Lekki-Epe Expressway Road Toll Charges

The contract for the rehabilitation and upgrade of approximately 50km Lekki-Epe Expressway was recently awarded to the private firm ‘Lekki Concession Company Limited’ (LCC). The project is being executed under Public-Private Partnership (PPP) with Lagos State Government. Under the terms of the contract, LCC will build the infrastructure (i.e. additional lanes), operate it for 30 years and later transfer it to the state government. This model in PPP/financing vocabulary is known as Build, Operate and Transfer (BOT). Like most PPP, this project is being funded through private finance, which means LCC will charge tolls on the road in order to recover its costs and make a decent profit.

However, it was recently reported that communities bordering the stretch of Lekki-Epe Expressway in the Eti-Osa council- area that is to be subjected to tolls- rose up in arms against the plan, protesting what they deem to be unfair financial burden. The issue according to the representatives of the groups is that two of the three proposed toll gates would be located in Eti-Osa, thereby subjecting residents in the area to payment of tolls each time they needed to leave their homes.

The toll road sector is evolving rapidly and has become increasingly global, as entities with the expertise to build, operate, maintain, and finance these facilities have lent their services across international boundaries. LCC for example is a ‘special purpose vehicle’ set up by a group of Nigerian and South African companies. Proponents of toll roads believe that the private sector can bring a level of competition and efficiency that can benefit road project development and operations.

Toll road financing, construction, revenue generation, and operation can be undertaken through several organisational structures and frameworks. Revenues can be generated through traditional ‘direct user’ charges, in which motorists using the facility pay a toll, or through third-party payments. Third-party payments are typically from a public sector sponsor to a private sector concessionaire, either in the form of shadow toll payments based on facility usage or availability payments based on the concessionaire's ability to meet certain performance benchmarks. With regards to the Lekki-Epe project, traditional ‘direct user’ charging regime will be employed. Under this system, a vehicle makes a payment via cash or an electronic method for the use of the road facility.

On face value, the Lekki-Epe project PPP mechanism seems laudable, as it has facilitated the delivery of a key transport infrastructure. But from a technical perspective, I find it hard to understand the rationale behind the PPP arrangements and therefore share local residents’ concern.

It is inevitable that these tolls will have a huge impact on local road users. When asked about the likely toll charge, LCC representatives noted that “an amount will only be fixed when the road construction is completed”. Experience shows that private toll operators have had greater success at regularly imposing toll rate hikes in order to maximize their profit. The management of toll operating companies are also less concerned about the political or social implications of such price hikes. When concessions are initially granted, toll rates tend to be lower than revenue maximisation levels. Nevertheless, once under concessionaire control, toll rates will likely increase to maximum economic or legal revenue levels.

Tolling of Lekki-Epe expressway is not in anyway appropriate for many reasons. Why will the Lagos state government enter into a PPP contract that will allow tolling on a strategic road, in an area without an alternative road access or decent public transport system? It’s been reported that three tolling booths are proposed on the road corridor at Maroko, Sangotedo and Epe. If that’s case, the question needs to be asked about the concessionaire tolling strategy. Is the toll been targeted towards local traffic or long distance travellers? Why should a local resident making a short trip between Sangotedo and Ajah be subjected to a toll, in the absence of an alternative road access? Compelling local residents to payment of roads in the absence of an alternative raises serious equity issues. This makes the concessionaire (LCC) a monopoly service provider, and therefore it’s likely to create a serious distortion in the market.

As we all know, continuous urban sprawl in Lagos has made the Lekki-Epe corridor, one of the fastest growing corridors. The road is only link between towns along the Lekki axis and Victoria Island. The govt has allowed intensification of development along this corridor to perpetuate over the years without a long term strategy of how it will improve key infrastructure. Instead of the government to grapple with this issue, it has decided to hand it over to the private sector for solution. The toll will have a massive impact on local residents, some of whom are currently struggling with everyday life. The lack of alternative road access can only result in the concessionaire making a ‘killing’ out of this project in terms of financial returns. It would have been more appropriate if the private sector is encouraged to finance the construction of a ‘bypass’, which can be tolled appropriately. Road users who value their time and do not want to be stuck in traffic will use the bypass but at a premium.

However, if the government feels a desperate need for a PPP, a better approach could have been through ‘shadow tolls’. This is a situation where a LCC will receive payments over time for the successful construction and operation of the facility from a state government, and road users will not responsible for a payment. The amount of payment that is received from government will be a function of a theoretical toll rate per vehicle with revenue minimums and maximums. I consider this method appropriate in this situation because of lack of alternative free roads in the area, and likely community backlash, which will arise with direct user charging.

Whilst I agree that Lekki-Epe Expressway is a critical transport infrastructure that is in dire need of rehabilitation and upgrade, the way and manner the contract has been structured however needs to be called into question. It’s either there’s been ‘foul’ play in the award of contract or an error of judgment on the part of Lagos State Government. I want to believe it is the latter rather than the former.

Whatever be the reason, it is high time some of the PPP contracts signed by the government (either Federal or State) come under scrutiny. PPP should be aimed at delivering ‘value for money’. Prior to entering into PPP contracts, the government should endeavour to assess infrastructure projects against a ‘public sector comparator’, as part of its project appraisal. This should determine if the most cost-effective way of delivery is through a PPP. It is likely that sometimes, that certain projects could be delivered cheaper by the public sector.