Chronic disrespect for sanctity of contracts: An impediment to infrastructural development in Nigeria

The National Economic Council, Nigeria’s highest economic decision making body, rose from its meeting on September 22, 2016, with a battle plan to salvage the dwindling economic fortunes of the erstwhile biggest economy in Africa. Key among the resolutions reached were the sale of government assets and the adoption of infrastructure concession to tackle the country’s huge infrastructure deficit. The 8th National Assembly (led by Senate President, Dr. Abubakar Bukola Saraki and Speaker, the Honourable Yakubu Dogara) also appears to have keyed into the infrastructure concession crusade as demonstrated by the 2017 budget in which they slashed allocations proposed for certain key infrastructure and yet same was signed into law by the Ag. President, Prof Yemi Osinbajo, SAN ostensibly to the chagrin of the Honourable Minister for Power, Works and Housing Babatunde Fashola, SAN.While this writer has absolutely nothing against infrastructure concessions or public-private partnerships [PPP] in general, and in fact believes that private sector participation in infrastructure development is not only desirable but essential, the major concern whether the Government and its officials have learnt from the ills that plagued previous infrastructure concessions in Nigeria. As demonstrated below, a lack of respect for contracts by the government remains a significant factor militating against infrastructural development in Nigeria.

Major infrastructure across all sectors of the Nigerian economy require urgent attention. The African Development Bank estimates Nigeria’s core stock of infrastructure at only 20-25% of GDP, compared with 70% for similar middle-income countries, leaving an infrastructure deficit of $300bn. The Nigerian Infrastructure Concession and Regulatory Commission, statutorily empowered to regulate infrastructure concessions in Nigeria, has also been quoted as saying that approximately $16billion is required annually to bridge the country’s infrastructure gap. The situation was exacerbated last year at the peak of the recession occasioned by the factors of the fall in global oil prices, renewed militancy in the Niger Delta area and the foreign exchange rate crisis.

Sadly, the reality is that, rather than create the enabling environment for private sector contribution to infrastructure development, Nigerian governments, across all tiers, routinely breach contracts with relative impunity and despite paying a little more than lip service to the ease of doing business drive, their characteristic disregard for binding agreements, ultimately undermines their investment drive. Heart wrenching examples abound of unconscionable treatments meted out to investors by successive governments.

The concession for the Murtala Mohammed Airport, Domestic Terminal II, Lagos (“MMA2”) which is the poster child for public-private partnerships in the West African Sub-Region illustrates this point. The terminal was rebuilt by a private investor after the old terminal was razed by fire. Virtually everyone in the industry knows that but for the resilience and doggedness of the concessionaire, the project would have been strangulated by wanton contractual breaches and disobedience of court judgments by the Federal Government and/or its agencies. Ironically, the government recently launched efforts to concession four additional terminals on the success of the MMA2 concession.

The MMA 2 concession success story was not replicated in the concession for the reconstruction of the Lagos-Ibadan Expressway, the busiest and most economically strategic federal highway in Nigeria. After protracted discussions on the project’s design [and execution of a binding contract], the government terminated the contract under circumstances that reeked of malice, without any regard to the investor’s potential liabilities especially to financial institutions and sub-contractors.

The arbitrary cancellation of infrastructure concession agreements and the persecution of concessionaires in Nigeria is not a recent phenomenon but is as old the quest for public-private partnerships. While their business models cannot be described as PPP strictly so called, the foundation for PPP in Nigeria was laid by the likes of Chief Adeyemi Lawson with Agbara Estate, Chief Adebayo Adeleke with Lagoon Foreshore and Chief Emmanuel Oyedele Ashamu with Igbeti Marble. Today, the liquefied natural gas project in Nigeria – undoubtedly the most successful infrastructure project in Nigeria – is threatened by government’s anticipatory breach of its assurances to investors.

We have also seen PPP initiatives adopted by the Lagos State Government regarding two highways in Lagos (i.e. Lekki Corridor- Lekki/Epe Road and Lekki/Osborne/Bourdillon Road with the Link Bridge). The jury is still out on the success or otherwise of these.

There is also the curious case of the concession agreement entered into between Afriland Properties PLC and the Lagos State Development and Property Corporation (LSDPC), acting on behalf of the Lagos State Government under the Fashola administration, for the redesign and redevelopment of the iconic Falomo Shopping Centre in Lagos on a Build, Operate and Transfer (BOT) basis. This agreement was terminated as soon as a new sheriff came into town with the pretext that “the concession terms were grossly detrimental to Lagos State and its residents,” and that the company only paid the sum of N50 million for a 50-year lease of the government-owned land, allegations hotly disputed by the concessionaire.

As these illustrations indicate, binding agreements can be revoked in Nigeria by public office holders for reasons ranging from the need to settle political scores to reasons as trifling as simply not liking the face of the private sector participant. The view has even been expressed that government officials take advantage of the country’s notoriously slow paced justice system to breach contracts and pass on the liability to their successors.

To restore investors’ confidence and make infrastructure concession a success in Nigeria, there is need for an urgent but holistic reorganization of the Infrastructure Concession and Regulatory Commission to enable it properly carry out its responsibilities. This can only be achieved through law reform and falls squarely within the purview of the National Assembly Business Round-Table. There is also the need for continuing reform of the dispute resolution machinery and the overall justice delivery system in Nigeria especially for commercial disputes. The Nigerian government is overdue a punitive award for contract breaches to deter present and future governments from such impunity and to hold them accountable for assurances and guarantees made to investors. This again raises the need for an efficient, corrupt-free and independent judiciary. It is only after these and more have been tackled, that the National Economic Council, can make progress with their plan to restore Nigeria to the foremost economy in Africa.

Orji is an associate with one of Nigeria’s foremost commercial law firms. He is also the assistant secretary of the Nigerian Bar Association’s Section of Business Law Committee on Travel, Tourism and Hospitality, and a director of the Lagos Court of Arbitration – Young Arbitrators Network.