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Unlocking Value From Nigeria’s Road Assets To Finance Infrastructure Expansion

The current administration has come in at the most unfortunate time with the price of crude oil at historical lows, thus mounting pressure on already stretched public finances. As such, even when the government of the day earnestly seeks to improve public works, the resources are just not there. Even if it decided to go to the debt market to source financing, they would be at such an expensive rate, that is in the event that it finds willing lenders given the currency situation.

With a road network of 200,000km nationwide of which 17% (34,000km) are federal roads, though a great portion of these are not in the very best of motorable conditions. They are however solid assets of the federal government on behalf of the people of Nigeria. Official government statistics put it that federal roads carry 80% of the vehicular traffic. As at 2012, the number of vehicles was estimated at 9mil. From the same ministry of works document, an average base rate N7.10/km is payable on toll roads. Put together, with 7.2mil vehicles plying 34,000km federal roads at the average base rate we can generate c.N1.738trn in tolls.

With the federal government owning a pool of assets that can generate that much in annual revenues, we can generate somewhere up to 15x that level of revenue from a concession of these assets to private investors.

Given the experience of the investing community with the Lekki – Epe Toll road, Lagos – Ibadan Expressway and the MMA Terminal 2; it would be a hard sell to get investors to buy into a similar transaction without instituting any significant changes to the regulatory framework guiding such transaction as well as an improvement in the country's judicial processes.

We could opt to toll the roads as they are, in which case the sovereign does not get the lump sum cash to improve and expand the existing federal road stock. Again as with our past experience with tolling, we cannot rule out pilferage of toll revenue by government officials.

Further to the above, I will suggest the following strategy. Federal roads are bundle together to create at least 5 highway authorities. These would be pseudo public entities. Each highway authority would be constituted to include a financial partner (pension funds, foreign institutional investors), a technical partner (construction companies, infrastructure management companies) and a representative of a federal government. The consortium of financial and technical partner would hold the economic interest while the government representative will hold 55% of the legal interest. These entities would be responsible for tolling, managing and expanding to pool of federal roads it has concession on. These entities can take on raise funds from the capital market to finance capacity expansion as well as the construction of new roads using income and assets on its balance sheet.

This improves on the Lekki-Epe transaction in that the concessionaire holds a pool, not one asset but a pool of assets, and the concession is granted to a consortium that includes a representative of the sovereign. It also improves on the Lagos-Ibadan transaction being that the concessionaire would receive tolls with which it can seek to get financing for the project.

As an incentive to the concessionaire, it should enjoy tax exemptions so long as it commits to reinvesting up to 70% of its Net Income of capital spending. Except for inflation adjustment which would only occur over a number of years, the concessionaire would only be able to increase tolls after a major upgrade/expansion to existing road stock.

The benefits of this transaction are clear, it unlocks capital to finance other infrastructural project and it frees up resources that would otherwise have gone to maintaining existing infrastructure.

At this stage of our nationhood, we deserve to have road infrastructure that is miles ahead of what we have at present. I believe that this strategy and any iteration thereof would go a long way in rewriting this wrong.

God bless the Federal Republic of Nigeria.

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