MMA2: How Not To Do PPP

The Federal Government managed the nation’s infrastructure and just about everything else, until the late 80s and 90s, when its report card was so woeful that it had to shed some of it responsibilities and yield them into the hands of the private sector. In making this move, however, it had to seek capable private sector partners with fat purses.

Over the years, it made selections and deals were signed. The Private Public Partnership (PPP) for the terminal of the Murtala Mohammed Airport (Domestic) MMA2 was one of them. The parties seemed happy. The Federal Government agency involved, the Federal Airport Authority of Nigeria (FAAN), appeared to have started good deals with its concessionaires, Maevis Ltd and then with Bi-Courtney Aviation Services Limited (BASL).

Following a change of government, however, the song and dance, promptly, changed. Arbitration panels and the courts were thrown into the mix.

This is the tale of several of the concessions in the aviation sector, entered into by past governments; deals now revealed by the reigning federal administration to be anything but transparent. The legal tussles are revealing that the deal entered into was a rip-off foisted on hapless Nigerians.

One PPP, which FAAN, obviously, has not done well and has generated heated debates, in recent years, is the concession agreements that FAAN now says were skewed in favour of the concessionaires and to the detriment of the Federal Government, to which it reports, to FAAN itself and to its workers.

Today, the spotlight is on FAAN, as it screams blue murder over the PPP deal gone awry. This time, it is with Bi-Courtney Aviation Services Limited (BASL) and the AIC Nigeria Limited. As usual, FAAN claims that the deal it signed was a rip-off. But it signed it, nonetheless.

FAAN Claims it signed the Agreement under Duress?
In the course of the squabbles, FAAN has felt no shame in, continually, declaring that it did not know what it signed. Few weeks ago, August 2013, the Managing Director of FAAN, Mr. George Uriesi, let it loose on behalf of FAAN. He spilled his guts and came short of naming names. Thanks to him, FAAN openly alleged that certain government officials had colluded with these concessionaires to defraud the country. FAAN has also alleged that some of the documents, PPP deals and contracts signed by FAAN, were signed under duress of sorts. FAAN made a clear mention of specific instances of a “suspension” from office for refusal to sign a document and several claims of FAAN being “prevailed upon” (put under pressure) by un-named officials in Abuja, to act in such a way as will favour the concessionaires, to FAAN’s own detriment.

Over the years, many have watched FAAN’s squabbles with its concessionaires and wondered at its official negotiation skills. So, this tepid explanation of ‘signing under duress,’ took a long time coming. The officials or ex-FAAN officials, whose signatures are on these deal documents, are not prosecuted.

Stakeholders in the aviation industry, reacted to the FAAN-BASL bickering, saying these concessions were fraught with irregularities and that there are lacunas in the agreement, between FAAN and BASL. The processes and procedures of the concessions were unclear and only those in and around the corridors of power know what really went down.

Nigerians may blame FAAN’s directors and their legal representatives, for their sloppiness in the agreement. Looking down the lenses of law and justice, what you will most likely see is a legal document; one party willingly selling his birthright for pottage. How can Esau win in court?

FAAN’s Concession Agreement and Scores of Controversies
There is hardly any concession agreement that FAAN entered into, over the past 15 years, which has not generated controversies or resulted into a legal dispute. The courts, across the land, are littered with suits, by or against, the agency. It has become a stigma; that FAAN signs deals with its eyes closed.

Royal Standerton, a Canadian firm was the preferred bidder for the construction of the MMA2, but the concession was taken from Standerton and handed over to BASL on a platter of gold. Expectedly, the company dragged FAAN to court and a garnishee order was placed on the agency’s account. After the Royal Standerton saga, BASL, which was given the concession to build the terminal, engaged FAAN in another legal battle over the tenure of the concession. While FAAN argued that BASL is to manage MMA2 for 12 years, BASL, on its part, contested that the number of years the company signed with FAAN was 36 years; claiming that FAAN itself had extended the tenure via its own letter.

Though the dust generated by the MMA2 concession duration has not been settled, another issue which, equally, generated a controversy between the two parties was the claim by BASL that the newly remodelled General Aviation Terminal (GAT) in Lagos, which cost the Federal Government ₦648 million, was part of the concession agreement it signed with FAAN. This claim was dismissed by FAAN, which contested that GAT was never the subject of any concession with BASL.

BASL returned to court seeking redress and has won round one of the legal battle. But, arguing further, FAAN, through its General Manager of Corporate Communications, Mr. Yakubu Dati, dismissed the judgment as non-existent.

Next was the face-off between FAAN and Maevis Nigeria Limited, the concessionaire operating the multi-million dollar Airport Operational Management System (AOMS) project, from the Murtala Muhammed International Airport (MMIA), Lagos.

The concession was to last 10 years, renewable for another five years. Both organisations have been at each other’s jugulars, over issues of remittance of monies to FAAN, before the incident of midnight of March 25, 2012. Then, it was alleged that a team of FAAN officials, accompanied by security operatives, in a commando-like manner forced Maevis officials out of their offices and terminated its services. These included revenue collection, deployment of Common User Terminal Equipment (CUTE) and other systems that monitor aircraft landing, take-off, weight and other services that provide data for comprehensive airport operations management. It was back to court for them and then came the judgement of the Federal High Court, Lagos, a couple of months ago (June 2013), in favour of Maevis Ltd. Nonetheless, that saga continues.

Injunction After Injunction
For FAAN and BASL, it has been injunctions, applications, and appeals. In all, BASL seems to be scoring more points though. After all, FAAN did sign the dotted lines. The concessionaire is not only claiming the ownership of the GAT, it went further to annex the property belonging to FAAN secondary school, where it erected a conference centre as part of the “agreement.” In addition to that, it annexed another property situated opposite MMA2, where it erected a four-star hotel. To back these claims, the concessionaire always quote a portion in the agreement entitled, ‘Exclusivity of the Concession Rights.’ The part contains the following clauses:

(a) Save as otherwise provided in Articles 17A and 20.2, the concession granted to the concessionaire pursuant to this Agreement is exclusive. The grantor shall ensure that no part of the concession shall be granted to any other party unless the concessionaire is in breach of any of its obligations, under this agreement that would give rise to a right of termination by the grantor under Article 17 or is in breach of Nigerian law in relation to the concession.

(b) The grantor guarantees and assures that it will not build any new domestic terminal in Lagos State and that no existing domestic terminal will be materially improved throughout the concession period that would compete with the concessionaire for the same passenger tariff.

(c) The grantor further guarantees and assures that all scheduled domestic flights, in and out of FAAN’s airport, in Lagos State, shall during the concession period operate from the terminal.

(d) FAAN further assures and guarantees that it shall not, during the concession period, cause or authorise the erection or development of a shopping mall or any facility (ties), within 200 metres from the perimeter of the site, capable of impeding and/or threatening the concessionaire revenue generation.

(e) In the event that the grantor decides to privatise or otherwise dispose of FAAN or the terminal, the concessionaire shall have the first right of first refusal.

FAAN disagreed saying the tenure of MMA2 concession is 12 years, according to the agreement that was signed and backed. It claims that the 36-year duration was smuggled in through the backdoor. There was yet another seemingly questionable agreement to extend it to 38 years, which does not have the backing of the Federal Executive Council (FEC) as is required for agreements of this calibre.

Deals Not Backed by Enabling Laws
Public Private Partnerships (PPP) can address infrastructure challenges, when the parties involved have clear-cut and mutually agreed responsibilities. However, there is a lacuna in the regulatory framework governing PPP in the nation at this point. This lacuna threatens projects executed under the model. Aside from this, given the sophistication of issues involved, governments have limited expertise to, effectively, regulate these. Relying on the expertise of firms under PPP for expertise may lead to regulatory capture.

Many tiers of government across the federation do not have a PPP enabling law. This tends to suggest that a foundational basis for private provision of infrastructure is missing and such pronouncements are without legal basis. The implication is that states are engaging in projects that could be nullified if challenged in a court of law. The absence of this law is a red flag to the private sector and consequently raises fear of what could become of their investments.

The PPP We Know
PPPs are organised along a continuum between public and private nodes and needs, as they integrate normative, albeit separate and distinct functions of society—the market and the commons. A common challenge for PPPs is allowing for these fluctuations and reinforcing the intended partnership, without diminishing either sector.

Several factors help account for the increased interest and popularity of PPPs. The appeal of PPPs can, more generally, be explained in terms of their expected benefits, including access to private finance for expanding services, clearer objectives, new ideas, flexibility, better planning and improved incentives for competitive tendering and greater value for money for public projects.

In addition, our experience with PPP suggests that there are several principles and guidelines worth applying during project preparation. Some have to do with the quality of the participants and the relationships among them. Others come in during the negotiations, concerning financing and implementation. Such considerations include but are not limited to:

  • A careful consideration and precise articulation of the purposes of the partnership
  • A clear delineation of targets and goals
  • Timely and transparent mapping of all costs, revenues and profitability aspects of a PPP
  • A clear insight into the planning of projects parts, the risk profiles involved and the ways in which various partners are involved
  • Clear boundaries, measurable output performance and transparency
  • Specific reporting and record-keeping requirements
  • A strong central structure, at the level of central administration, using private sector expertise to promote and guide policy implementation
  • Provisions for contract re-negotiation and for adjusting contractual terms, particularly, in countries where administrative capacity is weak
  • An appropriately designed legal framework
  • A consideration of environmental, safety and health responsibilities
  • Control over and close monitoring of monopolistic situations.

Key Success Factors
While PPPs can provide a mechanism for exploiting the comparative advantages of public and private sectors, in mutually supportive ways, several issues are salient and deserve careful consideration when contemplating a PPP. The government needs to maintain its involvement, whether in its capacity as partner or regulator. This is especially true where accountability is critical, cost-shifting present problems, the timeframe is long, or societal normative choices are more important than costs. PPPs should not be expected to substitute for action nor responsibilities that properly rest elsewhere. In particular, the public sector should continue to set standards and monitor product’s safety, efficacy and quality and establish systems through which citizens have adequate access to the products and services they need.

In other words, PPPs do not imply “less government,” but a different governmental role. Because of the stronger position of the private partner, more skilled government participation is often needed.

In most developing countries, there is difficulty in enforcing contractual agreements, particularly, where institutions have conflicting interests. Any conflict of interest faced by the Government puts significant pressure on the ability of the private sponsor to recover its investments and thus place the financial viability of the project at risk. While embarking on any PPP, it is important to have an agreed financial model and long-term financing in place, at the outset of the project.

In the initial bidding process, it is vital to build the framework for managing politicians’ expectations and setting realistic goals, regarding timelines. Revoking a contract and re-awarding it to a different company may delay the project and also trigger doubts in the minds of private participants, irrespective of whether such changes were spurred by political, rather than economic, issues.

In any public-private contractual arrangement, there is always a risk of corruption. For agreements, like these and many others, where a lengthy concession period is involved, such risks must be well managed. The government has, however, failed to run open and transparent processes, when it comes to PPP deals. PPP agreements are signed, without any regard for competitive tendering or a proper tender evaluation process. The Government does not seek input from third parties before entering into such contracts. Legislators do not hold the executive accountable on these agreements. Most of the agreements offer little or no public benefits. Most of the PPP agreements undermine competition and lack consumer protection provisions. The agreements are only successful at mortgaging our future away to a privileged few.