A few weeks ago, I was at a lawyers’ mini confab on infrastructure and cross-border investments in Africa and learnt about Mauritius, the Netherlands and the UK being some of the most favourable countries through which to route your investment to Nigeria.
After the polite nattering was done and most of those in attendance, with sensitive stomachs had left, I was privileged to have drinks with some fine lawyers and one or two people representing heavy investments in PPP infrastructure in Nigeria. Experience has shown that the greatest benefit (and knowledge sharing) at these summits arise when the cameras have been turned off, the taps of the world’s greatest social lubricant, alcohol, have been turned on and people are free to speak and curse as they like. Coincidentally, the Lekki bridge judgement had just been announced, so it naturally featured in our conversation.
The following are some of the golden nuggets shared by the prestigious gathering. It’s all anecdotal, so it’s probably unsafe to quote any of this outside your watering hole.
There is a local demand for infrastructure that Nigeria on its own cannot afford to build. This is widely accepted amongst industry analysts and is the justification for public-private partnerships with the various levels of Nigeria’s government. The roads, bridges, tunnels, power stations, water and drainage networks, houses, hospitals, etc., that government should provide as basic amenities will need significant funding from private (and, usually, foreign) parties to happen.
The Government is sending out mixed messages on its vision for PPP. The first problem here, and this is my personal opinion, is that not enough of the decision makers know enough about the structure of PPPs, to not bungle it. The concessionaire for MMA2, for example, was frequently summoned by various committees to come and account for the money he was spending during construction! They would typically order work to stop and he would fly to Abuja at his own expense to explain that government did not give him a penny. The general aviation terminal was also supposed to be shut down and there was to be no further airport development within Lagos State. We all know how Arik refused to vacate the GAT and that a new airport will be built in Lekki. His lenders are circling.
Same with Lagos State and the Lekki-Ikoyi bridge. Everyone present at our soiree agreed that it was infrastructure that was needed, that it was world class and that it was properly delivered. The issue is that under the concession agreement with the Lekki Concession Company (of the Lekki-Epe toll road), reportedly, no further alternative route is to be built within 300 metres of the toll road.
Why the fuss? Well, when you approach lenders for project financing, it is understood that loan repayment comes from revenues generated by the project. The revenue projections determine the conditions for lending and even the slightest default could trigger significant penalties. It is estimated that 25,000 vehicles go through the Lekki-Ikoyi bridge daily and that traffic at the LCC Admiralty Toll dropped to 75,000 vehicles daily from about 90,000 after the bridge became operational. A 15,000 vehicle hit on your daily bottom line is not insignificant.
There are hoardes of potential investors at the gates. This conversation was had before our glorious week of rebasing, so it was not yet known for sure that we were twice as large an economy as had previously been thought. However, even with the old GDP figures, there were many people out there itching to come and invest. The snag is that most of the intended projects are not bankable. The issue with bankability is not that a healthy ROI does not exist – it is that political and local community risks are way too high. See for example, how the Chevron toll is yet to become active, then go back to the principle that a funded project repays its own debt. What happens to the deficit in actual revenue versus projected? Think also to how things can go pear-shaped if a different party/regime comes into office. We have the old Buhari and railways project as a reminder here too.
The Fix? The government has to decide whether it needs PPP help or not. If yes, then it should be doing all it can to boost confidence in the Nigerian PPP. Politicians and policy makers need to stop being so twitchy. Nigerians also need to decide if they’re happy with the status quo or want these new shiny roads and bridges. Yes, we pay taxes but if the 24% unemployment and 60% youth unemployment figures are to be believed, coupled with huge numbers of people either underpaying or not paying taxes at all, then it may be erroneous to think that the taxes and national income are enough to do everything.
There was debate on the propriety or otherwise of the Lekki-Ikoyi bridge judgement too, but that’s gist for another blog post.