Monday, 22 April 2013

How To Promote Private Sector Investments in Aviation

In this write up, NKEM OSUAGWU, highlights the fate of some concession agreements between the Federal Airports Authority of Nigeria (FAAN) and some concessionaires and why government should take steps to avoid the mistakes of the past in order to attract private sector investments in the industry.

When the government disclosed its plan to review some of the concession agreements between the Federal Airports Authority of Nigeria (FAAN) and some of its concessionaires, it was lauded by most industry stakeholders and critics. This is because some industry analysts had criticised some of the concession agreements because they lacked transparency and were in most cases drafted to favour the concessionaires to the detriment of FAAN and the public.

Nigerian Aviation Minister
Princess Stella Oduah
The Aviation Minister, Princess Stella Oduah had explained that there was no reason why such agreements should be left untouched. However, no one had imagined that the steps that would be taken by the government functionaries to terminate such agreements would also generate many controversies that would result into legal actions that might take years to resolve.

Analysts have described the chains of events following the termination of most concessions agreements as unfortunate, stressing that it will scare away the private sector from investing in the industry which needs investments in infrastructure among others.

For instance, several years after the concession agreement between FAAN and Bi-Courtney Aviation Services Limited (BASL) was signed which resulted in the construction of the Murtala Muhammed Airport Terminal (MMA2), Lagos, the agreement is still fraught with controversies as both parties to the agreement make counter claims on the true ownership of the General Aviation Terminal (GAT), Lagos, the number of years in which the project built on Build Operate and Transfer (BOT) will terminate. Most recently, there are now issues pertaining to the termination of the Conference Centre and Hotel being built by BASL at the domestic wing of the Lagos Airport.
Both FAAN and BASL have been joining issues over some aspects of the agreement virtually on a regular basis. Recently, FAAN alleged that BASL owes it N19.6 billion for services it rendered to the operators of the MMA2 Terminal since it started operations on September 8, 2007.

According to the General Manager, Corporate Communication of FAAN, Mr. Yakubu Dati, Bi-Courtney has rebuffed every attempt made by FAAN to recover the alleged debt, including debt reconciliation meetings between officials of the two organisations. However, BASL Spokesman, Steve Omolale-Ajulo alleged that FAAN actually owed Bi-Courtney N132 billion being the revenue generated at the General Aviation Terminal (GAT), since 2007.

In his words, “For the avoidance of doubt, we are not in any way indebted to FAAN. On the contrary, FAAN is indebted to us. The Federal Government and its agencies, including FAAN, owe BASL over N132 billion in judgement debt. Our position has been confirmed by the Arbitrary proceedings and also court judgements”.

Another issue that has generated much attention recently is the termination of BASL’s lease agreements for the construction of a Conference Centre and Hotel at the Local wing of the Lagos Airport by FAAN.

In a statement made available to journalists on the issue, Dati said, “Bi-Courtney forcefully and illegally acquired part of the premises belonging to the FAAN School located at Murtala Muhammed Airport to construct the Conference Centre, despite loud protests by the pupils and parents of the school. It was these protests that stopped the company from acquiring the entire premises of the school, which Bi-Courtney had planned to take to another location in Lagos.”

He also said the authority had in two separate letters, dated April 19, 2012, informed Bi-Courtney that the leases granted it in respect of the two projects had been terminated as a result of breaches committed by the company in the agreements it signed with FAAN.

He said BASL should have completed both projects in 2008 but FAAN extended the construction period to July, 2009 but Bi-Courtney still failed to complete the two projects at the expiration of the extended period. By that termination order, the demised premises, in respect of the two projects, have reverted to FAAN automatically, in line with the terms of the agreements.

But Omolale-Ajulo said, “So, for FAAN to say it has terminated the projects and taken possession of the land is laughable and a clear disobedience of subsisting court orders. Nigerians should please ignore them, as they are not saying anything new”.

Other Concession Agreements.
The airport authority is also having issues with other concessionaires including AIC Nigeria Ltd over the lease agreement granted the company to construct a five star hotel on a parcel of land located at the international wing of the Murtala Muhammed International Airport, Lagos.

According to AIC’s Managing Director, Chief Niyi Akande, FAAN had reneged on the agreement over the concession of a portion of land located at the international wing of the airport in Lagos where AIC plans to develop a $1 billion hotel project and recreation centre. The lease agreement which was signed in 1998 became an issue of arbitration.

According to Akande, “In 1998 when we were given the lease, the hotel would have been built for $55 million, but now, if you look at the increases in prices, inflation has set in.

“If they had allowed us, the hotel would have been ready in 2001; we would have been making money and they would have been earning money also. The last calculation we made when we went to the court of arbitration, the cost was in the region of $220 million, so we are asking for the difference between $55 million and $203 million.”

However, FAAN believed that the amount awarded as compensation to ACI was rather outrageous and is challenging it in court.

According to FAAN’s Director of Legal Services, Mr Mark Jacob the agreement was wrongly executed by some officials of FAAN and those who are currently in position had to do the right thing for Nigerians.

His words: “Well, mistakes can happen and decisions can be taken in error, it is human. In fact it may not even be in error, it could be deliberate, but then it behooves on us who are in charge today to make things right. That somebody did it wrongly does not make it right. It is really proper and correct to correct the situation.

He further admitted that the officials who signed the contract did not take issues like the security of the airport as well as its expansion into cognizance before signing the lease agreement.

He further said AIC was given a lease in 1998. But in 2001 FAAN cancelled it because of several implications, including the fact that the land in question “is near the taxiway; very close to the area where aircraft land and take off’. He said the issue went through arbitration and damages were awarded against FAAN.

“We have appealed against that award. Not the entire decision, we are just saying that the amount given was too high. That is why we appealed against the award otherwise we would have just paid him off if it is of a reasonable calculation of compensation”.

Speaking on the issue of AIC effort to build on the site despite the fact that the issue is still in court, he said, “We are pursuing it at different levels and very soon Nigerians will see that you don’t take advantage of situations like this to show how powerful you are. You can’t do it not with land that belongs to the federal government.”

Other concession agreements that have become issues of litigation include the termination of the concession agreement granted Maevis to manage the automated revenue system at the Murtala Muhammed International Airport (MMIA). The company was accused of withholding funds meant for the airport authority. Though it denied the allegations, however, FAAN booted it out of its operational base at the airport without recourse to legal action. Maevis is in court to seek legal redress.

Impact on the industry
As events unfold with regards to the concession agreements, coupled with the controversies they have generated, there is rising concern among stakeholders that events such as these might hamper the growth of the industry. This fear is based on the issue that the industry especially FAAN might find it difficult to attract future private sector investments in the industry following the inability to obey contract terms as well as terminate them amicably.

According to Akande, it is important for the federal government to prevail on civil servants to respect all contract agreements they entered into with the private sector, to encourage investments and to encourage Public Private Partnership (PPP) in the interest of the transformation agenda of the Federal Government. He said FAAN is in a position to generate a lot of money if it will encourage firms that are willing to invest at the airports instead of frustrating such investments.

Also, Captain Dele Ore, aviation lawyer and President of the Aviation Round Table (ART), speaking to journalists at an event said investors are afraid to invest in the country because of the government’s inability to be consistent with its policies.

His words, “How many people are really investing in Nigeria, may be one or two people are coming to recycle the money they have stolen from Nigeria. Genuine investors have been driven out of this country. They have been told that we are not serious, they have been told that we are difficult partners, they have been told that we are not trust worthy, they have been told that we cannot be held liable and they have been told that we don’t keep to the terms of agreements”.

As government continues in its quest to attract investments into the aviation industry especially in line with its transformation agenda, stakeholders have stressed the need for the consistency in implementing government policies. They have said there is need for transparency in the signing of concession agreements to avoid unnecessary controversies even as some have urged for the formulation of a legal framework that will guide private sector investments in the industry.

According to Chris Aligbe, former image maker for liquidated Nigeria Airways, “The time has come for us to put in place a sector specific policy for the aviation industry. The major problem that we have today is that there is no document in which all actions, all policies in the aviation industry are based”.

Thus it is now in the hands of those in authority to learn from the mistakes of the past and work towards policies that are more enduring to enhance the growth of the industry.

Source: Leadership

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