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Chinaza Onuzo: 5 questions on Lagos govt. buy-out of the LCC concession of the Lekki Expressway

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Chinaza Onuzo: 5 questions on Lagos govt. buy-out of the LCC concession of the Lekki Expressway

by Chinaza Onuzo

Introduction

Recently, a large number of the Twitter and news reading population were greeted with the stunning piece of misinformation that the Lagos State Government had cancelled the Lagos Concession Company’s (LCC) Lekki Expressway concession. As is normally the case the confusion was due to the headline rather than to the article.  The Punch article that broke the story can be found here. The article is actually pretty informative, and so I’ll break down what seems to have happened based on what the article says. Here are the five questions that arise naturally from the LCC Concession Buy-out.

What Actually Happened ?

In 2005/6 the Lekki Concession Company entered into a 30 year Build Operate and Transfer (BOT) agreement to upgrade and maintain the Lekki Expressway. According to people around at the time (and the Punch article), the LCC also made a commitment to build a coastal road. In order to recoup the funds spent on the road, the LCC was going to charge tolls along the expressway. The LCC also had the right to earn fee revenue, such as advertising, on the expressway. The ability to charge tolls and earn fee is the primary asset of the LCC. What Lagos State did was effectively buy that asset off LCC. So rather than LCC collecting the toll and the fees, Lagos State now has the right to charge those tolls and fees. It was not the cancellation of the concession but rather a repurchase of the concession rights.

Just N7.5 billion?

The Punch article and the Business Day article (which got the buy-back right) both imply that the Lagos State House of Assembly passed a supplemental allocation of N7.5 billion. The N7.5 billion is expected to be used to re-purchase the concession rights.  I’ve heard anything from N30b to N51b for the cost of the concession. I even heard a bond of N88b was issued to fund the construction. There’s no real transparency on this, however we know it is far in excess of the N7.5b figure being bandied about. Now if LASG is buying the concession rights alone without the obligations then LCC will not sell for N7.5b. However if LASG is assuming the obligations of the LCC – basically the debt that the company borrowed to fund the development – then N7.5b may be a very good deal for the owners of LCC. However since the terse statement by our dear Governor Fashola is likely to be the last we will hear of this matter, we may never really know about the structure of the purchase.

Why is it happening?

Your guess is as good as mine. This is what Fashola says:

“The proposal for further amendment is largely predicated on the need to fund the acquisition of the existing concession, right and toll revenue benefit held by the Lekki Concession Company, the concessionaire for the Lekki-Epe Expressway. This will effectively accelerate the transfer of ownership of the road to the state, leaving the state with wider policy options with regards to that important infrastructure”

Lagos State is going into debt to fund the purchase so clearly those “wider policy options” make a lot of sense to them. We shall find out in due course. 

What does this mean for Lagos State?

First off there’s the debt that they raised to purchase the concession, so they’ll have to pay that back at some point. Second, there’s all this nice new revenue that they have their paws on. Third they’ll likely consolidate the Lekki Tolling Company (that collects the Lekki-bridge toll) with the Lekki Concession Company. On the one hand it’s mostly positive.

On the other hand, as mentioned above N7.5b isn’t a lot of money compared to the cost of the road. Additionally Hi-Tech is still building out the road. As we speak they are working on the Ajah axis, there’s still quite a bit to go. One of the questions that arises is in relation to the funding for completion: Is the funding already in place for the road’s completion, or will Lagos State be funding the completion going forward? I’m hoping that the toll road funding will be applied to ensuring that the road is completed but this isn’t clear.

The other thing that isn’t clear is who bears the obligations of the road. My money is on Lagos State, and if that’s the case they are going to eat the N30b – N50b in construction costs in addition to the interest costs. However if they are willing to pay LCC N7.5b for the rights to do that, it’s safe to assume that there is a pretty valuable chunk of change in there for them.

So basically Lagos State gets a brand new-ish road, quite a sizeable chunk of additional revenue (judging by the rumours), and some costs – the total estimate of which is still not clear.

What does this mean for You and I?

I saw some people rejoicing that this buy-out meant that the Lagos State government would cancel the toll immediately. I find it highly unlikely that they will do so. Especially since there are likely to be liabilities attached to the acquisition of the concession rights. I personally would have preferred that any acquisition by the Government to be post completion but that’s neither here nor there. I would say that the completion risk hasn’t increased significantly especially if the funding for completion is already provided. However if the funding for the completion is required to be provided by the state government., then the potential of lack of funding could increase the completion risk.

The one potential benefit in the short term is that since the LTC and LCC will likely combine we may end up only needing to get one electronic pass as opposed to the two we currently need to pass.  In the long term I can see them potentially removing the toll, but I won’t necessarily hold my breath. People are used to the tolls now, and a government like Lagos state that’s starved for revenue won’t go giving it away.

Conclusion

So there you have it, the state of play of the Lagos State Buy Out of the LCC concession. The reasons are still murky, and the transaction dynamics are still unclear. What would have been nice would have been for the government to provide a detailed breakdown of the Buy-out  transaction and the LASG plans for the road. However since that is unlikely, and this may be the only clarity you will get, I hope this answers most of your questions.

Laters.

If your answer to the question “What will you do with an English degree” is “enter Finance, obviously” then you have a pretty good idea of who Chinaza is. He found other people who thought that made sense, and so that’s what he’s been doing for almost a decade. When he’s not doing that, he’s mostly making a nuisance of himself talking about Nigerian policy, gender issues, and a host of random things that catch his fancy. Twitter: @IamSnazz

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