How aregbesola attracted $107 million for Ilesa water supply Project and why the project must be completed by Osun Government
According to Audrey Hepburn, Water is life, and clean water means health. The hstory of how potable water supply dried up in ijesaland in the early 80s and the previous failed attempts to restore water into the six local governments are well documented in my previous write up. The Macedonian call from our royal father, Owa was loudly sounded during the 2012 Iwude Ijesa, when His Imperial Majesty, Owa Obokun Adimula, Oba Dr Adekunle Aromolaran, lamented over the inability of Ijesas to access public water supply for the past three decades.
Aregbesola went to work after assessing the problems and possible solutions. His administration’ has inherited a Federal Government project for the construction of a weir on Osun River and intake structure at Kajolla. It was initially awarded in 2006 and by 2009, the contract has been abandoned already An asset though, if it had been completed without transmission and the distribution networks that take water to the doorsteps of Ijesa people, it would have been a liability, creating such pond of water without utilizing it.
Aregbesola wrote a letter to the Federal Government on the need to complete the project as his priority. Consequently, the contract was re-awarded in 2012, completed in 2014 and handed over to Aregbesola on 11th March, 2016 to deal with the huge challenges associated with the funding and the construction of water treatment plants, transmission structures and the distribution networks, all required to take water to the communities, neighborhoods and doorsteps of the ijesas in the six (6) local government. Without the transmission structures and distribution network, the pond created by the weir as constructed by FGN would have become a liability. The water body impacts, on the environment and the ecosystem, the possible destruction of the weirs and flooding of the riverbed.
The peak funding requirement would be over One hundred million dollars, by using the exchange rate of 306 naira to a dollars; it would be over 30 billion Naira. This amount was half of the total annual revenue of the state, at the peak year of his tenure. The funding has to be a grant or almost free. Unfortunately there is no free money anywhere. In any productive sector, the maximum equity that such project can attract will be 30 percent, while others (70 percent) would have to be debt and such debt, in public finance, would have to be concessional, long term and at low interest rate. In dollar term, it was also huge considering the fact that the external loan portfolio of Osun as at 2014 was about $100 million dollars, so the inclusion of ilesa water scheme means doubling the external loan portfolio by Aregbesola for his people of Ijesaland. He must be gutsy to do that and surely, he must have mosey to even think about it. We had turned down an earlier smaller foreign loan from someone iconic in the financial sector and a friend of my boss on the basis of possible exchange rate risks, currency conversion risks and because the tenor was not long enough and the interest rate not low enough to mitigate and compensate for possible inherent financial risks. If we equate the equity to the grant, it means the amount of grant is also limited. No single state in Nigeria has been able to attract at once, a grant up to 30million dollars from foreign donors, prior to this.
There was a high stake on sustainability of external loan. So Aregbesola already knew his back was against the wall, he would have to work harder to obtain long term debt financing and a grant. Unfortunately, the Nigerian financial market is not deep for long term funding, it must come from Development Finance institutions, multilateral institutions such as World Bank, European Union, etc. The fund is huge and what about the political backlash, i doubt if anybody, who is not an ijesa man can even try it and even at that, how many ijesa men can be that gutsy to such a huge political risk.
We were already servicing the existing external loan, inherited from Awolowo’s old western region, military’s western states, oyo state and previous Osun governments. How on hell, can you increase the cashflow being used to service external loan because of Ijesa water scheme? Since the existing external loan portfolio of Osun comprises of subsidiary loans, in which the federal government bears the final recourse to pay, if the state of Osun can not pay. The new funding for ilesa water scheme must be in the same category so as not to make the previous lenders and Federal government (the guarantor) subservient as creditors. It must be long, say 25 to 30 years with 5 to 7 years moratorium to allow for construction. The framework had been set by FGN for its guarantee. Under a federal government that was controlled by opposition in Aregbesola’s first term and with Dr Ngozi Okonjo Iwela as Minister of Finance, Aregbesola and his team had their job well cut out for them. Only, a “can do spirit” could overcome such daunting challenges. Imagine, if we were not fortunate that our Son was the Governor, the ilesa water scheme, at best would have still remained a pond in the bush like many others, previously constructed by FGN.
In the early days of his first term, Aregbesola took his technical team to the World Bank, Country Office, Abuja to source for funds for the project, but by the time the World Bank gave Nigeria $400 million, Osun state has been excluded out of the beneficiary states on the premise that there was no Water Policy, prepared by the World Bank for the Osun Water Corporation to operate with, as a condition precedent to qualification. Painful though, Aregbesola did not rest on his oars and he went to the Islamic Development Bank (IsDB) in Jeddah to source for $100million for the completion of Ilesa water project. I didn’t follow him, I learned, he went with another south west Governor, the current Governor of Osun, Chief Gboyega Oyetola (who was his Chief of Staff, then), Mr Binuyo Abdulahi, the current Deputy Chief of Staff and the Consultant. These people were with him before his commissioners resumed. It was unusual to have a sub sovereign (Osun) drive financing for the Central Government, who would be sharing the proceeds with other states; purely altruistic move and highly courageous.
Fortunately, the IsDB included Osun in their list. We got a Term Sheet for the financing and it was my duty to review the term sheet and make inputs as basis for the Federal Ministry of Finance adoption and final modification. It was an opportunity for Osun to dictate terms and conditions that would be most favorable. Aregbesola trips and previous briefs to his finance team, provided an head-start to move quickly to financial close of the transaction. Unfortunately, the Senate moved to investigate all intending loans and considered whether it was healthy for Nigeria to take loans, when the Government of Chief Olusegun Obasanjo had just liquidated all Nigeria’s external loans. We had to travel back and forth and appeared before many senate committees in Abuja (including the one, headed by Senator Makarfi, then). That assignment took two years during which Osun proposed loan was cut by Federal Government to $50 million as against $100 million, our request. Not because we couldn’t take the whole but because many states were brought in to benefit from the whole amount given to the country by IsDB.
While the Senate Committee was busy looking into the loan issues, the IsDB advised Aregbesola to engage an in-house consultant to carry out the feasibility study and the conceptual design of the whole project, while awaiting the Federal Government approval of the loan. At the completion of feasibility study and conceptual design, the project package came up as follows.
1. Component 1- 60,000m3/day Water Treatment plant at Kajola; (IsDB funding)
2. Component 2- 22km Transmission mains and Booster Pump Station; (IsDB funding)
3. Component 3- 3No. 10,000m3 Concrete Circular Tanks in Ilesa; (IsDB funding)
4. Component 4- 530km Water Distribution Network within Ilesa; (State Govt. funding)
5. Component 5- Provision for Sanitation Facilities “ “
In 2014, the IsDB team came for project appraisal and approved the first three (3) components for funding. Invariably, this approval had compelled the bank to put “skin in the game” and to autograph the project as a strategic partner. The project’s credibility increased significantly. It was the IsDB that got the Federal Ministry of Finance (FMF) approval to increase the loan from $50million to
$65 million in order to be able to finish their own components (1 to 3 above), which would get treated water into the three big reservoirs inside Ilesa city.
The prudence of Ijesas made Aregbesola to request for the reuse of the ductile pipes left behind by the former Oyo State to save money on the distribution network and to get the IsDB bank into supporting the distribution network (item 4) but the Bank declined and would not want anything to do with the left over pipes. The distribution network, which would take the drinkable water to the households and neighborhoods of Ijesas had to be funded outside the Development bank space. Even at that the funding for the treatment plant, transmission mains and the circular reservoirs from IsDB didn’t come until 2016. I was lucky to have reviewed the term sheet in 2014, before I left office as Commissioner of finance. The financing structure proposed by IsDB is such that the fund is ring-fenced and can not be diverted. Also, the project can not be affected negatively by paucity of fund, a usual bogey in Nigerian public finance space. The project structure also put in place by IsDB is commendable because of its two layers; the project team and the bank technical team, comprising of independent engineers. The project team must follow due process with additional oversight functions from the bank team.
Alternative options were considered. for the remaining funding gap required for the distribution network, a whopping sum of $41.95million. First, the State Government of Osun and the six (6) Local Government Areas that would be served by the Water Scheme were proposed to provide the sum of $41.95 million to lay the 530km distribution network that will bring the water to the doorsteps of the consumers. The Local Government contribution would have to be $13.3 million about N4B), while that of the state government would be $28.65 million. This option would take time and would be too steep for a state, whose allocation from the federation account is second to the least among the states in the federation. Second option was to apply to the two International Development Partners, USAID and AfDB for both grants and loans respectively but were to no avail.
This made Aregbesola to look inward and to solicit for support from the Federal Government of Nigeria on the 7th February, 2018. The amount was unprecedented and the purpose being the last mile developmental need, usually abandoned for the states. To the Glory of God, his request for support of $41.9 million was granted by President Muhammed Buhari on 30th April, 2018. Based on the approval of Mr. President, the flag – off of the Ilesa Water Supply Distribution Project became a reality. This was the biggest singular grant or a federal budget attraction to any state in 2018 and to the state of Osun since its creation in 1991. It was not a budget, but a cash in bank, kept with Central Bank of Nigeria and as US Dollars. Inflation associated with local currency and diversion risks are completely hedged. No wonder, Ilesa is regarded as the City of God and heavenlies.
When the grant of $41.94 million was added to the $65 million IsDB fund, a whopping sum of $106.94 million had been lined up and secured in two lockboxes for Ilesa water scheme. At the current official exchange rate of 410 naira to 1 US Dollar, the Ijesas have a project fully funded to the tune of 43.85 billion naira. This singular project amount is bigger than the cost of Osogbo circular road and even, after adding the amounts spent on Osogbo township roads. The ilesa water scheme will remain the largest single project in Osun for many decades to come, in term of capital outlay.
Therefore, it is uncharitable, it is wicked and it is unfair to say someone, who had attracted the unprecedented huge sum of money to solve a lifetime challenge of his people, has not done anything for them.
Having secured the funding, it is important to appraise the implementation and construction works so far, personally, I have seen a distribution pipes passed through the front of my house in ilesa and I pray it gets to my ancestral home in Ere Ijesa and more importantly, I pray and I decree, I will drink this pipe borne clean water by next year. After securing the IsDB facility, the procurement process for consultancy and contracting followed with their own timelines. The first phase of the project is the TRANSMISSION MAIN, BOOSTER PUMP STATION AND THE RESERVOIRS. This was awarded in June 7, 2017 and was flagged-off on December 18, 2017 at Osun Ankara , Irojo, Ilesa. The second phase is the treatment plant, which the IsDB scheduled deliberately to start in October 2018 to allow the first phase to have reached substantial stage.
The third phase is the distribution network. The funding for this came in some weeks to the exit of Aregbesola from office. As a matter of fact, the money was brought in November 2018, although it was approved on April 30,2018 by the Federal Government of Nigeria. The distribution network phase is also progressing very well. In general, the projects have been progressing steadily. The only initial challenge on the implementation of the projects to date is the COVID-19 pandemic. The impact of which is universal. The state government of Osun recently, during the presentation of 2022 budget, made a remark on the Ilesa water scheme and promised that its construction works will be completed by next year. Let us continue to hold them responsible on this and hope they will also curb the mining activities at the upstream sites of the water pond and the adjoining rivers so that sufficient water can get to the water intake as designed, initially for the benefits of Ijesalands.
The ilesa water scheme is for the fulfillment of Aregbesola’s social contract with his people and it is not meant to be commercialized. The repayment of the loan portion of contract funding is not coming from sales of water as repayment is coming ftom the revenues of the entire state of Osun. It is a long term facility that is favourable and monthly charge will be about 60million naira to the government of Osun; I don’t think this is too much for the benefits of Ijesas. The grant, 41.95 million dollars is the equity share of the ijesas from the commonwealth of the nation and it is free.
Wale Bolorunduro, PhD.
Former Commissioner of Finance, Osun writes from 6B Lase Ogunleye Street, Fadahunsi Avenue, Imo. Ilesa City. Osun.