Lagos already owns Lekki Concession Company since 2014 – Govt, says Assembly’s approval was for AfDB loan conversion

[By VICTOR NZE]

Lagos Government has clarified that its request for $53.9 million and subsequent approval by the state House of Assembly was intended solely for converting the African Development Bank (AfDB) loan from a private sector (commercial) loan to a sovereign (public sector) loan, which it said, attracts a lower interest rate, that would enable the Lekki Concession Company (LCC) to make some savings.

According to the state government, it already acquired the full shares/equity of the former owners of LCC back in 2014, as it further clarified that the state already had ‘full ownership of LCC.’

“There was no need to take such a request to the House,” said the government, adding further that it never made such request.

It would be recalled that following the approval of state Governor Babajide Sanwo-Olu’s loan request of $53.9 million by the Lagos House of Assembly, it was believed that the funds were intended to buy out other existing stakes in the Lekki Concession Company, preparatory to a full takeover by the State Government .

The Mudashiru Obasa-led House of Assembly had in June, this year, received the request for the conversion of an African Development Bank (AfDB) loan to LCC as a privately owned company of the state government and to assume full ownership.

 The request was then committed to the Committee on Finance to look into and report its findings to the House.

Giving his presentation, Chairman of the Committee, Mr Rotimi Olowo, posited that upon the buy-out of all the shareholdings interest of the Concession Company Limited by the state, Lagos State Government became the subsisting shareholders of LCC with 75 per cent shareholding and the Office of Public-Private Partnerships (PPPs), shareholding 25 per cent respectively.

He further stated in the report that the original $53.9 million loan obligation from a private sector facility, AfDB had been resolved after series of engagements between AfDB, LCC and the state government to convert the loan to a public sector facility with the benefit of a considerable reduction in interest charges of 1.02 per cent of $1.12 million bi-annual as against the 4.12 per cent of $2.746 million per bi-annual thus giving a savings of $1.16 million bi-annual or $3.24 million per annum.

The House, therefore, granted the executive the approval to convert the AfDB loan to the public sector loan backed up by a sovereign Federal Government guarantee on behalf of the state government.

It also authorised the state government to issue a counter-guarantee in favour of the Federal Government along with an Irrevocable Standing Payment Order (ISPO) to deduct from Lagos State Government statutory allocations.

However, State Commissioner for Information & Strategy, Gbenga Omotoso, in a statement, Tuesday, said Lagos already owns the Lekki Concession Company, as there was no need to buy out other shareholdings in the firm.

The latest position further complicates issues arising over the true ownership status of the company, which the state government has consistently denied, insisting that it was a private equity investment, and remains so.

“Reports that the Lagos State House of Assembly has granted the State Government the go-ahead to take over the Lekki Concession Company (LCC) are wrong. The government did not make such a request. Its request was to convert the African Development Bank loan from a private sector (commercial) loan to a sovereign (public sector) loan, which attracts a lower interest rate, which would enable the company to make some savings.

“The government, in fact, acquired the full shares/equity of the former owners of the company in 2014. There was no need to take such a request to the House.

“Following the Lagos State Government’s full ownership of LCC in December 2014, the loan became eligible for conversion to a Sovereign facility with an attendant significant lower interest rate of LIBOR plus 80 basis points and extended tenor,” the commissioner clarified.

On the AfDB loan, the commissioner stated: “In the recent past, there have been discussions amongst LCC/LASG, AfDB and the relevant Federal Government Ministries and Agencies concerning conversion of the loan to a Sovereign facility. Upon the completion of the conversion, there will be a significant reduction of applicable interest rate and extended tenor.

“The Sovereign loan conversion will also lead to a crash of the applicable interest rate on the facility to circa 1.8%pa compared to the current interest rate of circa 4.12% p.a. Besides, the conversion will increase the tenor of the facility from the current five years to 15 years. This has the impact of spreading the cash flow impact by an additional 10 years.

“One of the requirements stipulated by the Federal Ministry of Finance for the loan conversion is the approval of the Lagos State House of Assembly. This is the approval given by the Lagos State House of Assembly on 5th August, and NOT an approval for taking over of LCC, as reported.

“As stated earlier, LASG took over the shares of the previous private shareholders of the company since December, 2014.

“Lekki Concession Company Limited (“LCC”) is a Special Purpose Vehicle set up specifically to execute the Eti-Osa/Lekki-Epe Toll Road Concession Project. The project is designed to deliver essential road infrastructure and services along the Lekki Peninsular of Lagos.

“The Lekki Toll Road Concession was conceptualized as a Public-Private Partnership (PPP) scheme, and uses the Build-Operate-Transfer (BOT) model of Infrastructure delivery. The Concession is for 30 years, following which the assets will be transferred to the Lagos State Government.

“The Project, given its pioneering nature, had some underlying assumptions and market indicators upon which the transaction was concluded and which have since drastically changed in a manner that can no longer be sustained in its previous form. The initial Financial Model contemplated three (3) Toll Plazas. “This is the basis for the initial lending and repayment in the Model. Given the non-tolling of the Conservation Toll Plaza (around Chevron) and the complete cancellation of the third Toll Plaza (proposed to be located around the Lagos Business School), the financial sustainability of the project suffered a setback.

“Therefore, the State Government, after due consultation with all major stakeholders, entered into an Amicable Settlement Option with the shareholders of LCC with a view to bringing the project back on the path of long-term sustainability, acquired the full shares/equity of the previous owners, thereby assuming full ownership of LCC in December, 2014.

“This approach would particularly allow the Government to take full control over the determination of toll rates in order to continue to make them affordable,” Omotoso said.