Monday, March 29, 2010

Still On Lekki-Epe Expressway PPP Contract........

Just over a year ago, I wrote a piece on the Lekki-Epe Expressway Public-Private Partnership contract between Lagos State Government and Lekki Concession Company. My criticism at the time was informed by the decision of LCC to install three toll booths on the 44km arterial road. I couldn’t understand the concessionaire (LCC) tolling strategy. Why for example would a local resident making a short trip between Sangotedo and Ajah be subjected to a toll. I asked the question if the toll is targeted towards local traffic or long distance travellers?

Fast forward to 2010, only 2km of the proposed 44km road widening project has been completed, even though we were told in 2006 that the project will be completed within three years. The concessionaire, LCC put the construction cost of the 2km upgrade at N5billion. However, some of the tolling booths have been constructed, and there are “unconfirmed” reports that LCC intends to start charging commuters for using a road that is technically, “still under construction”.

The concept of Public-Private Partnership is not “Nigerian”. It’s a concept that was developed in the western world. However, it’s become common practice for governments in Nigeria to borrow a foreign concept and turn it on its head.

As PPP has now become a “buzz word” in government quarters, it is important that the government realise that concessions can sometimes create a private monopoly or extreme dominance, with consequent market power, which is prone to be abused. This makes the design of the concession agreement important so that adequate protection is given to consumers.

The Lekki-Epe contract defies the basic principles and world’s best practice on Public-Private Partnerships. From my experience in the transport industry, I’m yet to come across a PPP contract that involves the tolling of a road without an alternative. As we know, there is no alternative “passable” road along the Lekki-Epe axis. Therefore, handing this road over to a private company to upgrade under a 30-yr concession is contrary to principles of social equity. The concessionaire, LCC, has basically become a private monopoly by default.

.It’s been noted that there are plans by the LASG to build an alternative road along the Lekki shoreline. So why was LCC not encouraged to build the alternative road under a PPP agreement? And what’s the timeframe for the completion of this alternative road? Ideally, toll roads in major urban areas are aimed at making available a priced ‘premium’ service as an alternative to competing congested roads on the unpriced network, while covering full costs, including a target rate of return on capital.

The allegations by a local community group that, LCC is planning to commence road user charging soon on a road that is still under construction is also quite disheartening. It calls into question, the openness and transparency of the project procurement process.

The key questions we need to ask LASG are, was the project subject to competitive bidding? What was the agreement between LASG and LCC in terms of toll charges and commencement of tolling? As we know, the project was meant to be completed in 2009, however, only 2km of road has been completed(!). So what does the contract say about completion date? Are they are clauses in the contract that imposes penalty on LCC for failure to complete the project in time?

One of the key benefits of Public-Private Partnerships is speedy, efficient and cost-effective delivery of projects through integration and cross-transfer of public and private sector skills, knowledge and expertise. But if the private sector can’t deliver within the specified timeframe, as it’s currently the case, then what’s the purpose of the agreement and to whose benefit? It is ludicrous to subject commuters to endless months of road works without any form of compensation from the concessionaire.

Some have argued that the global financial crisis may have affected LCC’s ability to secure loan, hence delay in the project. And perhaps, the reason for early introduction of toll charges. Whilst I agree that the global economic crisis might have had an impact, one would have expected LCC to have undertaken a “due diligence”.

The reason why PPP have long concessions periods and different from traditional contract, is because there is a broad range of uncertainties and risks associated with PPP. The concessionaire assumes far more responsibilities and much more and deeper risks than a traditional contractor. And that’s why in most cases, the project delivery cost in PPP projects can be quite expensive.

And also, what if the concessionaire goes ‘burst’ before the completion of the project? Does the state government have any mechanism in place to make sure that the road is completed? This is not an unlikely scenario, considering that LCC seems to be struggling financially. Or will it become an ‘abandoned’ project?

There’s no doubt that LASG and LCC are in for a hard time from local residents on this project. The local community initially complained about the need for LCC to have three toll booths on the road – which I totally agree with! Following that, they are allegations of fraud against LASG/LCC because of alleged plans by LCC to start charging tolls on the yet to be completed road. All these allegations only point to the fact that the local community and key stakeholders have not been duly consulted on the project.

This has been the common practice with most of the PPP contracts. The operator of MMA II, Bi-Courtney Airservices Ltd, was also recently fighting labour union over the take over of the General Aviation Terminal.

Proponents of PPP projects need to understand that extensive consultation and open communication with all stakeholders is necessary to ensure success. Stakeholders include employees and their trade unions, the public, the people who will use the assets and services provided, local community groups and sector interest groups. It is also important that the economic, social and environmental concerns of those directly affected at local level should be taken into account along with the statutory rights and legitimate economic interests.

Whilst the plan by Lagos State Government to upgrade Lekki-Epe Expressway is laudable, the way and manner in which this project is executed remains controversial.

There’s no doubt that private sector participation is necessary, if a sustainable infrastructure development is to be achieved - especially in a country like Nigeria with massive infrastructure deficit. It is however important that it is done in a fair and transparent manner.


townncrier said...

I really hope the people in charge get to read this.

Anonymous said...

In as much as I agree with this write up, we should not forget the special situation of Nigeria where people provide their own security,water and power for themselves. if people want this road to be maintained, we need to pay for it just like we pay OPC security, borehole water, i "pass my neighbour" generator or elsie the road will get worse in 2 years if Government decide to pay off this company and take over the road. Govt does not maintain anything in this country and we have suffered alot on this road. we rather pay (reasonable negotiated rate with Public transport passing free) if this road will be maintained as it is now for 30years than letting sentiment drag us back to worst. It does not make much sense but that's where Nigeria kept us. Also to let you, in developed country, Most property owners in high brow area pays very high property tax to be able to maintain roads and other infrastructure that makes the area high brow. Govt could have given us alternative but the truth is that our Government does not even give us the löwest basic (power,water,security etc) and we need them even if we have to pay. Please let us focus our energy on our Govt to give us the basic