Why the private sector shuns public infrastructure financing in Nigeria
The International Centre for Investigation, ICIR, this weeks, starts the republishing of some of our biggest investigative reports of 2012. Every week, this month, we would be going back to one great investigative done in the last twelve months, talking about the process of reporting, providing updates and examining any possible impact our work has had.
We start the series with the story of the failure by the federal government to get the private sector interested in financing public infrastructure, a situation that threatens the much vaunted goal of being one of the best 20 economies in the world by 2020.
Our investigations showed that, at that time, the projects so threatened included “a light rail system and the Kuje water works both in Abuja; Sagamu – Benin – Asaba highway; Abuja – Kaduna – Kano road; Lagos – Kaduna – Kaura Namoda – Nguru rail line; the Port Harcourt – Kafancha – Maiduguri rail line and the Kiri Kiri Lighter Terminals 1 and 2.”
They also include projects in the health and housing sectors slated for private sector financing.
This failure arose from the experience of previous partnerships between government and the private sector which crumbled woefully. The federal government had courted the private sector for years to help fund some key infrastructure in the country.
The efforts yielded fruits with the concessioning to private sector players of of the nation’s 26 seaports, the airports, the MurtalaMuhammed Airport Terminal 2, MMA2 and the Lagos – Ibadan expressway.
However, the romance quickly soured as virtually all these concession agreements either ran into serious trouble, ended up in court or just simply failed.
The idea to do the story actually started with concerns over the diplorable condition of the Lagos – Ibadan expressway and a close look at the concessioning agreement granted Bi Courtney Highway Services to reconstruct the road. But eventually, we decided to use the particular project and the embarrassing story of its failure to examine the bigger phenomenon of public private partnership debacle in the country.
In 1999 then minister of works, Lawan Hassan, who is now facing corruption charges in court and Wale Babalakin, chairman of Bi – Courtney, who is also on trial on money laundering charges, announced with pomp and pageantry that the very important road was to be given a new lease of life in four years.
The N89.5 billion concession agreement granted Bi – Courtney which covers 105 kilometres of the 126 kilometre road, gave the company rights over the expressway and its access points and a 60 metre right of way throughout the length of the expressway. By the agreement, the company had rights over every commercial activity on the road including granting of land rights to commercial petrol stations and outdoor advertising and billboards for a period of 25 years.
The design, build, operate and transfer agreement meant that the company would source funds to reconstruct the road, turning it into an 12 – lane expressway with world class infrastructure, manage and collect toll on it and after 25 years return the project to government.
However, it soon became obvious that Bi – Courtney could not muster the resources to finance the project. Until last year when the federal government revoked the agreement, Bi – Courtney which had four years to complete the project was still deceiving Nigerians that it had gotten finance to execute the project
The federal government finally revoked the concession agreement with Bi – Courtney on November 2012 three and a half years after it was signed.
However, beyond revoking the contract, the government has not strictly followed the letters of the agreement.
Several sections of the agreement spell out penalties for default. For example, Article 3.1 (d) of the agreement says that “Upon termination of this Agreement under Article 3.1 (c) and (d), the Grantor (the federal government) shall be entitled to encash the Performance Bond to the extent of the damage caused to the Grantor.” The government cannot execute this clause because Bi – Courtney never provided a performance bond on the contract. But rather than the government suing the company, it is Bi – Courtney that has threatened to take the matter to court.
The ICIR report was published on February 1, 2012 and it helped focus media attention on the continuing deplorable condition of the road and generated follow up stories in other media. Several newspapers subsequently picked up and followed the story of the failed concessioning of the Lagos – Ibadan expressway.
The media kept up the reportage of the failed concession until the te government revoked the agreement only a few days after President Goodluck Jonathan threatened to do so after a Presidential Media chat where he was asked why his government had not thought of dealing with the problem of the road.Finally, the findings of our investigation – that Bi – Courtney lacks the capacity to execute the project – has found support in thhe government’s action..