Nkem Osuagwu, in this write up takes a look at some of the concession agreements in the aviation industry that have generated so much controversy and why government should take steps to rectify all the grey areas so that they could contribute positively to the development of the industry.
Recently, the federal government through the Minister of Aviation, Mrs. Stella Oduah, announced plans to review all concession agreements in the aviation industry.
This is coming in the wake of controversies which some of the aviation concession agreements have generated coupled with the inability of some of them to yield the expected dividend for the industry.
Oduah while making the announcement, explained that because some of the “Concessions and Lease Agreements have failed to yield the expected dividends to the government and people of Nigeria there is no reason why they should be left untouched.”
How they came about
Basically, “concession agreements are commonly used to implement public-private partnership projects in the infrastructure sector, and have been used successfully in some economies to implement projects at airports and sea ports; roads, highways and bridges; railroads; power and water production projects; waste water and sewage projects among others.”
The issue of concessions became necessary in the aviation industry due to the dilapidating state of aviation infrastructure and the inability of the federal government to adequately fund the repairs of some of the infrastructure, like dilapidating terminal buildings and others. So there was the need to bring in the private sector to invest in some of the projects where government could not adequately finance and also make them profitable. It was for these reasons that the federal government decided to go into this kind of agreement in order to upgrade some of the decaying aviation infrastructure as well as make some projects that were not yielding the desired revenue to government more viable and profit oriented. Another reason for signing some of the concession agreements was to ensure that some of the projects which government had considered to be drain pipes become more productive and generate revenue for the industry
Issues regarding concession agreements
However, while some of the concession agreements look good in principle, practically, some of them have not been able to yield positive result especially for the Federal Airports Authority of Nigeria (FAAN) which happens to be the landlord at the airports. This is because some of these agreements came into effect without being transparent enough and successive administrations have come to realise that some aspects of the agreements are disagreeable to them.
Some industry analysts have said that these issues arise because government in signing some of the agreements did not take into consideration what Concession agreements entail. According to them, “Concession Agreement is a right granted by a government to a corporation. It specifies rules under which the company can operate. It allows the operator to keep the profits it generates by building and managing the project, in exchange for paying concession fees to the government. This compensation structure enables the concession holder to develop, operate and maintain the project efficiently.”
Also, in the concession agreement, the government transfers to the private concession holder certain rights relating to the project for a defined period of time, for example the right to operate an airport for a period of 10 years, while the government, retains ownership of the project and provides administrative support to the concession. Under concession agreements, the concession holder is allowed to keep the profits it generates from the use and operation of the concession project, while it pays a concession fee to the government.
While some countries have made considerable progress in the use of concession agreements to enhance their economies, in the aviation industry, most of the concession agreements have suffered major setbacks even as they have been fraught with controversies. This is because the individuals who represent the government in the signing of the concession agreements do not consider the interest of the government and they make unnecessary concessions that eventually backfire.
That is why some industry analysts have said that a legal framework is required if concessions agreements are to become successful as it has been in other economies.
The Managing Director of Belujane Konzult, Mr Chris Aligbe, speaking on the backdrop of the plans by the federal government to review some of the aviation concessions, said a regulatory framework would take care of some of the controversies regarding concessions agreements as well as make them successful. Aligbe, who was the Public Affairs Manager of the liquidated Nigerian Airway further said the industry lacked a defined policy that should direct every action in the industry.
His words, “What is the sector policy in aviation? The time has come for us to put in place a sector specific policy for the aviation industry and it is not just the ministry because when we say this, we think it is only the ministry, no, where is the legislature? 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 on.
Though Oduah did not mention the concession agreement and the leases that the ministry plans to review, some of the major concession agreements in the aviation industry that have controversies trailing them include the concession agreements between the Federal Airports Authority of Nigeria (FAAN) and Bi-Courtney Aviation Services Limited (BASL) on the construction of the MMA2 Terminal building and the concession agreement between FAAN and Maevis Services Limited, in which the later had invested in Airport Operations Management System (AOMS) that assist the airport operator capture the level of indebtedness of airlines that operate flights to Nigeria. Maevis monitors the revenues that accrue to FAAN, collects them and remits it to the coffers of FAAN and keeps what is due to it. Other concessions include the collection of toll fee by ICube , lease agreement on some properties among others.
The Concession Agreement between FAAN and BASL had in 2009 resulted in a face off between FAAN, BASL and aviation unions over the ownership of the General Aviation Terminal (GAT). While Bi-Courtney claimed ownership of the terminal based on the agreement it signed with the federal government to build the MMA2 on a Build Operate and Transfer (BOT) basis, however, FAAN said there was no such agreement and still retains the GAT from which Arik Air operates it domestic flights. This is despite a section of the the agreement that states that all domestic operations must be moved from the new terminal. There were also issues regarding the building of the hotel at the place formerly designated as the car park, the takeover of some portions of FAAN school premises by BASL to build the conference centre and the number of years that BASL was supposed to manage the project before handing it over to FAAN. These issues have remained unresolved.
However, BASL spokesman, Mr. Chukwudi Ofomata, when asked to comment on whether his company has resolved these issues with FAAN and his view about the minister’s plan to review some of the concessions, said his company has no problems with FAAN.
Also, the concession agreement between FAAN and Maevis also had issues of remittance and non-remittance of funds to FAAN by Maevis.
In the past, there were allegations that Maevis Nigeria Limited was indebted to FAAN to the tune of N17 billion for non-remittance of funds from airlines for services rendered by FAAN.
But the company said, “We are not owing FAAN N17 billion because customers pay the money through Zenith and Skye Banks and it will not be possible for us to owe such amount, our performance has always been between ninety and one hundred per cent at these airports”,
However, some industry analysts have criticised this agreement because they said it was wrong for the company to keep more than 70 per cent of what it collects for FAAN because it played no role in encouraging the airlines to start flight operations to Nigeria. Another issue has to do with the fact that the company collects revenue in foreign currency while it allegedly pays FAAN with the exchange rate of about four years ago.
Unfortunately, Managing Director of Maevis, Dr. Nick Fagbemi, did not pick the calls by this reporter to get the company’s response on the issues raised over the concession agreement with FAAN.
Speaking on the issue of debts owed FAAN by some concessionaires, Chairman, Senate Committee on Aviation, Anyim Ude, said in the course of investigation, “we discovered that one issue clearly related to this incident is the huge debt owed FAAN by several public and private agencies as well as concessionaires”.
The debt burden he said has virtually crippled FAAN as a service provider. He said FAAN was unable to adequately provide services and rehabilitate the infrastructural facilities at the nation’s airports, including Murtala Muhammed International Airport which was built more than thirty years ago.
No industry survives without funds and managerial skill from the private sector. That is why according to Oduah these Concession Agreements are entered into by agencies of government because they lack capacity to deliver on their mandates, adding that such agreements are aimed at not only redressing the deficit, but more so to enable government make returns on its investments.