The Bridge Between Truth and Lies

I got a call from my good friend last week. Before I could say hello, he started ranting about how his vote for Muhammadu Buhari was starting to make him look stupid. You see, my friend is Igbo, and his support for the APC and President Buhari was quite vocal. So, he was angry to get the dreaded “I told you so” phone call from his family and friends, because of one reason: THE SECOND NIGER BRIDGE.

News had filtered that the Federal Government had budgeted a very hefty sum of ZERO towards the completion of the bridge and that was enough to send the conspiracy theorists to town. So he asked me to share my thoughts on it here to be paid by buying me shots of cognac.

What is the Second Niger Bridge Project?

The Second Niger Bridge is a 44 km project expected to be completed in three phases: 1, 2A and 2B, including a southern bypass of both Asaba and Onitsha. According to this Environmental and Social Impact Report, The first phase of the Second Niger Bridge is a 6-lane dual carriageway bridge measuring 1.6km. It also includes an 11km long approach road with 3 river bridges and 3 interchanges on the approach road. Phase 2A is connected to the Asaba-Benin Expressway while Phase 2B is connected to the Onitsha-Enugu Expressway. These will be the feeder roads connecting the bridge to the major highways.

The project, being handled the JB-NMIC Consortium, a partnership between Julius Berger Nigeria PLC and the National Sovereign Investment Authority (NSIA), is expected to cost $700 million (at the time was N108 billion, using an exchange rate of N154:$1). This exchange rate assumption is very important, but more on that later.

The project, approved under the Design, Build, Operate and Transfer (DBOT) structure. For those not conversant with finance, DBOT is described as:

A structure that allows Government delegate to a private sector entity, the right to design and construct infrastructure; operate and maintain these facilities for a certain period; and eventually transfer the asset and operations to the Government at the end of the contract. During this period the private party has the responsibility to raise the finance for the project, retains the revenues generated by the project (either from government or from direct charges to consumers) and is the owner of the regarded facility. The facility will be transferred to the public administration at the end of the concession agreement.

Now, back to the project.

The consortium was meant to provide the funding for the project in exchange for a 25-year concession. This means Julius Berger, the private sector partner contributes N78 billion (72%), while the Federal Government contributes N30 billion (28%). According to this press release from the NSIA, the Federal Government has contributed N18.3 billion. However, only N10 billion has been disbursed, because disbursements are done when construction milestones are met. Again, this is another point to remember, we will need it later.

Why has the project stalled?

The Infrastructure Concession Regulatory Commission (ICRC) has to approve the Final Business Case (FBC) and Draft Concession Agreement (CA) for the project. Ideally, these should have been done before the groundbreaking ceremony held by the previous administration. Without closure on how the project will be financed, a groundbreaking ceremony makes no sense. It is like a man announcing the purchase of a new car when he is not sure if anyone can lend him the money to buy it.

This business case defines the cost of the project; the toll on the bridge and roads; and the duration of the concession. For example, if a road project costs N100m, and should earn revenues of N10m per year; it means after 10 years the developer will have recouped the initial investment, and can be allowed to manage the road for another 5 years to earn a profit of N50m. Now imagine if the same project costs N200m, earning the same revenues. It means the initial investment will not be recouped for 20 years, if the toll fees are not increased. This is why ICRC was asked to review the project costs, so the road user is not burdened with avoidable costs. But this is where the discussion gets tricky. The initial project cost was N108 billion, or $700m at a rate of N154:$1. Since then, the exchange rate has increased to N200:$1, with a chance of further devaluation next year. This means the concessionaire (the company raising money and executing the project) now needs to make more money to meet the repayment obligation to their financiers, who are mainly foreign and will want to be paid in foreign currency. This is why the exchange rate change is a major reason for reviewing the business case.

Once the business case and concession approval are approved by ICRC, both documents will be sent for the consideration and approval of the Federal Executive Council (FEC). After FEC approval, ICRC now presents a certificate to the concessionaire, providing the legal backing needed to raise funding. Until this is done, the project cannot close, which is a major reason the project has been delayed.

There’s also an important question to answer, why was the bridge not included in the 2016 budget?

Here, I must stress my answer is an educated guess at best. The NSIA press release I posted said earlier said:

The Federal Government has “released” N18.3 billion so far of which N10.4 billion has been disbursed on early construction works.

So, N18.3 billion left the government’s coffers, but only N10.4 billion has actually been spent. It means N7.9 billion has been set aside to continue the project. Based on the project milestones, the Government’s contribution this year will not exceed this amount, which explains why there is no provision in the 2016 budget.

The Government is guilty of not communicating enough, and since nature abhors a vacuum, the grapevine supplanted the state. The risk here is very clear, and as Arthur Conan Doyle wrote: “It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.”

There you have it.