwise.
“Nigeria is not over borrowing; Nigeria has one of the lowest debt stocks to GDP in the world. However, our interest expenses to revenue is quite high, which is where the problem lies,” Akinwumi said.
“So, the two options available are either you grow revenue or reduce debts; Nigeria revenue to GDP and tax to GDP is one of the lowest in the world; the government is gradually moving away from high interest expenses to low interest cost and also making much effort through the VAIDS scheme.”
Luqman Agboola, head of energy and infrastructure, Sofidam Capital, said the most innovative way for government was to issue the bond that would become a liquidity instrument that money markets could trade, and would eventually deepen the money market.
Agboola said, “The government have been very slow in its policy implementation, the contractor bond is not working because they have not commenced the issuance so any transaction with contractors that cannot close between this year and March 2019 is not worth pursuing.”
BusinessDay’s analysis of construction firm, Julius Berger financial statement, showed that amount due from contracts receivable is N89.43 billion as of September 2017. Julius Berger is one of the biggest contractors to the government.
Earlier in 2017, the Economic Management Team (EMT) under the leadership of Vice President Yemi Osinbajo, had mandated the minister of finance to head a committee that would establish a process to confirm the validity of inherited Federal Government obligations, and propose a mechanism to resolve them.
These obligations consist of dues owed to state governments, oil marketers, power generation and distribution companies, suppliers and contractors to federal government parastatals and agencies, payments due under the Export Expansion Grant, EEG, outstanding judgement balances as well as pension and other benefits to federal government employees.
Last year, The Federal Executive Council (FEC) said it has approved N2.7 trillion for payment of the federal government’s discounted obligations and its awaiting the approval of National Assembly
The money consists of N740 billion of outstanding pensions and promotional salary arrears (not discounted) and N1.93 trillion (discounted) of other obligations including dues to federal government contractors and suppliers.
Adeosun had promised to resolve long outstanding dues owed to contractors, accumulated over the last two decades, through bonds and promissory note issuance.
Indigenous contractors under the aegis of National Contractors Association of Nigeria (NCAN) say that they are being owed over N2.4 trillion by the federal government, states and local government councils across the nation.
They further lamented that, over 572 of their members have died as a result of hypertension and stress caused by the huge debt they are being owed by the government.
“The permanent solution is for the government to involve a Public private partnership (PPP) scheme were the private sector will begin to fund projects through commercial arrangement which is more sustainable,” Chukwu said.