Key electricity transmission infrastructure belonging to Transmission Company of Nigeria, TCN, was awarded to Alheri Engineering Company, and Phase 3, despite inherent conflict of interest, a correspondence has shown.
While Alheri is owned by Dangote Group, Phase 3 is owned by a son-in-law to a former Nigerian Minister of Communications, Mr Cornelius Adebayo.
The correspondence, dated October 31, 2017, was written to President Muhammadu Buhari by Nigeria’s Power, Works and Housing Minister, Mr Babatunde Fashola.
In the correspondence, Fashola notified Mr. Buhari of ongoing efforts by TCN to enforce its termination of two failed Fibre Network Concession agreements signed in 2006 with Alheri and Phase 3 in clear case of conflict of interest.
The agreement was signed by National Electric Power Authority, NEPA, which later metamorphosed into Power Holding Company of Nigeria, PHCN.
The minister also wrote of efforts to recover an outstanding $75.5 million from the concessionaires and commercialise TCN’s critical fibre optic infrastructure.
THE CONCESSION AGREEMENT
In 2006, National Electric Power Authority (NEPA) entered into two separate Concession Agreements with Phase 3 Telecom Limited and Alheri Engineering Company Limited.
Power Holding Company of Nigeria (PHCN) inherited the Concession Agreements when it was created pursuant to the Electric Power Sector Reform Act of 2005.
The agreements were inherited by TCN, when it was carved out of PHCN pursuant to the unbundling of PHCN.
According to the minister, TCN operates the national grid, which consists of 8,336km of 330kv transmission lines, 8,071km of 132kv transmission lines and 191/330/132/33kv substations that convey electricity nationwide from power stations where the electricity is produced, to distribution companies who receive it for onward delivery to households, businesses and industries nationwide.
Fashola noted that the Concession Agreement provided for the concessionaires to take over operation of TCN’s fibre optic network (which is part of TCN’s electricity transmission lines); build, operate and transfer enhancements of the fibre optic network, over a period of 15 years; and use the assets to provide telecommunications services to third parties.
On payments, according to the agreement, concessionaires were to pay a concession fee of $40 million each for the use of TCN’s assets to service their customers.
The concession fee was not just for the right-of-way upon which the transmission lines are constructed, but also for the use of the fibre optic network, which was built by TCN along with the transmission lines. The agreements also provided for shelter fees of 2.5% royalty on gross revenue, according to the correspondence.
Since 2006, Phase 3 and Alheri have paid only $2 million and $3.5 million concession fees respectively as they have also failed to build most of the enhancements their concession agreements required them to build, operate and transfer.
Management of TCN, however, has been unable to get the concessionaires to pay their outstanding debts, notwithstanding the significant revenue they collect from the customers they service using TCN assets.
The two companies’ customers, according to the correspondence, include all the Mobile Network Operators in Nigeria, who rely on TCN fibre optic network to deliver services to their 139 million subscriber lines nationwide.
If commercialised appropriately, TCN’s fibre network could transform TCN’s current poor financial position by adding an income stream that does not depend on the current poor payment performance of the distribution companies.
The revenue could be used to supplement TCN’s current unsustainable sources of capital from the Nigerian budget and multilateral lenders to more effectively finance its operations, grid rehabilitation and expansion.
Examples of such transmission networks, the minister said, abound in India, Brazil, and South Africa.
As it stands, the entire revenue stream has been unfairly appropriated by the concessionaires without commensurate benefit to TCN as provided for in the concession agreements, he said, leading to the termination of the two contracts by management of TCN after several meetings with the concessionaires failed to resolve default.
Phase 3 and Alheri still owe TCN concession fees of $36.5 and $38 million respectively, the correspondence revealed.
The minister claimed that following the termination, both concessionaires were given the opportunity to propose remedies through arbitration. But after initial engagement, they failed to make concrete proposals.
He explained further that court action has been instituted against TCN and Ministry of Power, Works and Housing by the concessionaire, in a bid to challenge the termination “in clear violation of judicial directives precluding litigation in arbitration clauses”.
The minister, according to the correspondence, also accused the concessionaires of misrepresenting Nigeria Communications Commission, NCC when they claimed that they owned fibre optic network.
Similarly, he accused concessionaires of non-payment for eleven years of electricity used in running the facilities; non-adherence to the use of 50 per cent of the network as stipulated in the agreements.
CONFLICT OF INTEREST
According to the correspondence, the concession agreements were entered into under circumstances of conflict of interest because Phase 3 is owned and managed by one Mr Stanley Jegede, son-in-law to Adebayo, one time Nigerian minister of communications.
Adebayo was in office as communications minister when the company obtained the long distance license.
Similarly, Mr Joseph Makoju who signed the agreement on behalf of NEPA (TCN) as its then Managing Director is now an executive officer in Dangote Group, owners of Alheri Engineering Company. He has equally signed letters on behalf of Alheri on the concession agreement.
Again, Infrastructure Concession Regulatory Commission, ICRC, mediated between TCN and the two concessionaires when issues of non-payment of fees arose.
The former Director General of the commission, Mr Aminu Diko, was for several years an employee of Dangote group before he was appointed DG of ICRC.
Apart from default in payment, the correspondence also revealed that Phase 3 is in the process of acquiring Alheri, but the management of the two organisations have not made any such disclosure. This, Fashola argued, constitutes a breach of the concession agreement.
Fashola called on Buhari to issue a directives to DSS, EFCC, Ministry of Justice, Ministry of Communications, NCC and ICRC to support the TCN in its quest to recover critical assets of the government and the recovery of its outstanding concession fees.
In its reaction, Alheri Engineering Company Limited denied owing federal government $75.5 million (about N27.18billion at N360 to $1). It did not state how much it believed it owed nor speak on Makoju’s seeming conflict of interest.
In a public statement, the firm described the accusation as wrong and fallacious.
The company stated that after a very extensive and competitive bid selection process, it was shortlisted with Phase 3 as preferred bidders for the award of the concession for the fibre optic deployment project under a Public Private Partnership (PPP) arrangement.
“The Concession Agreement required Concessionaires to take over the operations of TCN’s fibre optic network, Design, Build, Finance and Operate (DBFO) the infrastructure with unhindered access to existing and future fibre optic infrastructure on the network. For the purpose of execution of the Project, the entire country was divided into two. The Eastern half of the country awarded to Alheri and the Western half to Phase 3. It is worth to note that the Concession area granted to Alheri covers less economic viable cities,” the statement said.
The company alleged that the TCN refused to meet its obligations under the agreement by providing lines upon which Alheri is to build upon, adding that it has expended huge capital outlay to carry out extensive expansion and upgrades on TCN’s telecommunications infrastructure but could not deploy fibre to the North which constitutes a significant market as “there is no line between Makurdi and Jos, which constitutes the bridge between the South and North.”
It alleged that a request by Alheri for timelines within which TCN intends to provide the requisite lines between Makurdi and Jos since 2011 has not been provided by TCN till date.
It said that despite Alheri’s serious challenges, and inheriting ‘next to nothing’ on the infrastructure concessioned to it, it was still able to deploy a total of 1,000 kilometers and installed state-of-art transmission equipment along these lines.
“Alheri inherited no lines from TCN. The concessioners have therefore thus far expended more than $100 million as capital and operating expenditure on the project,” it said.
Alheri’s management noted that ICRC had already intervened to resolve the impasse, being the moderator in the resolution process.
It stated further that ICRC affirmed that, “unfounded allegation is the attempt by TCN to resist the restructuring of the concession fee due to the changes in the regulatory and market environment as suggested and recommended by SIAO, Auditors appointed to audit the Concession Agreement with specific terms of reference which included financial audit, technical audit, audit observation and recommendation, with the understanding that Parties will be guided by the outcome of the Auditors’ report.”
The company said that the audit report submitted by SIAO confirmed the need for a review of the concession agreement, especially the Right of Way (RoW) charges for the deployment of fibre optics on power lines to be at par with other RoW charges available in the telecom industry.
The statement said that the company has always honoured the terms of the Concession Agreement with TCN in line with kilometres of fibre available as well as market realities, adding that, “it has never been and would never be part of any diversion or misappropriation of funds accruable to TCN as wrongly claimed.”
Efforts to reach the second concessionaire, Phase 3, were unsuccessful. The company did not return calls made to its telephone number displayed on its website.
When contacted, Mr Hakeem Bello, spokesperson to Fashola confirmed the content of the correspondence and said that it remains the position of the Power, Works and Housing Ministry.
“It is regrettable that an official correspondence was made public but it is the ministry’s position on the issue,” he said in a telephone interview.