To Toll Or Not To Toll? What Was The Question?

As always the best place to start is at the beginning

In case you were wondering, the above is how the Lekki Expressway was funded i.e. where the money to build it came from.

Unpacking that, we can quickly see that the road was built with 68% debt and 32% equity. Debt of course isnt really a problem by itself, the issue here might be where exactly the debt is coming from. As an aside, it’s also interesting that the local lenders are getting out first in terms of tenure (12yrs). This is a lesson for those who are quick to complain about foreign loans but that’s besides the point. 

Let me state my position clearly now; I dont like this deal. I think it was badly structured from the get go and is bound to run into problems.

First off, you might notice that LASG is actually an investor in this project via a mezzanine debt tranche i.e the state government is into this deal to make money over the 20years it is invested. It has no equity whatsoever in the deal. This is not only bad, it is actually very dangerous. 

On to the next, no one needs to be told that banks and finance institutions enter into such a deal to make money. Nothing wrong with making money of course given that quite often, in the process of making money, a social good or service is delivered.

But what does this kind of funding arrangement mean for the motorists who will use the road over the next 30 years? Quite simply, it means that each time you drive through that toll and pay, you are paying for literarily every bag of cement, every drop of ashphalt or bitumen, every steel iron and the labour used to build it. It doesnt stop there, you are also paying for a reasonable profit element to cover the risk of those who put their money in over 12 to 20yrs. You will also be paying for the salaries of those who run LCC among a myriad of other costs they might incur. Lastly, you will be paying for the maintenance of the road over the life of the project as this must be part of the deal.

This is where I have a serious problem with the deal; most of the people who will be using that road are already taxpayers who presumably have an ongoing relationship with the Lagos State Government. But strangely, you now have a deal where a service within a service has been carved out and a payment demanded for it. This is where I think a lot of people who support the tolling as ‘neccesary’ miss the point; the question of what exactly is being paid for and to who?

The funding structure also puts a lie to the ‘PPP’ tag given to this deal. It’s actually not a PPP deal at all. The correct term for it ought to be PFI – Private Finance Initiative given that there is no government equity involved. When something sounds too good to be true, well clearly it must be. A road needed to be built, govt either had no money or didnt want to put its money into but somehow as if by magic, the road has appeared there. But who is paying for this seemingly free lunch? Or to ask a better question, is this a better way to do things?

Thankfully, Nigeria did not invent PFI so we can always check out how they have fared in other countries. The UK has experimented very well with PFIs in the past and there is a ton of research showing they are a worse option than the alternatives. As an example, the ACCA carried out a survey of accounts in 2002 asking the question ‘Do PFI schemes provide value for money?’. It may or may not shock you to hear that only 4% of respondents said yes. But dont take my word for it, the report is here. 2 quotes from the executive summary include the following ‘an extremely expensive option generated through political dogma‘ and ‘I believe that PFI is a short term quick fix but in the longer term it is costly to the public purse’.

Take your pick from any of PFI failures. Start here for the £6bn M25 widening deal which according to the National Audit Office ended up costing 25% more than it would have under alternative options. The previous Labour govt loved these deals and signed a whole bunch of them. 103 NHS PFI deals that cost £11.3bn when they were signed will end up costing the NHS £65bn over 30 years. Interestingly, I understand that LASG has so far paid N7bn to LCC for various contract breaches since the deal was signed ranging from the suspension of the toll before the elections to delays in construction. To that I say, get out while you can. 

So what is a PPP and what is the difference? It is exactly what it says it should be – a partnership between the govt and the private sector to deliver critical infrastructure. This is not a ‘mouth’ partnership, it has to be a ‘put your money where your mouth is’ kind of partnership. The best example I have come across is this road in Malaysia. It is the longest road in Malaysia covering 772km from the north to the south of the country. So how was it funded? The table below shows the top 10 shareholders in the deal

Malaysia

In case you were wondering, UEM Group Berhad is 100% owned by Khazanah Nasional Berhad which is itself the Investment Company of the Malaysian govt. in other words the Malaysian govt owns just over half of the road. Governments have a continuos/never ending relationship with their taxpayers which means that a govt can take a very long term if not perpetual view of an ‘investment’ in a way that the sector cant. This is why govts build roads and provide various other infrastructure. Govt does not neccesarily have to ‘make its money back’ from providing infrastructure because it will always make its money back ultimately from collecting your taxes. But the private sector has to make its money back. And it doesnt have the luxury of this continous relationship with the taxpayers that govt has.

Using a simplistic example; say the govt were to build that road itself, how would it make the money back to use elsewhere without tolling? The new road ought to create plenty of movement. So the question is do you tax the movement by tolling or tax the reason for the movement? People driving on that road will be coming from home in the morning or going home in the evening, so you should tax their homes – and given that they already pay some taxes on their homes, you can increase this ever so gently. Where are all they heading to in the morning? They are going to work presumably. A better road means they are less tired when they get there and can be more productive meaning you can tax those businesses, again ever so gently. If people can leave work at say 5pm and get home by 6pm, this means they can get some rest and come back out for a meal or drinks in the neighbourhood. So you tax the restaurants and bars that will inevitably get more business in the neighbourhood . You can add your ideas to the list. 

The problem with tolling in this case is that you are taxing the movement mainly because the money has to be repaid to the banks [Indeed this explains why the tolls were built even before the roads were completed – from the chart above, ‘pre-completion revenues’ aka tolling is even higher than the equity put in by ARM & co].  And when you tax the movement, you are creating other problems because taxpayers resources are not finite. Using an example, imagine if when Heathrow Terminal 5 was opened, ticket prices suddenly increased by 50% for airlines landing there because they had to ‘pay for the airport’, most people would quickly start flying to Gatwick or other airports. So the payment is spread around all sorts of less noticeable places e.g the coffee you drink at the airport and what you pay to park. It is never a very smart idea to tax the movement which is why even when govts around the world are obviously trying to raise revenues, the case is always made that the taxes are to reduce an unwanted activity i.e congestion. This is why despite living in London for the past 8 years, I have never once paid the congestion charge to drive into Central London i.e the charge has been effective because the small city of London now has one less car to worry about. 

One of the best congestion charge schemes in the world operates in Singapore. The only word I can use to describe it is is fantastic because it does exactly what it wants to do. Basically the charge is variable so that as traffic increases the daily charge is increased sometimes to very painful levels until the traffic levels fall back to normal and the charge reduces again. It works like magic. A new report also shows that Sweden has managed to reduce congestion over the years with a similar charge in Stockholm. So the question is, is LASG tolling to reduce congestion or to make money? Well the answer is clear because reducing congestion would be counter productive to the whole point of letting the investors exit with a smile on their faces. 

The time will come when LASG will need to charge to reduce congestion on the roads and yours truly will wholeheartedly support such a move. The key is that there must be a viable alternative in place and such a charge is used to discourage unwanted behaviour (too much driving, pollution etc) and encourage other activites (public transport). In this case, a business (a road) has been established in Lekki and the company is collecting revenues (tolls) from the hapless motorists. When they are done there, they will then go and pay their other taxes as normal to LASG as if nothing happened.

 

 

Conclusion

There is plenty to write about this topic, I havent even talked about the unforeseen problem of traffc caused by people queuing to pay. People have asked why the toll is N120 and not say say N100 to reduce the trouble of looking for change. The short answer to that is that that’s what the spreadsheet said they should charge. If LASG had equity in the deal, it could have foregone/deferred its share of the revenues and gone to the back of queue i.e. asking the tolls to be reduced to make it easier for people to pass through. But it cant in this situation. And it is already losing money and will end up paying the shortfall if the traffic falls below a certain amount.

I think that this deal will collapse before the next election in 2015. And by collapse I mean LASG will be forced to assume the liabilities of the project and pay off all the lenders. When thathappens, I am very sure that it will end up paying well in excess of the original N50bn cost of the deal.

Perhaps it’s not Governor Fashola’s fault as this deal was started before he became governor, but it’s very important that Nigerian governments learn painful lessons. I think this is going to be one of such and will hopefully force a rethink of other such projects in the pipeline. 

No hard feelings, a bad deal is just a bad deal. 

 

 

FF

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28 thoughts on “To Toll Or Not To Toll? What Was The Question?

  1. Interesting read, good write up.

    I may be pushing my luck but I hope you can help with the below questions.

    Do you know what the margins are on the debt?

    Also what does “notes” mean in the First Bank to Diamond bank section. – Loan notes?

    Is ADB the only party with a secured position?

    Is LCC a wholly incorporated Nigerian company, that is -in bankruptcy will it be subject to Nigerian law or also overseas laws?

    LASG seems to have a fondness for mezz debt. Very odd!

    Is there a PPP/PFI referee to monitor the terms and adherence?

  2. Feyi,

    Thanks for this capital structure gist. Makes thinks a lot clearer. But I fear for that prediction of yours. If LASG ends up paying off all the lenders/investors, I sincerely pray we dont all lose. Just made me think again of the Equator Principles and the level of stakeholder engagement that went into the project BEFORE COMMENCEMENT.

  3. Brilliantly broken down. There are so many more ways the LASG could have structured a better deal that would have been beneficial to everyone involved. As of now, Fashola stands the risk of eroding the political capital he’s gained so far.

    Hopefully the gains of the Light Rail projects, when complete, will help him offset this. Beating up civilians, a lot of whom voted for him, was a very dumb thing to do sha…

    I was hoping to read of Jagaban’s part in all of this, though. 🙂

  4. @Akinsope I didnt want to get into the interest rates as I dont have any information about them. But I cant imagine anything less than 8% for any of the debt portions when all the risks involved are taken into account. It's however possible that it could be lower because there is a 'sovereign guarantee' attached to the project as I understand where LASG will make up any shortfall to the projections. There will also be inflation calculations built into it. Without looking at the projections, I am pretty sure they are a fine mess. The notes in this case are essentially an IOU where LASG promises to pay the banks a fixed sum over the 12 year tenure….it's just a fancy name for debt with a few tweaks here and there @Tunde well it will be painful but perhaps a less painful way to look at it would be insurance against future mistakes.@Nnamdi: Jagaban? Who is that? Animal, place or thing? 🙂

  5. Nice one FF. Like you said, ‘there is plenty to write about this topic’. We haven’t even touched the social issue of how exactly the LASG leads its residents into such a heavy financial investment without public consultation. Or even, how LASG can justify upgrading and tolling an existing road without a viable alternative route. Why couldn’t LCC source an alternative ‘virgin’ corridor to build an entirely new road and erect tolling booths to their heart’s content?

    I am not a financial expert, but your analysis makes it easy to see the futility of this arrangement in the long term. Either way, noses (and egos) will be left bloodied before the dust settles on the whole tolling brouhaha.

  6. @Debisi: I wonder myself. They could have let the guys build a brand new road somewhere and put tolls every 100 metres if they wanted.This kind of arrangement should be saved for something like the airport they want to build in Lekki. Nobody goes to an airport except you have business there. In this case people are going to get taxed just for going home.  And the thing is surely not going to solve the traffic problem there….makes you wonder what the point is? You pay tolls for the privilege of sitting in traffic with no pot holes?

  7. Dude, we’ve been here before. But i’ll humour you.
    Yes its a unique structure but this is definitely PPP. The State Govt granted a concession for 30 years. Ater that, ownership of the road reverts to the govt. who can then flog it to another group of investors who will put in place a different capital structure that will quite probably include an ownership stake for the state.
    The larger point is this. After a period of almost 20 years (1983 to 1999) when there was almost no new infrastructure investment in the state (and most of Nigeria for that matter – 3rd mainland in 1991 was the completion of a long overdue project), and during which time the population of the state more than tripled, Lagos state is left with a huge infrastructure deficit to make up. This deal may look like a bad deal but bear in mind that it is the first truly visible PPP project within the state and will act as a huge bellwether for the PPP/Infrastructure finance movement in Nigeria. If investors make off like bandits in this deal (and I hope that to some extent they do),it will no doubt attract alot more investors towards Nigerian infrastructure projects.
    Yes the costs of the toll appear prohibitive, but so were the risks of undertaking the project in the first place. Sadly, these are the ongoing costs that the people will have to face to redress the infrastructure deficit. And mark my words, if you think these costs are excessive, wait till Nigerians have to start paying for 24 hour power. The Nigerian govt has a long history of underpricing the true costs of many services which unsurprisingly contributed to the instability of these services. I remember spending summer holidays in the UK where we were all but ‘banned’ from using the washing machines during the day cos of the prohibitive costs of metered water and electricity. If we want development we’re going to have to PAY for it. THAT IS THE UNSPOKEN TRUTH. Oh and by the way, the road is sweet and tolling is going well (provided you have an eTag). I will defintely fault LCC for not marketing the tags aggresively enough. I was one of very few people to have them when the tolls started. Picture me driving through a completely empty lane whilst others were delayed in the cash lanes.

    AAA

  8. @AAA…yes we have been here before but a bad deal is still a bad deal. Look how much LASG has paid already in all kinds of compensation.Sometimes the old fashioned way is the best way of doing things. When you say pay for the road, it doesnt have to be tolling…this is the point. More people will live in Lekki, LASG will make money from that.This cant possibly be the best way to build a road…it's actually ridiculous. If you want to use private sector money to build infrastructure, you do it where you can properly discriminate like an airport or something. The problem is that you are looking at this road like it's some asset or business so the govt will then flog it off to someone else after the concession. When did all that one start?  MM2 is PPP or PFI…how's that looking these days? These deals are attractive to govts because they dont have to put any money down. Sorry no free lunch. I am of course happy to be very wrong…the people will merrily pay their tolls for the next 30 years and everyone will live happily ever after.  By the way do you think 24/7 electricity will cost more than generators currently do?

  9. Adekunle, spoken like a true investment banker (greedy fellows we are). But simple questions for a six-year old (me). Why didnt LASG take an equity position, rather than mezzanine debt? Wasnt it obvious that the existing “alternative route” would be inadequate from day one? Was there an adequate level of stakeholder engagement before the project actually kicked off? And lastly, abeg where did you get your tag from, a colleague of mine no gree me rest.

  10. Very brilliant and well researched brief. Nigerian leaders will always keep getting these sort of bad deals because we don’t have very knowledgeable people in key positions (and I don’t mean the governor). There are people who are being paid in this state (Lagos) to advise on infrastructure, capital projects etc. But they are either incompetent or selfish.

    I know that there is no way LASG can do it without collecting toll. There just needs to be a form of concession from both LASG and the public to agree to what is workable. The road is a thing of good-will but poorly planned

  11. LOL@adequate level of stakeholder engagement. Who should they have engaged? How would that have worked out? (I’m all for it by the way, I mean its working so well with the fuel subsidy removal consultations).

    And I’m pretty sure that anything involving Wale Babalakin is completely inadmissible in court as a proper PPP project.

    Also, its not a bad deal, its the first deal. if it works, it works. and so far so good. It is easily the best managedmaintained road in the whole of Nigeria (that’s not really saying much but its the truth, given that its practically the only daily monitored highway in the country).

  12. Feyi,

    Thanks for the explanation.

    If I have understood correctly, $80m is in the form of loan notes ie cash was given to LCC and LCC gave out loan notes to the investors. So LASG can buy back the notes or those investors can sell the notes.

    I think the LCC is important for Lagos State’s economy. Lagos still needs a huge amount to be invested in. Whilst the deal could have been structured better, the signal it sends out to investors is that “Lagos is open for business”.

    I am more interested in the signal it sends out, as Lagos state and Nigeria in general needs investment badly.

    Worst case – Should LCC go bankrupt, they cannot carry the road and go.

  13. @Tunde Ajayi. Shame on you 🙂
    Mezz is equity, strictly speaking its part equity, part debt as I’m sure you’re aware. But its usually structured in PPP projects in such a way that its like preferred stock or comes with some kind of PIK (i.e. payable in Kind) interest or ownership (via warrants or conversion rights). Public sector entities can and often do take Mezz tranches in such projects because a financial return is not their primary interest, and they are willing to differ their ‘returns’ so as not to place too much burden on the borrower (in this case LCC as the SPV) and give the project the best possible chance of succeeding. And something Feyi forgot to mention in his capital structure bit is that as its a PPP concession, the contract would typically have been structured in such a way that at the end of the concession period ownership of the asset is transferred to thestate. and if Lagos state likes then they can reduce the tolls to Mr FF’s rates (or preferrably one that reflects the true costs of maintaining the road on an on going basis).

  14. @AAA: Someone just left this comment on my Facebook page which suggests that the deal was never meant to be this way but ended up being so because the govt didnt pull its finger out among other reasons. "@Feyi – like you said, it is always good to start from the beginning. I worked on the transaction while at ARM and what you just analysed is the resulting structure – quite different from what was planned.  Some potential equity investors pulled out of the project (just when we thought we were nearing finance close) due to the following: 1) ISPO from the FG was not forth coming (it took over 3 years to get an ISPO from the FG/ Fed. Ministry of Finance) 2) Over 50 litigation issues arising from demolitions to create right of way also discourage a particular investor. The transaction team have to work out a way to cope with all these hence the several levels of unhealthy debt lines (they are supposed to be bridge finance at predevt stage and have to be converted to long term debts) and the funny mezzanine from Lagos State. Personally, I did not think we are going to get an optimally structured and well laid out PPP transaction at the first attempt. Whatever you choose to call the name; it was a good, practical and sincere attempt at trying to add value and grow the scale and level of infrastructure we currently have.  I also doubt most of the Western bred PPP models we read about started out being optimal and perfect – there is a learning curve for every environment.A lot could have been done better, but it is surely a step in the right direction. "

  15. Exactly, this was a negotiated solution that all parties (at least those left at the table felt comfortable with). Having worked in Nigerian finance for a while now, I never cease to be amazed by the insistence private investors place on getting an ISPO for anything that has even a sprinkling of government involvment.

    As a final point Feyi, I will just say this. At the end of the day, LASG did not have the funding to do this road and invited parties to partake in a structure that they felt would allow the development to succeed. Those parties then presented the terms under which they would be willing to get this done, bearing in mind I’m sure as they did that LASG had absoutely zero track record and that there was HUGE political/execution etc. risk with such projects. What you call a bad deal is still a deal. It was done, the road is close to being complete and LASG is simply keeping up with the terms it agreed to. I mean in many ways this is a landmark transaction. there’s been no pussy footing or changing stuff round a la MMA2. And we should applaud the state and the private investors (and the people of LCC) for coming this far and insist that they see this through to the very end.

  16. @Akinsope: Your last line is the key to this, the road is already there and it cannot be removed. So if this deal collapses, the govt will look for smarter ways to make it generate value.I dont think the collapse of such a deal will suggest that LASG is open for business. On that score, there are plenty of things the govt can do to be more business friendly but it doesnt. One thing I know is that you cannot tax poverty, at least for a while you have to enable value to be created before taxing the resulting wealth. There is a certain futility to planning this kind of deal for 30 years. But we wait and see

  17. Charging toll fees to cover the cost and then maintenance of roads constructed under PFI (as in the Dartford crossing in the UK) or even those constructed with 100% government funds (eg the Lagos-Ibadan express way) is not a strange phenomenon as Feyi would lead his readers to believe. So not surethe point ofthis write up!!!!!

  18. Eric; so what is the point of your comment?Maybe you should go and read up on the history of the Dartford Crossing so you can get your facts right.If its not a strange phenomenon, I wonder why the Daartford crossing is the only one in LondonSent using BlackBerry® from Orange

  19. “The police reaction and the use of area boys indicate some level of desperation which calls the whole project into question. I have been reading the comments so far and I think a lot of the supporters of this tolled road are not being objective. I have done a number FGN PPPs either from a conceptualization perspective or from an implementation perspective. If the objective of the tolled road was to improve ‘transportation’ on the Lekki axis a tolled road would not have been the singular option. They would have improved the ferry service or put a light rail perhaps similar to the DLR at a lower cost and a faster time frame. And as a finance person once LCC saw that they couldn’t toll the first time and therefore their cashflow projections are going to be impacted they would have refinanced and got to deliver a cheaper toll. There are a few things I would like to know before anyone takes sides on the tolling and the amount of tolling.
    1. Who designed the PPP and what was the original design? A few days ago the FGN advertised for EOI for PPP Transaction Advisers and also for reputable firms to bid to carry out a PPP on the MMA expressway leading to the airport. Did LCC/Hitech emerge through any competitive tender process? In all the communication about the toll was there any mention of price until they had finished it? If they had done a robust financial model the price would have been known from day one and give or take inflation it shouldn’t have changed. And if the price was known and if there was inflation the LCC would have hedged this risk and not pass it to the people.
    2. How many cars pass through the expressway every day? If each car paid N40 would they still meet their projections over the lifetime?
    3. I have lived in Lekki Phase 1 on and off for over 7 years and have seen the whole Lekki axis evolve. At one point there was no single public secondary or primary school from VGC to VI and only two private schools. If we had good planners in LASG they would have long seen the expansion and growth of the Lekki corridor and made sure there was infrastructure and government services. The only time work didn’t make me relocate out of Lekki was when LCC gave us so much agony and trauma in the construction of the road. It forced me to relocate to Abuja temporarily until they had finished the road. In my opinion Hitech are the most convoluted construction firm ever. Anyone can go to Durosimi Etti street in Lekki Phase 1 and see how they tore up that road and left it soo messed up people can’t get into their houses nor cars go up the road either. Has the travel time from Lekki 1 to Law School improved from before they started and now? Why place the first toll before the Palms and Tarzan jetty and just after Lekki phase 1? Why expand the size of the 1st roundabout or was does a bigger roundabout achieve on an expressway?
    4. There used to be a track if you had a jeep you could go through the unfinished coastal road, go down the beach and to the Oniru estate road and into VI. Why was that track blocked and why was it not enhanced to make it more motorable? In addition after landmark village just after the water works why was the dual expressway demolished?
    5. I went to an FGC for some time. And from Ibadan to Delta depending on the many alternative roads on a FGN class A road or class B road you would pay toll on this 400km stretch only 3 times. Does 3 tolls in Lekki at the costs make sense?
    I have no issue with BRF, Tinubu or PPPs or with tolling but it has to be with a human face or should I say for the common good. Whether a good deal or a bad deal. Ab initio the deal was not for social benefit or social good. If it was they would be interested in building businesses and improving livelihood and then tax these. Or they would have built a new road and toll this if they must build a road. With N50bn you would get yourself a nice light rail and just do basic maintenance on the existing road and or add one toll. Operationally the first toll cannot work so they open the toll intermittently and allow traffic through. So many things could have been done differently. It gives PPPs/PFIs a bad name. Ultimately if it any of the ‘P’ stands for public in PPP/PFI it must have articulated and measurable public good or benefit. And public does refer exclusively to those in the upper echelons of government and the coffers of the state but to you and me. For instance through reduced travel time or congestion or increased property prices. So far neither looks like being achieved. Or can someone point out any public benefit of this tolled road? If it was apparent as designed, as constructed and as tolled they wouldnt need armed men to enforce. The other day a friend of mine had an accident late one night before first round about. Some Lebanese manager of Hitech/LCC actually made a case for him to pay to fix the part of the road his car damaged before releasing his car. It’s a scam. A complete rip-off. I wish they had thought it through and implemented a better transportation PPP/PFI for those at the bottom of the ‘food chain’ and everyone else. And now that they are seeing some cashflow, they should refinance or do a rethink of the structure which would enhance the public good while using some of the points Feyi raised as above.’

  20. To answer the question as to who structured the deal, I believe it was a chap named Deji Aliu (not sure about his surname) who works at ARM. Infact as I understand, most of the transport master plan for Lagos and all the PPP plans for the future were designed by him.

    People say he’s a brilliant chap…*shrugs*

  21. @ Feyi and Kurumi: Deji Alli (name and surname) is CEO of the ARM Group and is a big ideas man (he’s never afraid to take on large projects, even at the risk of over-extending his business). But I beleive that he’s done a great deal to create a business that’s added value for Nigeria. Meanwhile, I disagree on whether the exact toll amounts could have been known from day one. If the project reached financial close in 2007 and by early 2009 the naira went from $1/N118 to N1/150 and then $1/N160 now (remember it was dollar funding), wasnt that a significant event? And also, isnt raising “refinancing” easier said than done for PF deals in Nigeria? And while I dont live in the Lekki area anymore, even I can unequivocally say that travel time on that road has reduced significantly. The toll queues (to my thinking) are largely operational and will probably ease with time. Make we no troway d project with good and bad inside. But there is truly no justification for brutality on hapless citizens.

  22. There was a currency swap portion to the deal that was supposed to be the largest such in Africa. So exchange rate problems should have been taken care of from the beginning. Deji Alli might be good at taking bets with his business and he is to be commended for that if he is still in business. But this is a public good, the rules are slightly different. This thing has been structured like any ‘normal’ PE or leveraged deal. We need to step away from that and look at this slightly differently. You might say Deji has delivered value, but the question is to who? And how much value has been eroded and will be eroded as a result of this?This is why in most countries, public sector accounting is almost a completely different discipline from ‘normal’ accounting. Here in the UK I will even need a different certification to practice as an accountant in the public sector.  ——————Regards,Feyi FawehinmiFrom my iPhone

  23. you conveniently ignore the fact that lekki/vi/ikoyi and lagos islands need less cars and this should encourage car pooling and reduce the madness of every- new- boy- employed -in -lagos- is -getting- a -car

  24. Gbenga, is that the reason why the road was tolled? How does a lower number of cars help the investors recoup their money? Sent from an iPad

  25. Feyi, kudos for a sound research work in putting a firm foundation for your well-thought-out arguments and conclusion.
    However, permit us to slightly differ in respect of certain analogies which, we think are incorrectly drawn. (now, we have to quickly own up that our inclinations are in favour of projects although with broad support from all stakeholders — a significant lapse in the conceptualisation of the project):
    1. In attempting to answer the question, “do you tax the movement by tolling or tax the reason for the movement?”, we are of the opinion that you have neglected status and circumstance of the LASG. It is not a SWF like UEM Group and does not have total control over the taxes from the residences and businesses that benefit from that road, and does not have the same arrangement that exist between London (or any UK city for that matter) and the central government. Well, that is one of the consequences of the lopsidedness in our government structure. For us, this difference of circumstances makes the analogy not applicable
    2. If it is such a brouhaha collecting toll, we wonder how you would expect people to pay congestion charge n the future… it would be a step backward if this project fails on or before 2015 as you predicted, because it is meant to be like the key to unlock this emerging market for infrastructure finance (The project was recognised in the annals of recent infrastructure finance projects in the world). Notwithstanding, that does not mean we should put up with the inefficiencies and fundamental problems in this present set-up. We share the same views with Rosabeth Kanter in her research work in Nov edition of HBR: “that companies are more than instruments for generating money; they are also vehicles for accomplishing societal purposes and and meeting stakeholders’ needs”
    Given our society’s huge infrastructural deficit, it is imperative for government to creating enabling environment for private investors to finance such infrastructure development in a win-win manner.
    Nothing is to be taken away from the brilliant piece you have put together, and LASG could have done better with people like you in coordinating the project and managing stakeholders’ expectation.

  26. Hi Essential, thanks for your comments. Quick responses as follows1. LASG does not have a SWF but it does have Ibile Holdings as an investment arm for example. I also had a look at the funding structure for the Lekki Airport and in that one, they seem to have taken significant equity in the project. Perhaps they learnt from this one because for an airport, a deal like this one with all the leverage would have been fine….nobody goes to an airport except you have business there. 2. The simple answer to this is that as long as people have a choice, they will pay up. All you need is a bit of clever pricing to discourage people from driving and onto public transport. Like I said in the article, I have never paid the congestion charge to drive into London. I totally dislike the tax and will always prefer to use public transport than to pay to drive. Even if it’s a false choice, people will always like to feel like they avoided paying something especially taxes. ——————Regards,Feyi FawehinmiFrom my iPhone

  27. This is a fantastic article, and the comments have been quite enlightening. I have to say, I’m not too certain about the long-term viability of the project (i happen to live in the axis, and I’m ‘indirectly’ involved in the deal), and the other burgeoning projects planned in the axis.

    I think we should talk more, you have my e-mail address, drop me a note, and let’s share some knowledge.

    Best regards

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