Read Senator Musiliu Obanikoro’s Article and find my comment below.
Lekki-Epe Expressway Concession right buy back; a badly put together cover up.
The Lekki-Epe express road concession project may yet to have its fair share of accolades as well as disapproval. The recently announced plan to re-acquire the concession rights on the project by Lagos State Government opens up a new vista of debate on the continuing controversies over the project. The buy-out, which has already passed legislative approval and perhaps conceded to by the other parties, suggests the failure of the much ailed project among the bourgeoisies. It has remained difficult for the common man, particularly those that are directly affected by the additional tax on their hard earned income, to understand the project as structured.
The reasons why the Lagos State Government decided to buy out the private parties in the concession include; the request by the Lekki-Epe Concession Company (LCC), the concession company, to raise the tolling rate on the first toll plaza by 20% from a minimum of N120 to N166 for a car at the minimum; to commence toll collection at the second toll plaza- 10km from the first- at the new rate; and insisting that toll must commence at the second toll plaza to be able to raise fund for further construction, despite the obvious public opposition to such. According to LCC, the costs of construction have risen as a result of rising interest rate. There are also unconfirmed reports that the concessionaires wanted to increase the number of toll points to four from three in the concession agreement. The government perhaps thought it wise to step in early and rescue an already bad situation.
The concession right on the road is to be bought at an estimated sum of N25.3 billion. N15 billion would be expended for the buyback of the right; N6.8 billion to service existing debt obligations and N3.5 billion for third-party liability. This is after an estimated N35 billion has been expended to construct only 30% of a road, five years into commencement in 2008. The estimated total cost of construction of the entire road at financial close in 2008 was N55 billion with an estimated construction time of four years. At the end of the buyback, the LCC would become a quasi-private investment company fully owned by the state government and would continue to manage the concession.
In addition to the obvious failure of the project with the attendant implications for public private partnership projects in Nigeria, the decision leaves a number of questions unanswered. The first is, what the government paying for as assets, when it buys back the concession right from the private partners and what liabilities will it inherit? The second is how much of the tax payers’ money would be further expended to complete the road and at what costs in toll fees to the people? Finally how much has been generated in actual revenue from toll collection thus far and how was it shared between the parties? The answers to these questions should show whether Lagosians are better off with the decision of their government to reacquire this concession right or whether the government has acted on its own interest and its patrons.
Unfortunately, the Lagos State Government has not been forthcoming in providing clear and detail information about the project since inception and on the current decision. It therefore leaves the public with conjectures and rooms for misinterpretation of its intention. There exists no current official information on the Lekki-Epe Concession project in public domain. Both the Lagos State Government and the LCC have refused to make available such information. It appears that the governance is carried out in secrecy and Lagosians are fed the information the administration wish them to know.
The 49.4km road starting from Ozumba Mbadinwe in Victoria Island through Lekki and Ajah to Epe was conceived for reconstruction through public private partnership arrangement via concession in 2006. The project involves the upgrade, expansion and maintenance of the expressway (Phase I), and construction of approximately 20km of the coastal road (Phase II) on the Lekki Peninsular. The project is designed as a Build-Operate-Transfer (BOT) model of infrastructure delivery, under a 30 year concession agreement, after which the assets was to be transferred to the Lagos State Government in good condition. Revenue from toll collection would provide the concessionaire with the cash inflow required to recover the cost of investments, service and repay the debts whilst meeting capital and operating costs.
The LCC as a special purpose vehicle for the management of the concession is made up of the Lagos State Government representing the interest of the Lagos citizens, the Asset and Resource Management Company (ARM) as the key investor, and Hitech Construction Company (Hitech) as the engineering, procurement, and construction management (EPCM) partner. In addition to financial contribution in the form of a mezzanine loan, Lagos State who owns the road, also provided public guarantee, backed by an irrevocable standing payment order (ISPO) over its statutory revenue, on all debt incurred to construct road. ARM is the key sponsor and strategic technical investor with equity shareholding in the project. Hitech also holds a ‘tied’ equity shareholding.
In 2008, when the project was brought back to life after a 2 years lull, the total costs of the project for which fund was raised was estimated at US$460m (N55 billion at 2009 exchange rate of N118/$1). Funding for the project was principally through a combination of debt and equity, obtained locally and overseas. At financial close, US$370m (N43.6 billion) was gotten in financial commitment from the investors and financiers made up of 7 lenders and 3 equity providers. N11 billion was immediately drawn down. Lagos State Government committed to N5 billion mezzanine loans over a 20 years period in addition to providing a N6.5 billion abridged works guarantees as enablers to other financiers. The tenor of the debt portion of the funding ranges between 12-15 years with a combination of fixed and floating interest rate terms. 30% of the senior debts are at fixed rate while the remaining 60% are at floating rate.
Five years into the project, which was scheduled to be completed in four years, only about 15km of the 49.4km road has been completed. Two toll gates have been erected 10km apart with collection being made in one since January 2012.Although no statistics is available yet on the number of vehicles plying the uncompleted Lekki-Epe Expressway and the figure for users of the toll plaza, over one million vehicles are believed to ply Lagos roads every day with about half of that number commuting between the Lagos Mainland and Lagos Island on a daily basis.
Lagosian, especially those living in and commuting through the Lekki- Epe corridor were practically forced, in a military style, into paying toll on the uncompleted road and are about to start paying twice, 10km apart within 15km of the road. Lagosian are yet to come to term with the realisation that there would be about 4 toll points, where road users would have to part with an average of N150 per toll, on a 49.4km road at the completion of the project.
Although the total cost of the completed section include the hurriedly put together alternative roads remained shrouded in secrecy, information from various media sources suggests that about N35 billion in total may have been expended to construct the completed 15km. that represents N2.3 billion per km in construction costs. In other words, about 70% of the estimated total costs of the project, five years ago, have been expended to construct only 30% of the project. If the project continues in this manner, with the new demand from LCC, it would not be long before it becomes clear that the project has become a fraud and negates the interests of Lagos tax payers.
Perhaps, the only way to cover up this disaster in waiting is the buyback of the concession right; the question is what is the state government buying? Since it is the concession right that is being bought, it means that the state government is simply paying the other equity holders- ARM and HiTech, off the project while assuming the entire liabilities of the LCC. The asset that comes with that is the completed 15km section of the road with toll revenue from 1 toll point. At the buyout costs of N25.3 billion the state government would have incurred a total of N30.3 billion on the road, including the N5billion officially committed at inception. It would also inherit the total outstanding debt of N32 billion currently outstanding on the project.
In other words, at the end of the buy back, the 15km completed section of the Lekki- Epe road and the two alternative roads would have effectively costs the state government about N62.3 billion. That is N4.15 billion per km of road in costs to the state government after purchasing the concession right. No one knows how much the state government has received in toll revenue. The newly awarded 127.6km Lagos-Ibadan expressway reconstruction is expected to cost N167 billion. That represents N1.30 billion per km.
The remaining 34.4km of the road may now have to be financed with additional debt if it is to be speedily completed. At the LCC base rate of N2.3 billion per km in construction costs, additional funding requirement to complete the road could be in excess of N83 billion. And the debt would be repaid by a combination of tax payers’ money and proceeds from toll collection. The current administration of Lagos state is poised to go down the history lane for construction of the most expensive infrastructure projects using tax payers’ money and making them pay for it again. The recently completed Admiralty hanging bridge- a 1.35km bridge with less than 500m of that bridge in the hanging section, costs the state government N29 billion in direct funding. Users now pay a minimum of N250 per vehicle to another pseudo agent of the state government- Lagos Tolling Company, (working with two foreign technical partners) – to use the road.
There is no way, given the above, that the buyback of the concession right can be in the interest of Lagosians. It is apparently a badly put together cover up of a failed project that would end up a disaster for the government and its patrons in the future. It is hard to understand how the state house assembly was hoodwinked into allowing the request to pass without properly conducting a critical stakeholder review of the entire project considering the level of interest in that project. Lagosians deserve more than the amount of information that is available on the reacquisition of the Lekki-Epe concession right. They deserve to decide whether truly it is in their best interest that this administration is acting in relation to this project. I do not think it is in the interest of Lagosians.
By Senator Musiliu Obanikoro
Interesting piece. I see figures and possible facts but Senator Obanikoro only pointed out the loopholes but did not profer or suggest solutions. At the end of the day, history will say Fashola’s administration achieved ‘this and this’, which is still a milestone compared to past administrations.
Personally, I don’t believe any of these politicians fronting the sheep when we know they are wolves. Somebody on the comment strip asked the Senator what he did when he was in Abuja representing Lagos State and I can almost swear the answer is – NOTHING! If otherwise, the Senator should go ahead and give us facts and figures like he has done on this article. One thing a lot of people are not seeing is that Fashola is also discouraging people from driving or congesting the roads. That’s why they introduced the BRT buses.
Revolution is a painful procedure hence, if I have to pay N1000 everyday to ply good roads in Lagos or Nigeria as the the case may be, I’d gladly pay than have to fix my car every week.