Undervaluation, debt crisis hobble airports concession process - THE GUARDIAN
AUGUST 30, 2021
By Wole Oyebade
The Federal Government’s move to concession four international airports has finally gained traction though not without fresh controversies. Skeptical aviation workers and stakeholders have faulted the Outline Business Case and unresolved debt crisis that await potential new owners. WOLE OYEBADE writes on the warning signs.
The grand plan to get the international airports up and running gained a belated boost with the invitation of bidders for Lagos, Abuja, Port Harcourt, and Kano ports of entry.
The request for qualification (RFQ) to run the facilities efficiently and profitably is open to firms or consortia with track records in airport terminal management and net worth of N30 billion per bidding firm or consortium. The concession is billed to run for 20 to 30 years tenure in a Build, Operate and Transfer (BOT) model.
Though workers’ anxiety over looming job losses has been dismissed, the concession plan is already enmeshed in transparency doubts, alleged undervaluation of asset and drawn-out debt crisis at the Federal Airports Authority of Nigeria (FAAN).
Most disappointing for stakeholders is that the Ministry of Aviation has not learnt any lesson nor cautious of reputation management to resolve the bitter brawl between Bi-Courtney Aviation Services Limited (BASL) and FG/FAAN on the Murtala Muhammed Airport II (MMA2) – the premiere concession in Nigerian aviation.
Worst still, there are several concession agreements that have headed south and are waiting to hobble genuine private sector investments.
A long arduous journey
AVIATION Minister, Hadi Sirika, shortly after he was sworn in 2015, rolled out the aviation road map for stakeholders’ buy-in. Contained in the agenda was the plan to float a new national carrier, concession all airports to the private sector, establish an aircraft leasing company, and have a homegrown Maintenance Repair and Overhaul (MRO) facility, among others. None of these has seen the light of day.
The Federal Executive Council (FEC) in 2016, approved the concession of the four major airports in a move to have them run efficiently and profitably.
Indeed, FAAN has operated 22 airports on behalf of the government for decades. Comparatively, the number of airports is a record in Africa, but not one to envy. At least 19 out of the 22 are listed as unviable and operating at a loss.
Except the trio of Murtala Muhammed International Airport (MMIA), Lagos, Nnamdi Azikiwe International Airport (NAIA), Abuja, and Port Harcourt International Airport (PHIA), Rivers State, none of the other 19 airports has sufficient revenue to cover the cost of operations alone.
Investigations by The Guardian showed that additional funding from high-traffic Lagos and Abuja airports’ excess revenue to the tune of N26.1 billion had cushioned the operational cost deficits incurred by the unviable airports in 2017, 2018 and 2019.
Sirika had acknowledged the yawning gaps and poor service delivery at the airports, unfortunately, “the government has no money to invest in aviation infrastructure.”
He explained that at stake is the concession of terminals and not the airports as a whole, as misinterpreted by some people. He said unlike what the past administration tried to do by selling off the airports, the government’s dwindling revenue made it imperative to consider private partnership in the provision of airport infrastructure.
“What we are trying to do is to keep assets of the people for the people. We are not trying to sell the assets of Nigerians like the last administration tried to do. What we are doing is for good service delivery. They will revert back to the people. What they are doing is to assist to provide these facilities,” Sirika said.
Faulty business model
AVIATION workers, however, saw the development differently. The coalition, made up of the Nigeria Labour Congress (NLC), National Union of Air Transport Employees (NUATE), Air Transport Services Senior Staff Association of Nigeria (ATSSSAN) and Association of Nigeria Aviation Professional (ANAP), faulted the rationale behind concession of viable airports and not the unprofitable ones.
Coincidentally, the big four are beneficiaries of a 2013 $500 million loan deal between Nigeria and China to build four new terminals for the four airports. Abuja and Port Harcourt currently use the new terminals, while those of Lagos and Kano are almost completed.
Following the recent concession approval by the Infrastructure Concession Regulatory Commission (ICRC), the workers’ unions became more agitated by the floor plan. They requested for the details of the $500 million worth of Chinese loan deal to build the four terminals, especially the add-on plan to concession the terminals. Government is yet to explain the details.
The General Secretary of NUATE, Ocheme Aba, observed that there remains no clarity on the question of the semi-concession that already exists through the Chinese loan facility.
Aba added that a cursory look through the Outline Business Case (OBC) showed that the promoters were unsure of the concept to adopt between Build Operate and Transfer (BOT) and Rehabilitate Operate and Transfer (ROT).
“This apparent confusion, to us, stems from an established fact. In these particular terminals (Lagos, Abuja, Port Harcourt and Kano), there is nothing to build or rehabilitate. In that case, if there should arise a need for expansion in the terminals (which is not envisaged in another 25 years), then the Green Fields concession option (which means building new terminals) would have been more applicable”.
He noted that the terminals earmarked for concession are brand new 21st century terminals, which have no need for any significant investment other than maintenance in the next 25 years.
“This fact is confirmed by the OBC itself. Therefore, in our considered opinion, the only valid opinion for consideration is to negotiate an airport Management Contract, should there be such a need – not a concession.
“In many instances, there are clear attempts to undervalue the concession assets, while at the same time making claims that aim to overvalue expected investments of prospective concessionaires. These deliberate manipulations on the part of the OBC has created a serious credibility deficit for the concession exercise.”
On the sharing formula, Aba said that the economics of the concession do not add up. While the profit-sharing ratio is proposed to be 60:40 in favour of the Concessionaire, “the disadvantaged FAAN is made to bear the repayment of the $1 billion loan utilised to build same terminals, continue to pay emoluments of its staff and pensioners, return 25 per cent of its IGR to the FG under the Fiscal Responsibility Act, and maintain the remaining 18 airports in Nigeria. Unless through some abracadabra, there exists no possibility of FAAN meeting even a quarter of the above enumerated obligations under this obnoxious sharing formula.”
He vowed that the unions would not soft pedal in its determined bid to keep the airports concession programme under scrutiny and compel a review of the same, such that transparency, probity and equity are properly served.
SECRETARY of the Nigerian Union of Pensioners (NUP), FAAN branch, Emeka Njoku, warned prospective bidders to be wary of over 60 pending litigations arising from several faulty concession agreements, including the BASL and FG/FAAN faceoff over MMA2.
The NUP alleged that FAAN owes contractors, who have delivered their contracts over N15 billion. NUP urged bidders to investigate not only their claims, but should also clarify from the Minister, “how the over $1 billion loan from China for the construction of the same terminals earmarked for concession would be repaid.”
The workers also alleged that FAAN generates an average of N70 to N75 billion yearly and remits an average of N1 billion monthly into the Federation Account while monthly salaries for the agency’s 8000 staff currently stands at over N2.3 billion. But in the past four months, about N2 billion deducted from staff salaries for cooperative contributions have not been remitted.
“While more than two-year arrears of minimum wage are yet to be implemented and N3 billion in gratuities not paid to retired staff, the most critical aspect of the debt is the staff accrued rights of over N120 billion. That figure does not include accrued rights from 2017 till date, which if valued, may bring the total amount to N150 billion. What FAAN presently has with PENCOM is not up to N7 billion. Is that not a crisis? And they want to concession the airport with all these unresolved issues. We will resist it,” an official enthused.
Transparency is key
SECRETARY General of the Aviation Safety Round Table Initiative (ASRTI), Group Capt. John Ojikutu (rtd), argued that at N70 to N75 billion yearly remittances, the facilities are completely undervalued.
“The MMA generated revenue alone, from 16 revenue sources, earning a minimum of N120 billion. Yet, there is a plan to concession the airport for N30 billion? Something is really wrong with all of us in the administration of the government agencies and the stakeholders.
“My research tells me that the MMA alone can generate a minimum of N150 billion yearly and FAAN can generate close to N400 billion from the 22 Federal airports it is presently managing if it can be sincere in the plan for concessions. But under the present management system and the unions, it will remain in the same cycle of yielding nothing but debts like the present debts of N140 billion on its table
“From what I am reading from the other sidelines beyond aviation, we are in a serious financial crisis and only we alone can save ourselves from the crisis that is looming on us; but who will save us from ourselves?”
Former Director-General of Nigerian Civil Aviation Authority (NCAA), Dr. Harold Demuren, on his part, warned that nobody would invest in aviation in the country until all concession issues pending in court are resolved.
Demuren said: “We need to resolve all issues regarding policy inconsistencies that came with many of these concessions. We inherited problems with Chief Harry Akande and Dr. Wale Babalakin’s concessions and FAAN should sit down to resolve all lingering issues before we go ahead with this new exercise.”