He appeared before the Prof. Femi Odekunle-led panel of inquiry set up by the government to investigate the circumstances surrounding the procurement of an N18.38 billion loan by his predecessor, Prince Olagunsoye Oyinlola.
The six-member panel has a mandate to look into other major financial transactions by the government between May 29, 2003 and November 27, 2010
Oyinlola, the National Secretary of the Peoples Democratic Party (PDP), gave his evidence before the governor appeared at the panel.
Aregbesola said the idea behind the loan was not bad but its timing and application were wrong.
He also said the facility would have been unnecessary if the excess crude oil accruing to the State of the Living Spring had been judiciously applied.
The loan was obtained in the twilight of the Oyinlola administration to finance the establishment of six stadia and other projects
Aregbesola, whose administration inherited the N18.38 billion loan from the United Bank for Africa (UBA) Plc., explained why he renegotiated the facility with First Bank of Nigeria Plc.
He said his predecessor bequeathed unto him a government that was technically insolvent.
Stressing that there was nothing strange in a government taking credit facility from financial institutions, Aregbesola said the way and manner the former governor drew down the loan in one fell swoop was questionable.
Equally disturbing, he noted, was the fact that the funds were lodged in an account with the same bank without accruing any interest for the state.
Aregbesola queried the rationale behind the simultaneous payment of N615 million interests and charges on a loan which was obtained at the 11th hour of the administration.
He told the panel: “Why was the entire loan fully drawn by the PDP administration prior to the commencement of projects, even when the construction periods of the various projects for which it was meant were between 12-24 months?
“It is imperative to note that the drawdown of the entire loan once and for all in a single day when the entire money was not required to be utilised immediately was suspect.”
Aregbesola also told the commission that Oyinlola’s action exposed the government to interest liability for funds not needed and just idle in the bank.
The governor said: “The Oyinlola administration ran foul of simple rule of sound financial management. In exposing the state to huge monthly repayment of a sum of N615 million to service a loan that has no viable means of repayment and need not to have been drawn down.
“On assumption of office, the state government directed the Ministry of Finance, Economic Planning and Budget to negotiate with the officials of UBA Plc and First Bank Plc which offered to refinance the N18.3 billion loan.
“UBA Plc insisted that the 13 per cent annual interest rate charged was the least it could offer and added that interest rate had gone up generally beyond 13 per cent as at December, 2010 when the negotiation took place.
“However, instead of a downward review of the rate, the bank insisted on 13 per cent interest rate per annum but offered to increase the tenor to 47 months.”
The governor said the unspent balance of the loan was returned to the bank to bring it down to N8.3 billion and that his administration had to shop for a more convenient credit line to pay off the balance and the bank charges, adding that First Bank presented this convenient credit line.
He noted that a credit line of N25 billion was offered by First Bank of Nigeria Plc, out of which only N8.6 billion was drawn-down to pay the UBA Plc outstanding loan in three tranches, adding that the approval of the Osun State House of Assembly was obtained in respect of the credit line.
Aregbesola said: “Accepting the First Bank’s offer of N25 Billion credit line will tremendously reduce the pressure placed on the finances of government by the suffocating sum of N615 million being paid to UBA Plc monthly.
“ Even if the whole N25 billion is drawn down at once, the government will only require a sum of N208 million for the next 12 months to service the interest element thus making a savings of N407 million monthly on the amount being paid to UBA Plc.
“ In the same vein, the amount that will be required to service the N25 billion loan, both principal and interest, at the end of the moratorium period if the whole amount is drawn down at once is N531 million which is lesser than what is currently being paid on N18.38 billion.
“Since drawings will be based on need, there is no way by which the whole N25 billion will be drawn down at once.
“Consequently, the amount that will be repaid monthly at any point in time after the moratorium period will be lesser than N531.”
His words: “There may be nothing wrong in government taking a loan facility. It is the hasty draw-down at once, thereby exposing the state to cut-throat interest payments on money not needed for utilisation and merely lying fallow in the same bank.”
Aregbesola said there was no way the state could continue to meet its social service obligations in education, health services and security among others without renegotiating the terms of the loan.
“Even though, a credit line of N25 billion was offered by First Bank of Nigeria Plc, only N8.6 billion was drawn-down to pay the UBA Plc,’’ Aregbesola said.
The governor said the N18.38 billion loan would not have been necessary, if the excess crude oil accrual to the state was well managed.
In his testimony, former governor Oyinlola said the financial needs of the state pushed his administration into the procurement of N18.38 billion loan in 2010.
Oyinlola said: “A reduction in the federal allocation to states in 2009, when the crises in the Niger Delta was very pronounced affected oil production, which is the main source of the nation’s economy.”
Besides, the former governor said the issue of new minimum wage and the need to embark on other developmental projects required funds for its implementation.
He said: “At that time, salaries of civil servants and pensions consumed 90 per cent of the earnings of the state and the leadership of the state House of Assembly advised us to take the loan to address germane issues of 2010 Budget.
“As a responsible and responsive government, we took the advice of the legislature, then analyse the projects that would have impact on the lives of the people of the state and arrived at N18.38 billion.
“A memo was taken and passed by excecutive council and approval of the House of Assembly was sought and obtained since it is practically impossible to summon every citizen of the state to take a decision on it.
“The constitutional voice of the people is the House of Assembly, which means the people of Osun took the loan by the approval of their representatives in the House.”
The former governor further said that he lacked power to unilaterally take decision on the affairs of the state.
On the upgrading and rehabilitation of nine Technical Colleges contracts, Oyinlola said: “What informed our decision was the inability of government to provide employment for unemployed graduates.
“We intended to upgrade the colleges so that these jobless graduates would go there and pick a trade and become employers of labour.”
Oyinlola said that the poor performance of students in science subjects and Mathematics made his administration to award contract for kits for the use of pupils in primary and secondary schools.
On the six stadia projects, the governor said that it was the youths of the state that called the attention of its administration to the development of sports, during one of the open forum programme organised by his government.
He added that if equality was anything to go by, infrastructural development must be replicated in each of the zones across the state.
In his conclusion, Oyinlola said that his intention was to pay off the loan before the end of his tenure.