Enugu State and the Truth Happening to Borrowing: Wrong Interpretation of Contingent Liabilities

• A Rider to “Peter Mbah Drowns Enugu State in Debts.”

By Reuben Onyishi
(Ugoachataberu)

Reading through a piece, entitled “Peter Mbah Drowns Enugu State in Debts,” by one Cyril Ikenna Ujam, obviously a pseudonym, I personally felt vicariously the shame of ignorance and lack of financial intelligence on the part of those who rush to do mischief in the name of opposition, seeking to manipulate public opinion against the Mbah Administration.

The fact is that Enugu State has a rare gift in Governor Peter Ndubuisi Mbah whose every intention is to improve the lots of the Enugu citizenry by total eradication of poverty in the state through the rejigging of the economy to the astronomical proportion of a $30 billion GDP size. The target is to drive the Enugu economy through the private sector, and this requires that huge investments be made in the various sectors of the state. For investors to look in the direction of the state, certain risks have got to be done away with by way of a friendly business environment and ease of doing business. Ease of doing business is a function of availability of infrastructure and other engagements like fiscal and regulatory measures. Besides investors, the people are also a beneficiary of the built Infrastructure, and Infrastructure is not built with water. It is built with money.

Yesterday, being 9th October, 2023, the Enugu State House of Assembly approved the sum of N170 billion loan for the state government. The sum of N120 billion would be ‘borrowed’ from Fidelity Bank and N50 billion from Globus Bank. At least that is how it appears at the surface level.

The ordinary man who has no debt in financial understanding would interpret it so, even when going by the debt profile of Enugu State as inherited from the previous administrations, the state has no capacity to borrow such sum from anywhere, locally and internationally. What makes the difference is financial intelligence and creativity with which Governor Peter Ndubuisi Mbah is wired, and which he has unleashed in this circumstance, which confounds and amazes the simplistic that constitute the jaundiced opposition in Enugu State, and the misguided cause of which Ujam slavishly serves.

What is approved for the state government is Bank Guarantee of N100 billion by Fidelity Bank for the development of the New Enugu City. Bank Guarantee is a contingent liability which has no place even in the banks balance sheet.Although banks treat loans as risk assets, contingent liabilities are undertakings of performance by the bank on behalf of its customer, this time, Enugu State Government. It is a guarantee to contractors and developers that upon fulfillment of set out contractual obligations, the banks would guarantee their payment. So, contingent liability is neither seen as an asset or liability. The fact is that this contingent liability has a period of 36 months to crystalize, during which time, the state shall have realized the proceeds of the developed property at the New Enugu City where the projection is to rake in over N500 billion. The other is an approved overdraft of N10 billion and another N10 billion term loan which are meant for a standby fund in case of any shortfall on which the state may not even draw- if the BG is enough to cover the development of the new city. The sum of N50 billion from Globus Bank is for Enugu State Housing Development Corporation from which the corporation projects to realize over N100 billion from developed housing projects, with a surplus value of N50 billion.

The said loan of N100 billion is a creative way of raising funding for the projects without the crystalization of the Bank Guarantee ( BG). Contractors would have access to the fund, N100 billion, for the development of the New Enugu City, yet the state shall have realized the whooping sum of N500 billion from this venture, even before the