Gains From PPP: The Lagos Example

PPP-Toll-Gate

With a population of 18 million and a population growth of eight per cent( of about 600,000 per annum), Lagos has been projected to emerge as the third largest mega city in the world, after Tokyo in Japan and Bombay in India, by year 2015 with a projected population of 24.5 million, according to the United Nations Habitat.

With such a staggering population expected by 2015, the resources of the government can definitely not meet the ever growing demands of the people in terms of good roads and pipe borne water, among others.

To ensure that available infrastructure is commensurate with the ever increasing population, and to achieve its vision of making Lagos State an investment destination of choice in Africa, the state as a matter of priority made rapid infrastructure renewal and upgrade a cardinal policy of the present administration.

To achieve this objective, the government embraced as a strategic policy thrust, the Public-Private Partnership, PPP, model in accelerating infrastructure delivery, having arrived at the conclusion that its current resources are insufficient to deliver the model mega-city dream without augmenting them with private sector resources, its entrepreneurial approach, innovativeness and managerial efficiency.

Experts are of the view that PPP offers a timely and cost effective alternative approach to financing, building, operating and maintaining infrastructure and that beyond the benefit of mobilising private capital for the speedy delivery of public infrastructure, PPP has a considerable number of other benefits which perhaps is why it is becoming a popular tool for infrastructure finance.

In the last four years, the administration of Governor Babatunde Fashola has been PPP-driven. This is to ensure that the citizens of the state derive maximum benefit from the infrastructural renewal energised by the private sector, in some cases, through the Build, Operate and Transfer system, BOT.

With the numerous demands of 18 million Lagosians, the budget of the state cannot meet their needs. Fashola thus established the PPP Office now headed by Ayo Gbeleyi, Special Adviser to the Governor on PPP.

Public-Private Partnership is not new in Lagos State though. The state government has been collaborating with the private sector in various ventures and projects for many years. The state government has made some major strides in the transportation sector, particularly the Bus Rapid Transit (BRT), the first of its kind in sub-Saharan Africa. The transport system which moves about 200,000 commuters daily has helped in reducing travel time by 30% and creating over 5,000 direct and indirect jobs.

Presently, work has commenced on one of the Light Rail Transit System, the Blue Line which is a 27 kilometre rail line from Okokomaiko to Marina. The Lagos State government is to design and build the rail line, while a concessionaire is to operate and maintain the service, including rolling stock. The project which has presently generated about 2,000 jobs during construction works of the first phase is expected to generate about 50,000 jobs on completion in 2012.

Beyond the Akute Power Plant Project which is an independent power plant to generate 12.15 megawatts of uninterrupted electricity supply for the state’s water plants at Adiyan/Iju, the state government has also delivered a 10-megawatt Independent Power Plant at the Lagos Central Business District to provide uninterrupted power supply for Judicial and Health facilities as well as 20 streets within the district. In the same vein a number of health facilities, particularly pharmacies and mortuaries are managed and operated by the private sector across public hospitals in the state.

Island Power Limited is another PPP project Lagosians are benefitting. This is a BOT concession for a 9.7megawatt Independent Power Plant between the Lagos State government and Negris Group. The project plans to provide uninterrupted power supply for the Judicial and Health facilities, as well as 20 streets in the Lagos Island Central Business District. The project has helped in eradicating 30 diesels and petrol generators and provided a cleaner source of energy.

One critical area the government is exploring the PPP is the Lagos Infrastructure Project: This is a 30-year concession, to design, construct, finance and operate the 49.36 km Eti-Osa-Lekki-Epe Expressway to eliminate severe traffic gridlock along the concession area. The transaction attained financial close in November 2008 and expires in November 2038. The ongoing Eti-Osa Lekki Epe project has generated over 1,800 jobs.

There are still opportunities to generate more jobs through other pipeline PPP projects in the Eti-Osa-Lekki-Epe corridor. Such projects include the following: Lekki Free Trade Zone; Lagos Free Trade Zone; Lekki Deep Sea Port; Lekki International Airport-expected to attract five million passengers annually and a Hydrocarbon Park.

The expansion of the Lekki-Epe Expressway, being built by the Lekki Concession Company, LCC is expected to transform the entire Lekki peninsula and attract lots of foreign investment. The LCC is supposed to build the road, mount toll gates along it and recoup its investment over a period of 30 years.

The road will lead to other PPP proposed projects in the Lekki area such as the proposed international airport and the Lekki Free Trade Zone, among others. The project and the investors are being threatened by series of protests by residents of the area that they don’t want any form of toll on the road.

As a result of the contention the planned collection of tolls generated, Fashola suspended the planned tolling on the road to allow government enough time to provide alternative routes for those who felt they cannot pay toll.

According to Fashola,the to build the road on toll basis “was sensible and necessary in order to maintain the much-needed and growing investor confidence in the Lagos economy, in order to maintain our credit rating and reduce our credit risk.Regrettably, however, our financial realities cannot sustain such funding to the detriment of other developments that are crying out for funding in other parts of the state. It is undeniable that property values have risen in that area because of the road work on Eti-Osa-Lekki-Epe Expressway. It is only fair that the investors begin to collect their toll,” he said.

The LCC had announced 18 December, 2011 to begin collection of toll on the road. The collection had already kicked off but much dust is still being raised by residents of the area.

Experts are of the opinion that the Lagos infrastructure project must not be allowed to fail because a termination of the project would be tantamount to waste of tax payers resources that could otherwise be applied to other more pressing social need.

In addition, it could damage the investor friendly image of the state and thus scare away needed investors through a negative credit rating and this would have significant consequences not only for the state, but the international risk rating and our national economy.

Making a case for the tolling of the road, Opeyemi Agbaje in his write up in Business Day of 15 December said tolling is not new in Nigeria, adding that “we had toll gates on the Lagos-Ibadan Expressway and other highways across the country years ago, until ex-President Obasanjo ordered their demolition! But those were inter-city highways through which commuters did not pass daily.

“Come to think of it, if toll plazas were re-erected on the Lagos-Ibadan or Lagos-Abeokuta Expressways today, many Nigerians who live in Mowe, Ofada, Sango-Ota and other communities, and work in Lagos will pass daily through those toll gates.

“Emotions are perhaps understandably high, with opponents arguing that provision of roads and other infrastructure is government’s constitutional obligation; placing critical infrastructure in the hand of the private sector exposes citizens to the vagaries of the market place; tolling in Lekki is discriminatory since residents in wealthier neighbourhoods in Ikoyi and Victoria-Island do not pay road tolls. Others believe that proposed tolls are unduly high; tolling and fencing are a breach of citizens’ freedom of movement etc. More substantively is the need for an alternative road; tolling when only 6 kilometres of the road had been completed; and insufficient transparency around the contract with LCC,” he said.

“I do not support some of these arguments. PPPs-agreements between the public and private sectors with the purpose of delivering projects or services traditionally provided by the public sector are a necessity in the face of financing constraints as governments all over the world seek to provide infrastructure to their citizens. PPPs foster faster delivery of much-needed road infrastructure; more cost-efficient design, construction and operation of road schemes; involve risk-sharing and transfer between the public and private sectors, along with leveraging private finance, enterprise, innovation and efficiency; and bring higher service quality and standards into public sector projects and services.

“With the size, length and rate of expansion of the Lekki corridor, waiting for government to find the resources to expand and modernise the road may have been an interminable wait, and arguably more discriminatory! We have seen how in the telecommunications sector for instance, private capital sped up the delivery of infrastructure and services perhaps by decades over the rate of government provision! However, given the critical role of PPPs in infrastructural development in Lagos, I do not believe it is wise to allow this concession to fail,” he explained.

Justifying the need for toll collection on the road, Fashola asserted that the prosperity of the Lekki Free Trade Zone and the Lekki-Epe area is dependent on the success of the tolling of the road. “The prosperity of this region depends on that road and how efficiently it works, adding. If you want investors to come we have to encourage that road to be built and other such roads in addition.

“It must be mentioned that the success of the Lekki Free Zone and its potential to be the biggest and most successful on the African continent depend on the transportation network that supports movement of goods and services in that area. This explains why the government embarked on the reconstruction of the 49.5km Lekki Expressway through toll concessioning as a precursor to the coastal roads,” he explained.

According to the Lagos State Commissioner for Information and Strategy, Mr. Aderemi Ibirogba, “it is the wish of any resident of Lagos state that the state develops to the class of New York and other big cities in the world. But this cannot come without change. And we must be ready for change. No one is ready to travel for hours before he gets to his destination. The wish of everyone is that within few seconds, he gets to his preferred destination. We know that there is no good project that does not attract negative reactions. But we, as state government, we will continue to justify our reasons to the residents of Lagos State.”

Leading the agitation against toll collection on the road is human rights lawyer, Ebun Adegboruwa. He had been able to mobilise some Lekki residents to protest government’s planned tolling of the road, saying that it was unjust for the government to enslave the people in their own domain by asking them to pay toll, adding that the government of Fashola was insensitive to the plight of the people.

Experts are of the view that despite misgiving trailing the implementation of tolling on the Lekki-Epe Expressway, PPP still seems a better option for financially strapped public officials to finance infrastructure development other than resorting to tax increase. This posture for now appears to offer a “win-win” position for both the government and the governed.

—Kazeem Ugbodaga