Nigeria invites bids for major airport concessions

Nigeria is seeking bidders for the concession of its four top airports including the Murtala Muhammed International Airport (MMIA) in Lagos.[1] A request for qualification was published last week (17 August, see here), and foreign companies interested in a concession should submit a bid by 27 September alongside a local partner. Authorities will aim to conclude this process within the next 18 months considering the political calendar. President Muhammadu Buhari’s final term will end in May 2023 after general elections are held that year. The opportunity for investment is particularly weighty despite the government’s track record with aviation concessions.

Significance – Growth and political risk

Aviation was one of the fastest-growing sectors in Nigeria before the Covid outbreak in 2020. For example, the sector grew by 13% in 2019 compared to overall GDP growth of 2.27%.[2] The number of passengers on domestic flights at the country’s 31 airports was about six million in the first half of that year alone.[3] To put this scale in perspective, domestic passenger traffic was less than five million in Kenya and only 415,000 in Ghana in the whole of 2018. [4] Seventy-six percent of the traffic in Nigeria goes through the four airports that have now been proposed for concessions.[5]

The scale and growth of Nigeria’s aviation sector growth is partly attributable to privatisation reforms that were introduced in 2000. Reforms which, despite their evident successes, have been accompanied by cases of contract frustration and recurrent regulatory disputes. One example is the aborted partnership between the government and Virgin Atlantic to establish a national airline in 2004. Another is the concession of a Murtala Muhammed Airport 2 (MMA2) terminal to Bi-Courtney, which is owned by Nigerian businessman Wale Babalakin.[6] The latter is particularly instructive.

In 2003, when Olusegun Obasanjo was the country’s president, Babalakin’s Bi-Courtney won a concession to build, operate and transfer the MMA2 terminal. Babalakin was linked to the Obasanjo administration at the time and was later appointed by the president to head a committee on political reforms.[7] Bi-Courtney then began operating its terminal in 2007 as Obasanjo completed his final term and prepared to hand over to a new government. Unfortunately for him, Babalakin’s political standing changed significantly under subsequent administrations.

  • Bi-Courtney’s separate concession for the Lagos-Ibadan motorway was revoked in 2012.

  • Babalakin was arrested by the Economic and Financial Crimes Commission for alleged corruption in relation to convicted former state governor James Ibori (See: Three factors keep corruption risk elevated in Nigeria’s oil sector).

  • Bi-Courtney’s MMA2 operations have also been under regulatory threat. Last month, Aviation Minister Hadi Sirika claimed that Bi-Courtney owed the government NGN14 billion (about USD34 million).[8]

  • Meanwhile, Bi-Courtney had accused the government of seizing another terminal at MMA2 that was under the concession and competing directly with the company for passenger traffic.

  • Bi-Courtney has withstood multiple state actors through domestic litigation, including a 2019 Supreme Court lawsuit challenging the Asset Management Company of Nigeria’s (AMCON) attempt to take over the company purportedly for bad debt.[9]

Today, authorities are again looking to attract public-private partnerships as the government struggles to fund capital projects and restrain public debt. Debt servicing costs were equivalent to 97% of government revenue under the 2020 budget.[10] On that note, 12 motorways spanning 35,000km have been earmarked for concessions under a Highway Development and Management Initiative (HDMI).[11] Singapore’s Tolaram Group and China Harbour Engineering Company are also building a seaport at the Lekki Free Trade Zone in Lagos under a concession. (See: Nigeria seeks PPP success story with Lekki port concession).

Outlook – Fiat and sector resilience

The scale and growth potential of the aviation industry, as well as its durability, brighten the investment outlook. Pre-2020, aviation was among the fastest growing sectors, and while the pandemic has been deeply wounding, there is evidence of its resilience. The sector shrank by 36.98% in 2020 and by 11.78% in the first half of this year.[12] Meanwhile, global airport revenue and airline revenue passenger kilometres both fell by around 66% last year[13].

However, the Nigeria opportunity is also characterised by risks from the direction and frequency of fiat. In fact, parliament is currently considering amendments to the Infrastructure Concession Regulatory Commission (ICRC) Act 2005. A primary purpose for this consideration is to give ICRC ‘disciplinary powers’ over concessionaires.[14]

Further, even if no new legislation is made in the medium term, prospective investors should scope and prepare for potential contrast frustration/repudiation resulting from arbitrary regulation and/or targeting of local counterparties by state actors based on political links.

[1] The others are Nnamdi Azikiwe International Airport in Abuja, Mallam Amınu Kano International Airport in Kano and the Port Harcourt International Airport.

[2] GDP report FY 2019 (February 2020). National Bureau of Statistics.

[3] GDP report FY 2019 (February 2020). National Bureau of Statistics.

[4] Domestic traffic. Ghana Airports Company Limited, Passenger traffic. Kenya Civil Aviation Authority.

[5] Air transportation data H1 2019 (December 2019). National Bureau of Statistics.

[6] MMA2 is separate from the nearby international airport that is now being offered to prospective bidders

[7] In 2005, Obasanjo appointed Babalakin as the chairman of the constitutional drafting sub-committee of the National Political Reforms Conference.

[8] FG to clampdown on Arik, Bi-Courtney as debts hit N37b (July 2021). Guardian Nigeria.

[9] AMCON, Bi-Courtney bicker over Supreme Court judgment (August 2019). This Day.

[10] 2020 fourth quarter budget implementation report (March 2021). Nigeria Budget Office.

[11] Highway Development and Management Initiative (June 2021). Government of Nigeria.

[12] GDP report FY 2020 (February 2021). National Bureau of Statistics.

[13] Economic impacts of COVID-!9 on Civil Aviation.

[14] ICRC reiterates need to amend Act (June 2017). ICRC.

*Photo credit: Nnamdi Azikwe Airport, Abuja in 2012. Jiří Komárek, CC BY-SA 4.0

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Nana Ampofo