Sovereignty Clause: Legal Implications Of Chinese Loans Were Reviewed Before Obtained – DMO

The Debt Management Office (DMO) on Wednesday said appropriate authorities reviewed the loans agreement between China and Nigeria before they are signed.

Recently, the conditions of the loan have been mired in controversy over a clause handing Nigeria’s sovereignty to China in a loan agreement.

The clause, described as “lethal” by a house of representatives panel, is in article 8(1) of the commercial loan agreement between Nigeria and Export-Import Bank of China.

Minister of transportation, Rotimi Amaechi, has been accused of signing away Nigeria’s sovereignty in the loan agreement.

But the minister said the government sought the consent of the national assembly before taking the loans.

In a statement released on Wednesday, the DMO said both the executive and legislative arms of government are involved in the loans obtained from China.

The agency also disclosed that China is not a major source of funding for the federal government.

It said the total borrowing by Nigeria from China was $3.121 billion as of March 31, representing 3.94% of the country’s total public debt of $79.303 billion.

Also Read: Nigeria-China Loan Deal: Amaechi Evades Question On Hong Kong Being Third Party

The DMO said loans from Chinese government accounted for 11.28 percent of Nigeria’s external debt stock of $27.67 billion at the time.

It said interest rate for the Chinese loans stands at 2.5 percent with a tenor of 20 years and a grace period of seven years.

“The attention of the Debt Management Office (DMO), has been drawn to statements and reports credited to several persons on the subject of Loans obtained from China and has considered it necessary to provide a sequel to its Press Release on the same subject dated September 11, 2018,” the statement read.

“In addition, the low interest rate (2.5 percent) reduces the Interest Cost to Government while the long tenor enables the repayment of the principal sum of the 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 DMO said the Chinese loans are tied to projects implemented in the country. It identified some of the projects as Nigerian railway modernization project (Idu-Kaduna section), Abuja light rail project, Nigerian four airport terminals expansion project, among others.

It said “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”.

The agency said loans are taken after President Muhammadu Buhari has obtained approval from the national assembly.

“To summarise, the Federal Ministry of Finance, Budget and National Planning works with 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 His Excellency requests for the approval of the National Assembly (NASS) as required by Section 41 of the Fiscal responsibility Act, 2007,” it read.

“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.

“The Loan Agreements are reviewed by legal officers of the Federal Ministry of Justice and the Legal Opinion of the Honourable Attorney General of the Federation and Minister of Justice is obtained before any External Loan Agreement is signed.

“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.”