A former Vice President of World Bank, Dr. Oby Ezekwesili, has described the plan by the federal government to establish a national carrier, Nigeria Air, using public funds as a waste of resources.
Ezekwesili, who spoke on an African Independent Television (AIT) programme Monday, said government’s plan to fund the establishment of the airline and later bring in investors to buy into the company, would be “putting the cart before the horse.”
Ezekwesili, also a former Minister of Education and co-founder of Bring Back Our Girls, argued that if the government sincerely wanted to have a private sector-driven national carrier, it would have designed it differently.
Recalling her experience when she was Vice President of the World Bank, Ezekwesili insisted that if the federal government wanted Nigeria Air to be private sector-driven as it claimed, the design of the project would have been made in a way that investors would have provided start-up fund for the airline.
She noted that money spent on the national airline in terms of opportunity cost would deny government the funds for other priority programmes in education, healthcare and other essential sectors of the economy.
The Minister of State, Aviation, Hadi Sirika, explained that the federal government would commit $300 million and $8.8 million to the project, and it is expected that when the airline is established its shares would be sold to investors.
Sirika had also stated that the $8.8 million represents startup capital for offices, etc required for takeoff.
But $300million is the entire airline cash flow funding requirements (aircrafts, operations and working capital) for three years (2018, 2019 and 2020).
“This funding can be in the form of equity or debt. The financial model estimates cash flow requirements as follows 2018 ($55m – $8 million is included here), 2019 ($100m) and 2020 ($145m).
“In order to ensure take-off of the airline in 2018, government will provide $55 million upfront grant/viability gap funding to finance startup capital and pay commitment fees for aircraft to be leased for initial operations and deposit for new aircraft whose delivery will begin in 2021,” he said.
On divesting the shares to investors and other shareholders, Sirika said after one year of operations, government would through an IPO divest her equity for purchase by Nigerians subject to approval of the Securities and Exchange Commission.
“Government will then retain only five per cent equity. The rest of 95 per cent equity of Nigeria Air Limited will then be owned by the strategic equity investor and the general public. Majority ownership must however remain with Nigerians so that the national carrier can benefit from BASA (Bilateral Air Service Agreement) and other bilateral agreements which require local beneficial ownership as a condition precedent.
“Management of the national carrier will be concessioned to the strategic equity investor with no step in rights and management control by government. Signed up acceptance and approval of the management concession agreement will be a condition precedent for the IPO,” the Minister said.
But Ezekwesili faulted this strategy, saying it is a waste of government resources.
She added that if it was designed in a way that significant part of the ownership would be ceded to the private sector, investors would have been made to commit funds in the establishment of the airline, so that government would not have to spend even a penny on the project.
Reacting to the federal government’s strategy, a member of Airline Operators of Nigeria (AON) who wished to remain anonymous, told THISDAY that government planned the national carrier in a way that suggested that it has already identified the investors that would buy into the airline.
He expressed doubt that the project would attract foreign investors government expected.
“The truth is that it will be difficult for Nigeria to have a strong core investor for the airline because Nigeria is not known to respect its agreements. Nigeria made an agreement with Richard Branson of Virgin Atlantic Airways and it defaulted on that agreement. Anyone you asked to come and invest in Nigeria refers you to that Branson experience,” he added.