$3.121b loan: Why China can’t take over Nigeria’s infrastructures – Expert

Professor Sylvester Monye has explained that the Sovereign immunity clause in loan agreements were not designed for China to take over Nigeria.

The Chief Policy Adviser to the Governor of Delta State who made this known while speaking with ElombahNews explained there was nothing to worry about on the sovereignty clause in some of the loan agreements with China

According to him, Nigeria’s total debt is about $86bn , the foreign debt is about $30 billion, the question is how much is the Chinese component of this loan.

The Debt Management Office (DMO) put the total value of loans taken by Nigeria from China as at March 31, 2020, at $3.121 billion.

Sovereign immunity clause

Explaining the clause in the loan obtained from China, The former Presidential Adviser on Performance Monitoring and Evaluation during the video interview hosted in the United Kingdom said, “there is history to that, in 1975 the Central bank of Nigeria issued an instrument called letter of credit for the importation of cement and as matter of fact the cement was for the construction of army barracks.

“So they issued a letter of credit and that letter of credit is what we call irrevocable letter of credit.

“Now somewhere along the line, there was mass importation of cement at that time into Nigeria and there was massive delay in port, the delay cost shippers a lot of demurrage.

“In the process of this delay in clearing goods because of massive documentations, the Military government somewhere along the line decided to ban the use of import licenses.

“When CBN cancelled their letter credit for a transaction that they have guaranteed, the transaction that has been done on the party of the suppliers and shipment was already in Nigeria or in the port awaiting clearance and they said we have the policy and government has cancelled the license.

“The other party said you can’t do that, and they took Nigeria, the CBN to a court in England.

“The Judge in Court of Appeal ruled that there is nothing like immunity and there is nothing like Sovereignty, once a country takes himself into a market place, you abide by the rules of the market place.

“You can’t talk about sovereignty when you are in the market place.

“That was a landmark judgement in international law and that led the government of England to quickly pass a law on this issue of sovereign immunity.

“Now, we have been dealing with China for a long time, about 11 years, and we have ongoing projects.

The clause apparently reads:

The borrower (Nigeria) hereby irrevocably waives any immunity on the grounds of sovereign or otherwise for itself or its property in connection with any arbitration proceeding pursuant to Article 8(5), thereof with the enforcement of any arbitral award pursuant thereto, except for the military assets and diplomatic assets.”

“What the loan agreement clause means is that, you are in market place to borrow money, and you are not coming into market to borrow as somebody with immunity, nobody will deal with you .

“If you are coming and you are immune, what claim will the lender has on their asset?

“So what normally happens and that is what normally happens anywhere in the world, is to say we have a right to go after the project which we have funded.

“If you are in breach of payment, if you breach the payment and you are no longer able to pay, ‘we will takeover that asset, run it over a period of time, recover our money and then we will give your asset to you as long as we have recovered our money'”.

“Once, you are in market, you can be sued and you can sue.

“The issue of sovereign immunity, so people may want to be extraordinarily careful by putting everything on the table so that you will know that, it is there. It is nothing unusual, it is nothing new and I have had the privilege of reading all the agreements whether same clause are all in the the agreements.”

Loan agreements with China

Talking about the process of obtaining foreign loans, he said, “If you want to borrow, you will approach federal ministry of finance to help articulate the need for the money, but before you do that there are number of steps you will follow.

“The first thing is for the Debt Management office to give what they call debt sustainability analysis to see whether, if you have that stock whether the country can survive with the debt.

“So when that analysis is done and the DMO tells the Ministry of Finance that we can actually take additional loan, then they will take it to the next level.

“The next level is to engage the lenders in terms of details, discussions as to their requirements and what they need to do, for you to continue with the discussion, you will let the lenders have an idea of the parameters that is set by the fiscal responsibility law.

“The fiscal responsibility law says clearly that any loan that you contract must be at the maximum level of interest rate of no more than 2.5 percent.

“You will now check whether the scheme is fit as provided by the law, after you have done that and you feel comfortable, then the President will write to the National Assembly to ask for that loan to be taken and approval is given by the National Assembly, approving that the loan should be contracted.

“Then Federal Ministry of Finance will now go into proper negotiation with the lenders.

“The negotiation of loan is a tedious process, that is when you will hear that there is a large number of Nigerian contingent who have gone to China, or US to negotiate for loan.

“What happens is that in the negotiating team, you will have the federal ministry of finance to lead, you will have representatives of the implementing agencies, you will have legal adviser of federal ministry of finance in the team, you have the legal adviser in the Ministry of Justice in the team and you have other stakeholders including representatives of Debt Management office in the team.

“At the point of negotiation, it is called line by line, word for word negotiation, then you got the proposal from the lender, you will negotiate it line by line, sometimes you can spend an hour arguing over one word.

“It is a very tedious process, after you have done that negotiation, you will have agreed minutes of that negotiation, in other words you will initial it so that there will be nothing foreign that will be introduced to the loam and you take back to Nigeria and present it to the federal executive council.

“The Federal Executive Council will now approve and after the approval of the Federal Executive Council, you will notify the lender that this loan has been approved by Federal Executive Council.

“After the approval by federal executive council, you will notify the lender that this loan has now been approved by Federal Executive Council and once they have received the notification, the lender will now ask for a legal opinion from the Attorney General himself, it gives what what we call ‘no objection’, it is that ‘no objection’ that makes a loan effective.

“So the process is very tedious, that is how all loans are procured, I am not sure at what stage we have deviation on what is playing out in the public domain now.”