Lekki-Epe Expressway buy-back: In whose interest?
From the concession in 2006, to the implementation of the concession agreement from 2008 and commencement of tolling in 2011, the Lekki-Epe Expressway has continued to generate controversy, up untill two weeks ago when the Lagos State government made known its intention to buy-back the concession rights. Write JOSHUA BASSEY & NATHANIEL AKHIGBE
The Lekki-Epe Expressway remains a major access road, linking the metropolitan Lagos with the rural Epe communities which also share boundaries with semi-urban towns in neighbouring Ogun State, such as Sagamu. It also provides linkages to highbrow commercial environment of Victoria Island and the Lekki/Ikoyi residences. The road was built as a single carriageway by the civilian administration of Lateef Jakande in the early 1980s.
By mid-1990s into the early-2000s, the road, due to increase in the state population and new developments that were beginning to spring up along the Lekki corridor, had become too narrow to take the increasing activities and traffic volume on that corridor. It had become clear that the road needed to be expanded and modernised.
The search for how best to address the challenge of expanding the road began in the days of Bola Ahmed Tinubu as governor of Lagos State (1999-2007). The state government eventually settled for concession when it signed an agreement with Lekki Concession Company (LCC) in 2006. Babatunde Fashola, the present governor of the state, was then chief of staff to Tinubu.
The road expansion had become more compelling in view of new developments, such as the Lekki Free Trade Zone (LFTZ), Lekki Deep Sea Port, Lekki International Airport and the numerous housing estates along the axis, which is said to be the fastest growing corridor in West Africa.
With the agreement sealed, LCC had become the concessionaire of the Lekki-Epe Expressway and set to deliver one of the best road networks in this part of the world.
But in a dramatic turn of event, five years into the implementation of the agreement, the state government recently made known its intention to buy back the concession together with the toll regime with which the concessionaire was to recoup its investment on the road.
LCC’s silence on the matter
Since the government’s intention was put in the public domain, there has been no official reaction from the concessionaire as to what went wrong with the agreement it voluntarily entered into with the state which, in the opinion of some, held hope as a good model for public infrastructure financing.
The concession agreement was sealed in 2006, but took effect from 2008 when work on the road took shape. It was a Build-Operate-Transfer (BOT) model under the Lagos Public Private Partnership (PPP) initiative backed by a law passed by the state House of Assembly and assented to by the governor. Under the agreement, LCC was to build the road towards Epe, manage it for a 30-year period before handing back to the state government in 2038. The road construction is said to have been valued at N50 billion. The concessionaire was to recoup its investment via a toll regime that would see it erect three different tollgates on the 49.36km road. Tolling at the first toll point (Admiralty Gate) started in December 2011 while work on the second toll gate after the Chevron roundabout has been completed, but tolling is yet to commence.
Effort to get the concessionaire to speak on the buy-back deal had been unfruitful so far. An official of LCC said they would rather prefer to be left out of the deal. Benson Ajayi, acting managing director of LCC, was said to be on annual vacation outside the country when BusinessDay called at the Lekki Phase II office of the concessionaire. A young lady who was introduced by the receptionist as the person in the department given the responsibility to speak to the press declined to give any detail. She said LCC might speak later in the future.
Some have postulated that the silence of the LCC over the buy-back is admittance of inability to further source private sector funds to finance the project to which about N35 billion may have been committed so far. LCC’s intention to start tolling at the second gate in 2012 was resisted by the public, and got the nod of the state government which prevailed on the concessionaire to stay action on it.
There is also the insinuation in some quarters that the buy-back was to be expected as there may have been an initial understanding between the parties involved and relevant stakeholders that it would come at this time.
Those who toe this line say it explains why Lagos State is acquiring LCC itself. But they ask: Who owns LCC? In whose interest is the buy-back and acquisition of LCC? What is the total sum borrowed by LCC from the private sector in respect of the project and how much of that had been spent? How much has so far been collected from the tolling at Admiralty tollgate and how has it been deployed?
Government’s explanation
While the concessionaire keeps sealed lips, the state government has explained the motive behind the buy-back. According to the government, this is prompted by several developments not envisaged in the 2006 concession agreement. Stating the government’s position, Ade Ipaye, commissioner for justice, and Ayo Gbeleyi, commissioner for finance, said, “The project, given its pioneering nature, had some underlying assumptions and market indicators under which the transaction was concluded which have since drastically changed in a manner that it can no longer be sustained in its current form, such as the devaluation of the naira and costs of construction.”
They further explained that the LCC, as the special purpose vehicle representing the investors, formally brought it to the attention of the state government that given the rapid rise in interest rates on local loans and other cost parameters, it is compelled to raise tolls currently being charged at Toll Plaza One from N120.00 to N144.00 per car.
“The concessionaire also brought it to the attention of the state government that as provided for under the agreement, tolling would have to commence at Toll Plaza Two. In addition, the concessionaire indicated that unless it realised more income from increased rates at toll plaza one and commenced tolling at the same rate per car at toll plaza two, it would not be able to meet its commitments to investors in the project and continue to fund completion of the remaining sections of the road.
“Furthermore, the LCC stated that toll plaza three, as contained in the agreement, must be built and tolls collected for the continued viability of the project. Under such circumstances, the Lagos State government felt obliged to buy out the interests of the concessionaire in advance of the hand-over date of 2038 under a mutual settlement option also expressly provided for in the concession agreement. This is after due consultation with all major stakeholders including the Lagos State House of Assembly based on various feedback and agitation made to the government,” they added.
The state explained that the significance of the buy-back is that it allows the government to take full control over the determination of the toll rates in order to continue to make it affordable for road users. The LCC shall therefore continue to operate as a fully commercial entity for the benefit of taxpayers and the larger society.
“More importantly, it would also preserve the ability of the government to complete and deliver the infrastructure by direct budget funding, which was also one of the reasons for the presentation of the Year 2013 budget re-ordering to the State House of Assembly.
“Lagos State government wishes to reaffirm its unflinching commitment to the adoption of PPP model as a complementary policy thrust for the acceleration of infrastructure delivery towards improving the living standards of the populace. Lagos remains an investor-friendly state that shall continue to ensure the sanctity of contracts, as in this case, in sustaining investors’ confidence in its investment climate as a preferred destination,” they further stated.
Divergent views
But the government’s explanations notwithstanding, some watchers of developments in the state still believe that there is more in the deal than has been revealed – urging a probe into the case.
Ebun Adegboruwa, a lawyer and activist, said issues around the project from the beginning were shrouded in secrecy, insisting “there is more than meet the eyes” in the deal, especially its financing, which the state government should explain to Nigerians.
Adegboruwa called for a probe to unravel the “undercurrent” dealings between LCC and Lagos State government leading to the state buying back the concession rights and tolling arrangement.
“After LCC has been left since December 2011 to milk Lagosians dry, we need to know why the project failed. I call on the House of Assembly to immediately cancel the toll regime,” he said, adding that he would continue to pursue the case in the court of law.
However, Wole Akala, chairman, Lekki Peninsula Phase 1, said the Lagos State government must have decided to buy out LCC in the contract in the interest of Lagosians. “Really, I don’t know the details of the buy-out yet. I have read it in the papers. The question is, what next after the buy out?” he said.
“We can analyse the issue from both contract and political point of view. The reality is that LCC has an existing contract. They have every right to protect their right knowing fully that there is not a serious country in the world that would not protect the sanctity of a contract. They know when there is an existing contract it should just be binding on both the Lagos State government and other parties. But if quick reaction would not pay LCC, they may not react as such,” he added.
Akala said many residents of the Lekki axis were not privy to the contract between Lagos State and LCC in the first instance. In his words, “Those are issues we have been having with Lagos State government. But the reality again in life is that if you have done something wrong and you want to retrace your step, must we discourage that person? We shouldn’t. So long as they have identified what they did was wrong and they are willing to put it right by retracing their step, they shouldn’t be discouraged to do so. You can be a watchdog to ensure that they do it nicely. Objectively, what they are doing is not wrong, at least from my own point of view.”
He said he foresaw the toll going down drastically. “I am not one of those who believe there may not be toll again because they would have spent money that could have been spent for a long time in a very short time which might not be possible for them to recover without tolling. They may equally work out what I call relief package. They may give people in this area some kind of privilege that LCC ordinarily wouldn’t have been able to give; government has to be seen to be on the side of the people. What I foresee is that, in the nearest future, there would be a lot of relief. There could be a form of reduction of toll or not charging toll in specific time of the day to ease traffic and make life more comfortable. Generally, as I said, there would be some palliative measures,” he said.
Badru Bashir, a legal practitioner, said there would have been certain conditions attached to the agreement to give Lagos State government the buyout advantage. “If you look at contract in that regard, we say, once we have agreed to do certain things, we can as well set conditions when either party can terminate the contract at certain notices. In the concession agreement, there would ordinarily have been certain conditions set in. And when you talk about buy-back, or buy-out, it is trying to gain absolute control,” he said.
He further said the fear of the government could have been: “Should this government go, how do we sustain this? And if this people (LCC) should continue in this contract, succeeding governments may not see our dreams and what we are doing. Let us see what we can do. It is at the discretion of a party to say, fine, let me pay you off and take absolute control of this. Let us buy out all the interest of this company and run the thing.
“The government by doing this may be trying to protect the interest of Lagosians from further enslavement. LCC may hold successive governments to ransom. On the other hand, successive governments may even be ready for a showdown with LCC. So, the decision is also in the best interest of LCC.”
Bashir said the legal implication of the decision is for LCC to say “we have expended so much”, and if the decision has not formed part of the initial agreement, the conditions to the perfection of the contract at the initial stage, LCC could only state what they have expended so far and demand what should be given to them.
“If the government is ready to do that, why not? I think this is what I understand about the intention of the government to buy out LCC in the concession agreement. There must have been clauses in the initial agreement that paved the way for Lagos State government to take such decision,” he said.
The buy-back plan
Governor Babatunde Fashola in a letter dated August 19, 2013 sent to Adeyemi Ikuforiji, the speaker of the state House of Assembly, two weeks ago, sought an amendment to the 2013 budget size of N499.105 billion to accommodate additional N7.5 billion. This will increase the budget to N507.105 billion, in what is intended to fund the buy-back of the concession rights.
Aside from the N7.5 billion supplementation in the 2013 budget being sought to fund the buy-back, the state government in the same letter to legislators also indicated intention to borrow up to N87.5 billion through bond issuance this year as against original plan of borrowing only N35 billion. This, Governor Fashola said, was to cover a shortfall in the state IGR and non-materialisation of the expected N30 billion World Bank DPO II, and will enable the state to finance the acquisition of the concession rights and take control of the toll regime “for the benefit of our citizens”.