Market News

•Key players in the dark over $500m Chinese loan 

•Mezzaine clause may frustrate concession plans

By Shola Adekola 

A diplomatic tussle may be brewing between the Federal Government of Nigeria and China over the ongoing plan to concession the most viable four international airports across the country.

The Chinese and Nigerian governments had in 2013 entered into a loan deal of $500 million to build four new airport terminals for four Nigerian airports at the Murtala Muhammed International Airport, Lagos, Nnamdi Azikwe International Airport, Abuja, Malam Aminu Kano International Airport and Port Harcourt International Airport.

The huge financial deal signed during the tenure of Princess Stella Oduah as the Minister of Aviation was for the remodeling of the airports terminals which before then had become so dilapidated that they fell below the standard of being regarded  as international airports for a country of over 200 million people.

Under the agreement, China was expected to offer the loan of $400 million at 2.5 per cent interest rate, while the Nigerian government was to pay a counterpart fee of $100 million for a project scheduled to run between 12 and 18 months then.

Seven year after the deal was signed, while passengers have been enjoying the new terminals at Abuja and Port Harcourt airports, the remodeling of Lagos and Kano airports is yet to be completed.

It is not yet clear to many key players in the sector if the loan has been fully repaid or not, even as controversy has continued to reign over the government’s plan to concession the four airports in question, which key players fear may become another good financial deal gone awry.

Following the latest events that have and are still unfolding with regards to the concession plans, fears are being nursed that any efforts to go ahead with the plan without the full payment of the loan as signed between Nigeria and China, may transfer the management of the four airports to China to enable it recover its money.

Many of the key players who spoke to the Nigerian Tribune alerted the government to an analysis of the way the East African countries which defaulted in the payment of similar loans were treated by the Chinese investors.

According to the head of administration and human resources at 7Star Hangar, an aircraft maintenance firm at the Lagos airport, Mr Ayuba Kyari: “As regards the loans from the Chinese firms, Nigeria should have taken a deep analysis of the way the East African countries were treated by the Chinese investors and secure such loans very well.

“Furthermore, depending on how we secured these loans, especially what was used as guarantee for the loans. If the airports were used, then it would be difficult to concession the airports. But if it was only the projects that were financed by the loans, the investors will not allow such projects to be concessioned.”

The tension over the confused concession further became aggravated with the latest feelers spreading through the sector over the ‘Mezzanine Clause’ synonymous with such deals in all Chinese sponsored infrastructure including the ones in the country’s aviation sector. There are fears that the clause may be evoked if Nigeria fails to fully comply with the terms of the loan.

The Mezzanine clause allows China to take over the financed infrastructure projects should Nigeria or any affected country default in payment. In other words, if Nigeria should default in paying back such loans at the agreed time, China would seize the infrastructure, administer it and recover its investment.

Mezzanine financing is a kind of financing that has both features of debt and equity financing that provides lenders the right to convert its loan into equity in case of a default (only after other senior debts are paid off).

The latest alert raised over the Mezzanine Clause and the insistence of the federal government through the minister of aviation, Senator Hadi Sirika, to go ahead with the concession plan has elicited criticisms across the sector with many calling for the stoppage of the concession on the premise that such plans may lead to the application of the Mezzanine Clause  by China.

Aside the Mezzanine Clause and with the clear status of the loan shrouded in secrecy, the airport workers led by the aviation unions on the other hand are kicking against the concession plans which they described as anti-Nigerian.

The minister while describing the concession as part of the reforms in the aviation sector and claimed it would rather create more jobs, equally maintained that the concession of the airports would generate higher economic value and open the sector for more investment.

But aviation workers under the aegis of the National Association of Aircraft Pilots and Engineers, (NAAPE), Association of Nigeria Aviation Professionals, (ANAP), National Union of Air Transport Employees, (NUATE), and the Air Transport Services Senior Staff Association of Nigeria, (ATSSSAN) say the move is ill-motivated. They have vowed to frustrate the concession plan.

According to the unions: “We totally reject the concession because it is not transparent. If the four viable airports are concessioned, the remaining 18 airports will die because these four airports sustain the other airports. It is a disaster waiting to happen and definitely jobs will be lost. The Lagos airport alone can sustain the 22 airports so why the concession?”.

While the cat and mouse relationship between the minister and the aviation unions continue with the government still refusing to shift ground amidst the obvious flaws, the latest uncertainty of the Mezzanine Clause has further tainted the concession plan as a policy that once again put a question mark on the credibility of the government in terms of respecting agreements.

Investigations have revealed that the status of the $500 million loan is not clear to many across the sector even as it has been revealed that the loan at a point increased due to logistics reasons with key players calling for investigations to unravel the actual position of things.

Suggesting how the loan could be repaid if not yet fully repaid, the Managing Director of Centurion Aviation Security, Group Captain John Ojikutu (retired), said the recovery or the repayment of the $500 million Chinese loan should not be a problem for FAAN if the landing and parking charges and the  passengers service charges (PSC) on the international flights and passengers alone for only two years are tasked.

His words: before the COVID-19, the average passengers traffic on the international route had been between  five million and 2.5 million through where FAAN could have earned $125 million from the $50 per passenger charge. COVID-19  could have dropped the outbound to 1.5 million and the new rate would retain the FAAN earnings on PSC to $150 million in one year or $300 million in two years. Similarly, there are about 40,000 international flights annually; that too could have dropped by 50 per cent to 20,000 in a year or 40,000 in two years. The average charges on landing and parking for each flight is about $5,000 or $200 million. These earnings do not include earnings on all the domestic flights.

“Whatever clause is hanging, except we have decided to prolong the dying day. The loan is $500 million not $500 billion, $50 billion or N5 billion. The loan should or can be offset before the expiration of this administration from the earnings on the international flights and passengers alone. By the way, additional money can and should be obtained from the Bilateral Air Service Agreements (BASA) fund to augment the earnings for the repayment within a year to two years except there are other factors.”

As controversy over the concession plans rages with the minister assuring that workers not required by the probable concessionaire would be allowed to return to FAAN, the government is however silent on the status of the $500 million Chinese loan and the uncertainty over the Mezzanine Clause and its subsequent impact on the concession plan.
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