FAAN’s Continuous Battle over Concession

01 Feb 2013

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MD, FAAN, Mr. George Uriesi


Another concession disagreement has erupted between the Federal Airports Authority of Nigeria (FAAN) and private investors. Chinedu Eze examines why controversy trails the agency’s attempts at Public, Private Partnerships (PPP).
The disposition of the Federal Government and its agencies at the aviation industry to PPP can be described as undulating. Today, a Minister of Aviation would laud the system, describing it as the only solution to the infrastructural decay in the sector. Tomorrow, a House Committee Chairman on Aviation would say, we don’t want to replace government monopoly with private monopoly; that will be dangerous for the industry and the nation’s economy.

And the monotone goes on. But it is this contradiction that also defined the paradox of concession agreements that have taken place in the aviation sector. Government was unable to adopt a consistent policy on PPP before it embarked on the programme and that explained why it did not have legal and administrative framework, the nature and colour of PPP and its possible limitations. And that also explained why all the initial efforts failed woefully.

Working at Cross Purposes
An expose on the latest controversy on concession agreement between AIC Limited and the FAAN will bring to the fore the reason why PPP has so far failed in the aviation sector.
From previous experiments, it has been established beyond not having a legal platform, that government agencies work at cross purposes; like the proverbial Albatross, which plagues anyone that killed it, the Ministry of Aviation or the Presidency executes a concession agreement only to realise later, after all factors have been considered, that such concession was wrongly done.

In 1998 the Federal Government leased out a portion of land at the Murtala Muhammed International Airport, Lagos for 50 years to AIC Limited, a company owned by Chief Harry Akande. The company wanted to use the place to build hospitality facility. But in 2000 when the company wanted to build a hotel, FAAN management stopped them, positing that the company should not build on that portion of land.

The land is a large expanse of space starting from the ‘E’ Wing of the international terminal of the airport and terminating at the Nigeria Aviation Handling PLC (NAHCO) facility at the area called cargo shed.
It lies about 50 meters to the terminal and also about 50 meters to the Runway 18R and taxiway to the cargo terminal. Its proximity to these critical security conscious facilities could be described by politicians as too close to call.

About three weeks ago it was made public that FAAN and AIC Limited are fighting over this land and that is after the two parties had gone to the Federal High Court and Arbitration.

Chief Harry Akande explained that AIC Limited got a bid from FAAN on February 17, 1998 to build an AIC Hilton Hotel in a concession agreement billed to last for 50 years, but added that FAAN came all of a sudden to disrupt the project while the construction work of the hotel was in progress, an action that was against the initial agreement entered into by both parties.

The Legal Tussle
He said that since then both parties had gone to the Federal High Court which ruled in favour of AIC Limited restraining FAAN from taking over the landed property, adding that in the Arbitration headed by Justice Kayode Eso, also awarded a fine to FAAN to pay AIC Limited $46 million for loss of profit and income that AIC had suffered for the hotel that should have been built and opened ten years ago.

In his reaction to the incident, the General Manager, Corporate Communication of FAAN, Yakubu Dati, said that every land at the airport belongs to the agency and to the people of the Federal Republic of Nigeria and is meant to serve public interest and not the interest of few highly placed people.

In a statement Dati said, “We wish to state in unequivocal terms that the parcel of land in question which is situated beside the international airport belongs to the authority and not to any concessionaire as claimed.”

Dati explained that about a decade ago, a concessionaire had requested for land for the development of a hotel and such was granted.
“However the transaction was subsequently enmeshed in controversy which resulted in arbitration.

The arbitrator awarded damages to the said concessionaire while the land remained FAAN property.
The concessionaire cannot therefore exercise legal right over the land but can pursue their interest i.e. monetary compensation as contained in the arbitral award.”

He reiterated that the Lagos airport premises and land situated therein are sole property of the Federal Republic of Nigeria, and by their location are of security significance.

“The on-going development around the airport environment is for the general benefit of all and therefore overrides any personal or group interest.”

A week after the initial move to take over the land by AIC Limited the company brought some officials to clear the land and they were allegedly stopped by the aviation Security officials of FAAN, a confrontation that was said to have ended in fisticuffs. When the company was accused of fighting FAAN officials, its spokesman, Yomi Badejo-Okusanya, in a telephone interview with THISDAY dismissed FAAN’s allegation and said the allegation came out of the figment of the agency’s imagination, adding that no company could bring thugs to an airport like the one in Lagos where menacing security operatives hold sway.

Badejo-Okusanya insisted AIC was on its property of land and FAAN brought police and Aviation Security officials to disrupt the workers’ activities.

“They want to continue to work on the project and they have lawful possession of the property. The court and arbitration have ruled that the land belongs to them so they can use the land. The agreement of concession of the property is subsisting so FAAN has no right to lay claim on the land. FAAN has to recognise that the land belongs to AIC and if it wants to use the space for car park there is a procedure,” he stated.

But Dati told newsmen thatt the company came to the plot of land to forcefully start work on it and when FAAN officials wanted to stop them, they allegedly beat up the agency’s officials, including the Director of Security.

“We wish to inform the public that, contrary to claims by AIC, the company has no court order, authorising it to take possession of any portion of land at MMA because there was no dispute over land between FAAN and AIC Ltd. The case between the parties went into Arbitration, which concluded that FAAN should pay a compensation of $46 million to AIC for depriving it of 14 years revenue as implied in the concession agreement. FAAN has however, appealed against the judgment of that arbitration and the case is yet to be determined,” Dati stated.


THISDAY spoke with FAAN’s Director of Legal Services, Mark Jacobs, who agreed that the land was concessioned in 1998.
“It was a properly drawn concession agreement, but by the year 2000 it was set aside. FAAN decided to stop it; to terminate the concession, on good grounds.”

Jacobs said that the reason why it was terminated was because of “the transfer of the land to a third party for the purpose of building a hotel. He said that such facility could not be built at that portion of land because it would be counter to the entire airport master plan.

“It was going to infract on the master plan of the airport and in very simple terms, it was going to prevent any future expansion of the international wing of the airport.”

He also said that the project was going to have a serious security implication if hotel was situated there, “just overlooking the runway and the taxiway. So on those two grounds, infraction of the master plan and security, FAAN decided to terminal the concession agreement.”

He acknowledged the decision to take the case to Arbitration and differed from the position of AIC Limited by clarifying that compensation was given to the company for the forfeiture of the land but Badejo-Okusanya and Akande argued that in addition to the compensation, the company was also given the land, saying that the compensation was for the money the company would have made if it operated the facility for the 10 years it was stopped from taking off.

“We went to arbitration. Luckily, in any transaction like that the agreement will make provision on how to resolve any dispute and the very first one was that the parties should submit themselves to arbitration and we did. The arbitration, typical of Nigerian setting, lasted several years, it ended in 2010. The arbitration tribunal which was headed by the late Justice Kayode Eso ordered that the company should be compensated for any expenses that they incurred as a result of the loss of the land.

“On the question of the land, the tribunal specifically said that FAAN cannot give the company the land. Eso just said, ‘No. You asked me to make an order of specific performance and ordering injunction, preventing FAAN from taking the land or using the land… I cannot do that. The best you can get is compensation’”.

The compensation, according to the Arbitration document made available to THISDAY, include: Loss of profits: US$46, 584, 000; Refund of Hilton’s deposit for the building of the hotel: US 1, 000, 000, totalling US$ 47, 584, 000.
Security Implications
During the arbitration sitting FAAN was able to argue that the proximity of the site of the proposed AIC Hotel to the airside of the airport “would make the hotel vulnerable to a MANPAD (Man Portable Air Defence System) attack. This could be as a result of the ingress and engress of the members of the public to the hotels.”

FAAN also argued that criminal-minded people could use the hotel as a base for nefarious activities against the airport.

Almost all the concession agreements FAAN signed with private investors have issues such as the above. The reason, according to industry experts is because FAAN and the Federal Government do not have concession policy under PPP and they do not have the legal and administrative framework.

In addition to this, one would observe that all the concessions done followed one pattern: a highly-placed individual in society would use his connection in government to secure a concession and FAAN or any other government agency would be directed to draw up a concession agreement. After the concession has been given, during implementation FAAN or any other government agency will discover loopholes, which if left would imperil the organisation. Most of these concessions are rip-off to these government agencies.

The solution is that a parastatal like FAAN should be given a measure of autonomy. As airport managers, it is not only answerable to the whims and caprices of government. It is also answerable to the dictates of the International Civil Aviation Organisation (ICAO), Airport Council International (ACI) as a member and other international organisations that regulate air transport in the world. In that case, the agency should be given some measures of autonomy to determine the business it could go into with the private sector, despite the interest of highly placed persons in government

Tags: Business, Nigeria, Featured, FAAN, Battle, Concession

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