Nigeria seeks PPP success story with Lekki port concession

Nigeria introduced public private partnership (PPP) at its ports in 2006, but this landlord model has not produced the desired upgrades. Now authorities are exploring another PPP form – not just for a new port but also for broader infrastructure development.

Main Findings – Addressing a pressing need

Lagos State Governor Babajide Sanwoolu said last week (22 March) that the Lekki deep seaport will be completed in 2023. This is a PPP between the state government, the federal government, Singapore’s Tolaram Group and China Harbour Engineering Company – the Lekki Port LFTZ – with a 45-year concession to build, operate and transfer the facility. The majority shareholder Tolaram is also developing the Lekki Free Zone where the port will be built.

This is not a new idea, timelines have repeatedly been shifted since 2011 due to project financing delays. However, Nigeria is seeking a major success story for infrastructure PPP. The government concessioned terminals at the country’s six major ports in 2006 but continued to operate the ports. Since then, proposed upgrades have not materialised due to various political and financial considerations, and the country remains heavily reliant on the Apapa and Tin Can ports in Lagos where more than 80% of imports arrive.

The consequence is that transport, land and management constraints have overwhelmed those two ports over time. The Nigerian Ports Authority has been unable to establish efficient systems at the ports and broken roads around the ports have created a perpetual gridlock. It often takes three or more weeks to clear goods there. The Lekki port development was conceived to unlock those obstacles and incentivise industrial development in Lagos, which accounts for 25% of the country’s GDP.

Like the state government, the federal government is presently exploring private investment in infrastructure. Works Minister Babatunde Fashola announced this month that the government has set aside 12 highways for concessions. This new Highway Development and Management Initiative (HDMI) has been approved by the Infrastructure Concession Regulatory Commission, which is the country’s main PPP regulator, and the minister says a portal for expressions of interest will be open in April.

For now, the Lekki toll road in Lagos exemplifies political risk surrounding a PPP project in the country. The Lagos state government awarded a 30-year concession for the road in 2006 with bipartisan support. The deal was backed by a federal government guarantee even though the People’s Democratic Party (PDP) was the ruling party in Abuja while Lagos was ruled by Action Congress (now part of the All Progressives Congress (APC)). The Lagos government soon sought to exert control over the asset and the investors exited prematurely following disagreements between the state and the investors over toll pricing. The Lagos government now fully owns the concession company.

Outlook – competitiveness and political risk

Reducing congestion at the ports could have significant positive impact on business competitiveness by reducing the costs and time surrounding Nigerian trade flows.

However, partnerships with the federal and a state government in Nigeria may pose additional risks for PPP investment. The federal system is weakly structured and investors may find themselves caught in the middle of disputes between state and federal government when they are governed by different political parties. For example, the Lekki port project was a source of dispute between APC in Lagos and PDP in Abuja before the 2015 elections. The Lagos government claimed the federal government was withholding counterpart funding for the Lekki port project. More on the current relationship here: Top figure in Nigeria’s ruling party under corruption probe ahead of 2023 polls).

The prevailing mode of governance also poses disruption risks to a PPP investment. On the ground, we have been noting frustrations around government accountability and stakeholder engagement. For instance, there has been litigation and agitation around the manner in which the government procured land for the Lekki Free Zone. A senior executive of the parent company was killed in 2015 as police tried to suppress host community agitation. More recently in 2020, rioters burned a toll gate for the Lekki road after a deadly army crackdown occurred at the toll gate. (More here: Nigeria and its #EndSARS turning point).

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Photo credit: scenar308 (Bernd S), CC

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