Project Financing: Tackling road deficit via strategic partnership

Federal Government’s adoption of Public Private Partnership (PPP) model for the construction and rehabilitation of federal roads will lead to closing the deficit gap. Abdulwahab Isa reports

The Federal Hovernment is confronted with huge infrastructure deficit across key sectors of the economy. They include power, housing, health and roads. To overcome the deficit in each sector, it evolved various options for infrastructure financing. By applying for loans or credit facilities and offering bonds and concessions, the government is able to close the widening gap in key sectors of the economy.

For instance, realising that huge amount of capital is required to keep Nigeria’s roads in a suitable condition and given that the fund required is far-fetched, the government adopts concessioning as the best alternative funding model for road construction and rehabilitation. Going for concessioning as an option, the government is now able to fix Nigeria’s roads, especially the highways. This option, concessions or publicprivate partnerships for projects, frees the government from scarce resources.

Limited funds

Inadequate fund hampers government’s bid to spearhead much of road construction in Nigeria. Lack of funds is the reason government is unable to rehabilitate some existing roads that are in bad shape, and construction of new ones in the country. To address the challenge in the face of government’s persistent claims of paucity of funds, the idea of concession and tolls were mooted over the years. Two years ago, the Minister of Works and Housing Mr. Babatunde Raji Fashola, said the country would be requiring N1.3 trillion to fix its roads in 2022. In addition, the Minister at that time said Federal Government owed certified contractors N420 billion for road construction. He confirmed the figures when he appeared before the House of Representatives Committee on Works to defend the allocation to the ministry in the 2022 budget. The allocation to the ministry in 2022 budget was N450 billion out of which N282.6 billion was proposed for the execution of roads. The allocation to the ministry was slashed to N356 billion in 2023 fiscal budget.

Concession model

Faced with paucity of funds, the Federal Government adopted concessioning of some roads for rehabilitation via PPP. The model is equally used for outright construction of roads. This option is in line with the objective to attract private sector technical expertise, managerial capacity and financial resources to improve the quantity and quality of road assets in Nigeria.

With the PPP model, government’s concession agency, Infrastructure Concession and Regulatory Commission (ICRC), has taken some roads burden off government’s shoulder. Sometimes in 2021, the government started PPP with 12 pilot road corridors earmarked for concession through the Value-Added Concession programme under the Highway Development and Management Initiative (HDMI) Project Life Cycle. The 12 corridors under the first phase of the Highway Development and Management Initiative included, Benin – Asaba, Abuja – Lokoja, Onitsha – Aba – Owerri, Shagamu -Benin, Abuja -Keffi – Akwanga, Kano – Maiduguri, Kano- Katsina, Lokoja – Benin, Enugu-Port Harcourt, Ilorin- Jebba, Lagos-Abeokuta, and Lagos-Badagry. Fashola described evolution of Highway. Development and Management Initiative HDMI as beginning of new dawn in road construction in Nigeria. He described HDMI as a fully home-grown idea that will deliver a safer and enjoyable travel experience for Nigerian road users as travel time would be shortened, cost reduced and commercial activities stimulated.

FEC’s endorsement

From initial 12 pilot road projects under the Highway Development and Management Initiative (HDMI), scope of roads to be covered under HDMI has been widened by additional 9. The Federal Executive Council (FEC) at one of its sessions in January 2023 approved the rehabilitation and construction of 1,374km roads across 9 corridors under the regulatory guidance of the Infrastructure Concession Regulatory Commission (ICRC). The projects to be carried out via Public Private Partnership Model will generate over N11.54 trillion in the 25 years concession period. The HDMI arrangement is being spearheaded by ICRC.

According to concessioning agency, “the projects aim to ensure the management and development of the Nigerian federal road network with the ultimate aim of achieving adequate highway services across the entire network through construction, rehabilitation and management of the road pavement in line with the Federal Government economic reform agenda and global best practices. “The aim of the partnership is to develop and manage the federal road network, thereby supplementing the federal government’s budgetary allocation for infrastructural development.” Some of the routes approved by FEC for the 1,374km roads include, Benin-Asaba (Route 1), a 125 km road concessioned for a 25 year period. It is expected to generate N1.58 trillion within the period.

The concessionaire is Africa Plus Consortium. Route 2 is the 195km Abuja- Lokoja road with 25- year concession period expected to generate N1.76 trillion. The concessionaire is Avia Infrastructure Services Limited (AISL).There is 161.2km Onitsha- Owerri -Aba route- the 4th route to generate N706 billion in the 25-year concession. The investor is Eyimba Economic City Consortium. Route 5 is the Shagamu – Benin 258km road, concession period remains 25 years, with AFC/Mota Engil Consortium as the concessionaire. It’s expected to generate N2 trillion. The Abuja-Keffi-Akwanga 175.9km road is the Route 6 with 25 year concession approval and expected revenue of N540 billion.

The concessionaire is China Harbour Engineering CompanyLtd (CHEC). The Kano-Shuari 100km road is the first of two routes on this road corridor and is tagged as Route 7A. The concession period for this route is however 27 Years and Dafac Consortium as the concessionaire and targeted revenue of N813 billion. However, second route (7B) on similar corridor is said to be undergoing the PPP process. Route 9 is the Enugu – Port Harcourt 200km road with 25 year concession term expected revenue is N1.15 trillion. The concessionaire is Eyimba Economic City Consortium. Route 11 is the 80km Lagos-Ota- Abeokuta road to generate N1.57 trillion in 25-year concession period. The concessionaire is Africa Plus Consortium. The 12th route approved by FEC is Lagos-Badagry-Seme Border, a 79km route with a 25-year concession to AFC/Mota Engil Consortium and expected revenue sum of N1.35 trillion.

Negotiations on Route 3 which runs through Kano-Katsina and Route 7B: Kano-Maiduguri (Potiskum – Damaturu Axis) are still ongoing. In the same vein, two other corridors: Route 8, Lokoja-Benin and Route 10, Illorin- Jebba will be re-advertised in the second phase of the HDMI Project procurement process. With the approvals, a total revenue generation of N11. 5 trillion is targeted. Economic benefits of road concessioning: As things stand today, Nigeria relies mostly on road transportation to move goods and passengers from one point to another. This is so because road transportation remains most common and affordable by vast majority of Nigerians.

No doubt, the introduction of private investors in road construction and rehabilitation will lead to an upgrade in infrastructure, injection of private finance, more cost-efficient design, construction and operation of road schemes, innovation and efficiency; there are also concerns about government interference in the projects. The supervision of Highway Development and Management Initiative (HDMI) Projects is under the regulatory guidance of the Infrastructure Concession Regulatory Commission (ICRC). The agency said the adoption of model adds a lot of advantages to the economy.

Evaluating some of its benefits, ICRC Director-General, Mr. Mike Ohiani, listed some benefits of PPPs for road construction and rehabilitation. He said concessioning the roads, with private sector playing key role was the best way to go. “Generally, the private sectors are more efficient at managing assets and providing services, therefore the overall benefit is that Nigerians will enjoy a well maintained and safe road on all the routes concessioned which are major highways that tranverse most parts of the country.

“The overall benefit is that Nigerians will enjoy a well maintained and safe road on all the routes concessioned which are major highways that traverse most parts of the country. “The roads will enjoy private sector investment flow towards re-habilitation of both existing bad or already dilapidated ones.

There is assurance that the roads after construction or reconstruction will be well maintained to ensure a smooth ride according strict performance standards set-out in the concession agreement,” ICRC DG said. In addition, he said there would be more than a 100,000 direct and indirect jobs created during the construction and operation phases of the concession while government earns a percentage of revenue generated from the concession. “The concessionaires are Nigerian companies hence tax is generated from the company by the federal government as well as from the employees by the state government. Commuters will enjoy cost savings as traffic will be reduced on the routes and cost of vehicle repairs will be minimised,” he said.

Last line

Adopting Highway Development and Management Initiative (HDMI) under regulatory guidance of the ICRC for rehabilitating existing roads and construction of new ones is modest and a much better approach to fixing Nigeria’s roads deficit.