Risk Management in Transport PPP Projects
In the Islamic Countries
78
The concession was awarded by the Lagos State Government (LSG) to the Lekki Concession
Company Ltd (LCC). After the completion the first 6km Expressway segment in 2011,
collecting tolls on a previously untolled road section, even after standard and capacity
improvements, has proved contentious, also because long queues formed at the tolling gates.
This public hostility was exacerbated when LCC requested to increase toll levels on one toll plaza
and start collecting tolls at a second one and considering this necessary in order to fulfil its
obligations related to the construction of Phase 2 of the project. In addition, because of
devaluation and rising interest rates there was a significant increase in construction costs.
Thus, eventually the state government felt compelled to buy back the concession and since August
2013 LCC is fully owned by LSG. The intention is that LCC will continue to operate the Expressway
on a commercial basis and complete the construction as planned by raising additional funds,
possibly through a direct bond issue.
The indications from this case are mixed. The concession buyback was not expected and LCC is
now fully in the public domain. However, the fact that it reached financial close in 2008 in the
context of the financial crisis and in a still uncertain legislative framework on PPPs can be
considered an achievement. It could be argued that substantial institutional learning took place,
which can be a positive outcome for the future infrastructure investment in the Lagos state, while
the project continues to be in operation and to deliver positive impacts on traffic congestion.
One of the main transmission channels of the revenue risk takes place through the payment
mechanism to remunerate the private concessionaire. As also shown by the history of Lekki–
Epe Expressway, the ability and willingness to pay of users are critical in determining the
balance between operational costs and revenues in cases where the payment mechanism is
based on user charges. Where other mechanisms are foreseen, such as the case of shadow tolls
or availability fees in road concessions, the emphasis of risk factors will move away from
willingness to pay to general traffic development trends or (in the case of availability charges)
the ability of the concessionaire to maintain the asset’s ability to carry traffic in line with
stipulated technical standards at the expected cost.
The following Box presents the successful case of the Venizelos Athens Airport, where the Joint
Venture approach has created an alignment of incentives between the private and the public
parties. This has probably helped to overcome difficult market conditions during the recession
and reduce the risk of litigation and potential service disruption.