In 2015 the federal government announced its intention to grant concessions for Nigeria's four major airports. In light of Nigeria's existing economic climate, many experts and stakeholders in the aviation industry have backed this resolution. However, there has also been strong opposition from the various staff union groups involved in the aviation industry, which fear that concessioning the airports will lead to significant job losses.
What is a concession?
'Concessions' are a type of public private partnership (PPP) that differ from other PPP models in how they operate. In a concession, ultimate ownership of the asset or infrastructure remains with the government, while part of the commercial risk of providing and operating the asset or infrastructure is transferred to a private concessionaire.
The granting of concession agreements for Nigeria's major airports is necessary due to their condition and the slowing economy. Following the drop in oil prices, the government's revenue has substantially decreased. This has led to a decline in most sectors and, ultimately, a recession. Therefore, the government needs private sector participation and resources to improve the country's economy.
The aviation sector is important for minimising the economy's oil dependence as it opens the economy up to foreign participation. Further, the performance of other sectors – such as tourism and agriculture – depends on the aviation sector.
The granting of concession agreements for Nigeria's major airports will:
- aid the development of world-class airports with efficient service delivery;
- eliminate the issues of accountability and political interference that are usually associated with government-controlled infrastructure;
- aid the government in prioritising scarce resources that could be utilised in other areas of the economy; and
- enhance expertise and further the development of new technologies, as private sector participants have higher levels of expertise and access to newer technologies that aid the smooth running of airports. Further, on a concession period's expiration, such technology will continue to be used at the airports.
In September 2016 Minister of State for Aviation Hadi Sirika inaugurated the Project Steering Committee and the Project Delivery Committee to provide general direction and steer the course of the concession project. However, before this process begins, experts and stakeholders in the aviation industry have impressed on the government certain issues that must be addressed, including the need for:
- an adequate legislative framework – experts and stakeholders have advocated for sound legislation authorising and guiding the concession process;
- transparency, corporate governance and adherence to legal agreements – the government and public sector should endeavour to deal with their private sector counterparts in a fair manner. A lack of adherence to the principles of fair dealing and transparency will not inspire investor confidence; and
- a project finance model – the most likely model is the build-operate-transfer model, which involves the public sector or government granting a private company the right to develop and operate a facility for a certain period (ie, the concession period). The private company will finance, build and operate the facility for the concession period, after which, control and management of the facility will be transferred to the government.
Nigeria's aviation sector is suffering from a significant infrastructure deficit compared with other African countries. Being such an important sector for the economy, it is imperative that this deficit be reduced as much and as soon as possible. Given today's economic climate, concession is the most effective and reliable way of addressing this issue. The federal government and the Infrastructure Concession Regulatory Commission (ICRC) are responsible for ensuring that concession agreements achieve the required effect for the sector and economy in general. The ICRC should endeavour to engage all relevant stakeholders in its decision-making process.
For further information on this topic please contact Oshokha Michael Momoh at George Etomi & Partners by telephone (+234 1 462 1660) or email ([email protected]). The George Etomi & Partners website can be accessed at www.geplaw.com.
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