Sunday, May 17, 2009

Bi-Courtney and MMA2 Terminal - What a Mess!

Recent revelations about the details of the MMA 2 Terminal Private-Public Partnership (PPP) agreement between the Federal Government and Bi-Courtney Aviation Services are disheartening – to say the least. Following my observation of the PPP contracts signed to date, I have come to a conclusion that the Nigerian PPP framework has been designed to legitimise state corruption. In this current climate of overwhelming infrastructure need, the government is using PPP to enrich few individuals at the expense of the general public. I’m now beginning to ask myself where public interest lies in all this.

As some of you maybe aware, in 2000 the Obasanjo regime signed a Build, Operate and Transfer (BOT) contract with Bi-Courtney Aviation Services for the construction of the second terminal at Murtala Mohammed Airport (MM2). The new airport terminal was opened in 2007. However, the PPP contract is now subject of controversy.

There is an ongoing row between the FG and Bi-Courtney on the duration of the PPP concession. While Bi-Courtney is insisting that it has 36 years to run the terminal, the FG through the Federal Aviation Authority Nigeria (FAAN) noted that the concession is only for 12 years. Whether it is 12yrs or 36yrs, there are other details in the contract which I find really disturbing.

According to media, the PPP contract contains an ‘exclusivity’ clause which “forbids the FG from improving or expanding the old terminal at the Murtala Muhammed Airport. And that that all scheduled domestic flights in and out of Airport in Lagos State shall during the Concession Period operate from MM2 and that no new domestic terminal shall be built in Lagos State”. The question is what is the intent of this clause?

The single most important public interest concern with PPP transactions is the inherent tension that is created when governments view t leasing of assets as a potential income source. If such PPP are properly structured, they can provide large public benefits. However, PPP contracts in Nigeria are structured to grant concessionaires substantial monopoly power, ultimately at the cost to the users of the system. The MMA2 agreement, Lekki-Epe Expressway and Lagos-Ibadan Expressway PPP contracts are no exceptions in this regard. When I raised the same issue on the Lagos-Ibadan Expressway PPP contract, some thought I had a personal ‘beef’ with Bi-Courtney Ltd. For your information, I do not have anything personal against Bi-Courtney, but I believe the right thing should be done. The exclusivity clause agreement that forbids the FG from improving or expanding the old terminal at the Murtala Muhammed Airport and prohibits construction of a new domestic terminal in Lagos State limits the prospect of competition and runs counter to the public interest.

Thank goodness that President Yar’Adua is currently reviewing the terms of the agreement. How can we be sure that corrupt individuals have not been involved in the deal? Let even assume that the concession is for 36 years. Does that mean that the govt cannot build any domestic airport in Lagos for a period of 36 years because of Bi-Courtney? Come on! So where are the public benefits? How does the govt intend to encourage competition? How can a company hold the monopoly on where local flights depart or arrive for a period of 36 years? Whoever must have advised the government to accept such a clause needs to have his head examined by a Psychiatrist.

In any public-private contractual arrangement, there is always a risk of corruption. For agreement like these and many other where large of amount of money or lengthy concession period are involved, such risk must be well managed. The govt has however failed to run open and transparent processes, when it comes to PPP deals. PPP agreements are signed without any regard for competitive tendering or proper tender evaluation process. To put it bluntly, our PPP framework is a sham. The govt does not seek input from third parties before entering into such contracts. Legislators do not hold the executive accountable on these agreements. Most of the agreement offers little or no public benefits. Most of the PPP agreement undermine competition and lack consumer protection provisions. The agreements are only successful at mortgaging our future away to few privileged individuals.

In my opinion, all PPP agreements have so far failed. The govt needs to go back to the drawing board. In fact, we need a moratorium of PPP agreement until the govt introduces a ‘consumer and competition’ legislation. Some may argue that PPP has helped delivered some key infrastructure like the new Airport Terminal, I will note that the devil is in the detail. By the time people wake up to the reality of this daylight robbery, it might be too late.

Anyway, my advice is that in cases where a contract or concession was inappropriately awarded, members of the public needs to push for provisions that will allow for contract termination.


Anonymous said...

Concerned Nigerian,

You have identified what may be at first glance a contentious issue but which is normal business practise.

As you rightly said- ‘the devil is in the detail’ and as such I can not comment directly on the MMA PPP concession. But have you seen all the details?

Do you know the circumstances under which Bi-Courtney achieves a ROI?

Assuming Bi-Courtney’s is paid a fixed amount per passengers that travel via the airport terminal, wouldn’t you try to protect your revenue stream to enable Bi-Courtney meet its financial obligations to creditors, etc?

If a new terminal is built by the govt, that could immediately have disastrous effects on Bi-Courtney’s revenue projections. Such exclusivity clauses is simply ‘due diligence’ by Bi-Courtney! Without such protectionism, no investments will ever be made!

If the govt decides to build a new terminal, they simply renegotiate the exclusivity clause in which Bi-Courtney may determine its projected exposure and receive compensation for such. Simple! The exclusivity contract does not mean another terminal can not be built but simply that due consideration of all stakeholders is employed prior to such undertakings.

I also take objection at you extrapolating such clauses as proof of corruption! Very 'wishy-washy' evidence in any court of law, if you ask me! You then link these issues to inappropriate concession award! How does your concern about an exclusivity clause suddenly amount to possible inappropriate PPP award?

Come on! Let’s be evidence-based and not simply conjure aspersions and other non-flattering remarks. A little more education in the areas of PPPs may not go amiss!

If I were Bi-Courtney, I would have done no less and maybe more!

Best Wishes,

Your Brother in UK

Concerned Nigerian said...
This comment has been removed by the author.
Concerned Nigerian said...

My dear Brother,
Because 'it is a normal business practice' does not mean it is right. I do not have anything against Bi-Courtney, as it is a company set up to maximise its opportunities. But the fact remains that those 'opportunities' SHOULD not be maximised at the expense of the masses. And the role of the govt is to make sure this does not happen, which has not been the case with MM2.

What is the benefit to the masses, when you encourage 'protectionism' at the expense of 'competition'? Are you saying that no infrastructure will ever be built unless we create private monopolies?

There is no where in the world where PPP's are designed to create private monopolies,except in place where the private companies are owned through proxies by corrupt government officials. Whilst I'm not saying this is the case, my argument still remains that we need to take a closer look at our PPP framework.

Kunle Obebe said...

Kudos Seyi, your piece is quite thought provoking. I believe we really have to see the contents of the agreement before we jump into a wrong conclusion. The press have a way of twisting information especially when they do not have an understanding of the legal issues involved.

The PPP agreement has to balance both the interest of the investors and the public, consequently both parties have to use a tooth comb to go through the agreement.

In the event this clause is contained in the agreement, the investor is just trying to protect their interests and you need to understand that such a humongous investment with the high risk nature has to have such a clause.

Anonymous said...

Bi coutney is a profit making organisation,and has been smart enough to increse its probability of making profit by including certain clauses in the agreement..

Though the agreement could have been more say building of any other international airport without the consent of Bi coutney..

Be objective and place yourself in a Businessman's position..

You protect the interest of your business to ensure a goin concern..

Imagine what would happen if another airport 5 times the size and 5 times improved ammenities tham MM2 COMES UP..
That will be an arrow to the heart of a massive investment..

Respect your views though..


@Anonymous, thanks for visiting my blog.

I quite appreciate the fact that Bi-Courtney is a business entity, and its primary aim will be maximise its opportunities. You're right, if I'm a business man I will probably do the same to protect my investment. My criticism on this issue is levelled against the govt. It is the role of the govt to balance the public and business interest in any PPP deal. Ideally, contracts like this are asessed against competition/consumer protection laws, just to make sure that the punter is not been ripped off. YOu may not be aware, recently British Airport Authority was told to sell some of its airports in the UK by the Competition Watchdog for similar reasons. Personally, I will never support a "private monopoly" because it can never operate in the public interest.
Thanks again for your comments.

Anonymous said...

Just read your post and to be honest, I think the first comment by anonymous was spot on. Before you say the Nigerian gov't is dumb etc, you need to do some reseach. Have you ever looked at PPP contracts in the UK? I have and I can tell you the clause is extremely standard. Look at the Dartford bridge in London, do you know that is operated under a PPP contract? Do you know they have the same exclusivity?

My view: don't jump to conclusions without checking your facts

Seyi said...

@Anonymous. Thanks for reading my blog. In response to your comments, I will suggest you read my latest post on this issue.

Comparing the Dartford PPP with MMA2 is like comparing apples with onions. Dartford was a 20yr concession and not 36yrs like MMA2. Also, Dartford is just one of many thames crossings within the M25(Greater London), which means commuters can choose not to use the Dartford bridge. But that is not the case MMA2. The inclusion of the exclusivity clause has created a private monopoly for 36yrs. That cannot be right. Where is the competition? How can passengers and airline operators be at the mercy of one service provider for 36yrs? Do you think Lagos can wait for 36yrs without building another Airport or Terminal. A city that is projected to have the fifth largest population in the world by 2015. Let's get real!

I'm not a business man, but I appreciate Bi-Courtney business concern. However, at the end of the day, public interest should override any business or personal interest. We cannot use PPP to create private monopoly, it's just not right. In a country with consumer protection laws, such clauses will never be allowed. With a guaranteed income for 36yrs and no competing airport, where is the incentive for Bi-Courtney to be innovative?

Lastly, whilst I'm not privy to the details of the Dartford contract, I've been involved in infrastructure financing myself, so I know what I'm talking about. And having worked in the UK, I do not accept that such clauses are standard. Every PPP contract should be "fit for purpose". We cannot have "cut and paste" PPP contracts. And the fact that a clause exists in UK PPP contract doesn't mean it can be applicable in Nigeria

Anonymous said...

"We cannot have "cut and paste" PPP contracts. And the fact that a clause exists in UK PPP contract doesn't mean it can be applicable in Nigeria"

That's right. There are still a number of oddities with the Bi-Courtney PPP setup as not much is known as to how their development plans take into account the integration of Lagos airport in light of the promising original masterplan from the 1970's (which would have got Lagos well positioned as a top hub by now)as well as how airport development is to be integrated as part of a multi-modal transport system of Lagos and the entire region, not to talk of nationally.

It all appears too small-minded and untidy at the moment and little is known of how they intend to partner with the ariline actors to foster coordinated growth of air transport. Given the less than conventional circumstances in which Lagos Airport finds itself ( having missed out on traditonal organic growth and expansion while Nigeria Airways was around, unlike British Arways and Heathrow, for example), A lot more work by Bi-courtney will need to be done to tailor the PPP design to match the unique situation at Lagos.

lola said...

After reading your write-up, I must say , you are very passionate but it is very obvious that you don't know the whole story, you are only writing from half knowledge.

So tell me, how exactly is Bi-Courtney supposed to make their money and pay back their loan if it is not monopoly for the tenure of the contract? What I know is that there is nothing wrong with the contract. I happen to know so much about the whole issue and I give kudos to them.

I wonder if you can still say all you were saying, now that it is November 2010.