A viable Public-Private-Partnership model for procuring the 4th Mainland Bridge

“At completion, the 4th Mainland Bridge promises to be an epic project (to be over thrice the length of the Third Mainland Bridge) capable of transforming road transportation in Lagos State and having multiple advantages as stated earlier. The government must look to immediately shop for new investors while maintaining the BOOT model.”

The African Finance Corporation (AFC) reports that Nigeria will have to invest $2 trillion (about N629.5trillion) over the next 30 years to upturn its infrastructure deficit. The effects of the  deficit becomes acute when considered against the background of the fact that essential infrastructure and services which help to develop an economy such as roads, rail transport, energy, water, etcetera are absent.

Another point is that as population grows, so does the need for essential infrastructure to support growth and reduce ensuing pressure on existing infrastructure and in a country where infrastructure is in deficit and population is growing alarmingly, procuring infrastructure comes to the fore. The opinion in many quarters is that Public-Private-Partnership will be the best model for closing infrastructure deficits.

It is on the account of the above that the Government of Lagos State (Africa’s and Nigeria’s largest city) proposed to build the 4th Mainland Bridge. The Bridge’s attendant effect was going to be multi-pronged, to function as a means for vehicular traffic on its upper level and stimulate and accommodate pedestrian, social, commercial and cultural interactions on its lower level. The idea being to, in conjunction with existing road networks, establish a primary ring road to provide alternative traffic routes from Lekki to Ikorodu, Ikeja to Ajah, relieving the third Mainland bridge of its overstretched capacity. The government’s plan was to build the bridge via a PPP arrangement.

Public-Private-Partnerships (PPPs) are a way of delivering public infrastructure and service using contractual arrangements between a private and public party. In a PPP arrangement, substantial risk burden and management responsibility can be transferred to the private investors and remuneration significantly linked to performance and use/demand of the infrastructure/service.

The aim is to ensure quality in delivering the infrastructure/service, whilst addressing a deficit plagued by government’s limitation in procuring infrastructure or services (with efficiency, expertise and financial burden) and the need to make up for the the infrastructural deficit. PPPs are not a new way of procuring public infrastructure or services but present a lot of advantages especially in the areas of cost management, lifecycle cost management, innovation, transparency, optimal asset utilisation, etc.

The initial plan was that the bridge projected to cost N844 billionwas to be built under the Build, Own, Operate and Transfer (BOOT) PPP model. In this way, the building, financing and operation of the Bridge (at completion) was to be done at the expense of the private parties and the Bridge transferred to the Lagos State government on completion that is after the private investors may have recouped their investment.

The BOOT model is especially suitable if government has a large infrastructure financing gap and when the projects involve a significant investment/operating content. Its peculiarities and distinct advantages canbe said to essentially fit the bill for the 4th Mainland Bridge construction. The model does however raise questions around issues of tariff setting at completion of the project (case in point, the Lekki-Epe Expressway tolls). Whether the PPP is government-pays (where the government pays off the private investors like what the Lekki-Epe Expressway case has turned out to be) or user-pays (where the users of the Bridge will be responsible for paying the private investors through tariffs and levies collated –like the initial Lekki-Epe Expressway toll arrangement and thepresent Lekki-Ikoyi Link Bridge case), this singular matter of tariffs would continue to arise; especially in view of the Nigeria of today.

Unfortunately, in a twist of events on May 22, 2017,the Lagos State government announced that it was terminating the Memorandum of Understanding it had signed with the consortium for the construction of the bridge “due to slow pace of work” of the initial investors. In Lagos State government’s bid to get new investors for the 4th Mainland Bridge project, it is advised that, while the proposed BOOT model is maintained, as it will be viable for the acquisition of the Bridge, the government considers an arrangement that would not lead to frustrated efforts and litigation as with the Lekki-Epe Expressway.

It is wise that the State government opted from not financing the project in the first place because with a subsisting debt burden of about N603.25 billion, financial burden for the project must be shifted from the government. The government may however also consider viability gap issues; this forecasts that the revenue from the infrastructure may be insufficient to offset the consortium’s cost of procuring the bridge in which case the government may have to fund the “gap” created by the revenue shortfall in applying this BOOT arrangement. Considering viability gap issues will ensure the overall success of the project following its initiation.

At completion, the 4th Mainland Bridge promises to be an epic project (to be over thrice the length of the Third Mainland Bridge) capable of transforming road transportation in Lagos State and having multiple advantages as stated earlier. The government must look to immediately shop for new investors while maintaining the BOOT model.

Joel Joshua

Joel Joshua, is a junior associate in the law firm of Perchstone & Graeysa leading commercial law firm in Nigeria, with especial competence in Energy & Infrastructure, Banking & Finance, Dispute Resolution and Corporate & Commercial Law.