Wellington – Masiaka Toll Road Concession Agreement: Value for Money?
With the Public Private Partnership (PPP) agreement between the Government of Sierra Leone (GoSL) and the China Railway Seventh Group (CRSG) for the Wellington – Masiaka Toll Road (WMTR), on the surface, it seems that most of the project risks have been taken up by our government and the citizens of this country instead of the risks being shared between CRSG and the government.
Our government continues to be clangorous on the benefits (perceived and or real) of the WMTR, yet, very soundless on the details or intricacies of the overall concession agreement or PPP.
The widening of this 62 Km stretch of road and upgrading it to a four-lane dual carriageway, in my opinion, is a laudable action by our government. Our government’s decision to introduce a tolling regime for the widened (a four-lane) road could be good, given that the overall agreement is not exploitative. Nonetheless, a very high degree of transparency, stability and clarity is required for such arrangements between the government and private entities in producing or delivering what could be best termed as a “private infrastructure.”
The decision by our government to award a “no-bid contract” (a sole source contract) to a Chinese state-owned construction firm, CRSG, for a massive capital investment (the nation’s largest public investment to date) project that, as far we are being told, is not funded with a China Exim Bank (CEB) preferential loan or through any of the other “Policy Banks” of China, is a wrong move by our government.
The government has said that, CRSG, under a concession agreement or PPP, is funding the WMTR. This concession agreement gives CRSG a 25-year period (later, modified to 27 years), requiring CRSG to build-operate-transfer (BOT) the road to the government after the concession period. The agreement, it seems, was briskly passed through our parliament for approval and with it [concession agreement] being ratified on 3rd March 2016. A senior Member of Parliament, through a press release by the Office of the Clerk of Parliament stated the WMTR agreement was “initiated and signed without the inclusion of the MPs.”
Sierra Leone, like many other developing countries, receives Chinese official aid or Official Development Assistance (ODA) from China, mainly in the form of grants (gratis or aid-in-kind) and or preferential loans. Such preferential loans, under a loan framework agreement between the borrower-government and the Chinese government, are approved by the Ministry of Commerce or MOCOM (China) and disbursed by the CEB or any of the other “Policy Banks.” Majority of the infrastructure projects funded by the Chinese in these countries, such as the proposed Mamamah Airport (Project ID Number: 22167) in Sierra Leone, are funded through preferential government concessional loans.
These preferential loans are soft loans, which are essentially line of credit (LOC), extended to countries like Sierra Leone. As per the terms of the LOC, governments apply to the CEB for this soft loan, at interest rates of between 0.5 and 2 percent a year, with a grace period of 0 to 7 years, for an infrastructure project on the condition that 100 percent of the contract is awarded to Chinese construction company.
The former Minister of State, Finance, Dr. Patrick Conteh, in a State House press release on 26th April 2016, is quoted as saying that “the project cost stands at about US $150 million,” and that “the contractor will, raise debt financing from their Bankers in China at a very competitive interest rate payable over 25 years, inclusive of a four-year grace period.” The press release further quoted Dr. Conteh as saying that “the related amount plus interest will be recouped through the “Toll” Revenue of the road.” These positions as expounded by a senior government official are confusing at best or misleading at worst.
Through so many other government mouthpieces, a contrary take on the financier for the WMTR, in that, the CEB is said to be “funding” the WMTR, which, along with the opacity of the agreement itself, makes us [the citizens] ever so eager to get more clarity on the whole deal and program for this toll road.
When compared to the option of CRSG itself funding the WMTR through its “bankers” as alluded by Dr. Conteh, it may cost our government far less to fund the WMTR through a CEB disbursed preferential loan (2% interest rate for a 25-year period) than option of CRSG securing the loan through its “bankers” in Mainland China.
For example, if CRSG obtains the loan through a domestic commercial bank in China and the People’s Bank of China (PBC) base interest rate of 4.35 percent is applied to the principal ($161m) against a 27-year period, the total payable amount (including principal and interest payments) is approximately $274 million, amortized. On the other hand, if the highest end of CEB interest rate (2%) is employed for the same beginning principal ($161m) and covering the same period (27 years), the total payable is approximately $209 million, amortized. This represents a variance of $64 million, spread out across the loan period covering 324 months.
Painstakingly examining the details of the “Budget Speeches” made in parliament for the period 2010 to 2016 (spanning the tenures of three individual finance ministers), only the budget speech delivered by Dr. Kaifala Marah on 6th November 2015, carried the mentioning of this all-important project albeit sparingly. As a matter of fact, in the Public Investment section of that speech, it is mentioned that the funding agency for the WMTR is “GOSL” and “China Exim.” It should be noted that, each of the Presidential Addresses delivered for the opening of our national parliament for the period 2014 to 2016, carried mentioning of the WMTR.
Going over several permutations of the possible scenarios for the vehicular traffic (4,000 per day being mentioned) that may pass through the WMTR daily, with the least of which still shows a huge return on investment and over $390 million for the loan period. This shows that the government and CRSG are well positioned to reduce, significantly (by approximately 50%), the existing charge rates for the toll if we are to apply the PBC base interest rate of 4.35 percent against the loan principal of $161m and the amortized amount of $274m. Further, if the CEB interest rate of 2% is factored for the funding source, then, the grantor (SLRA/GoSL) and the developer (CRSG) could be positioned to earn an additional $180m over the PPP period and outside of the $209m, amortized for 27 years.
We must all admit to the fact that our nation’s roads network (11,700 Km) continues to be in dire need for more investments and the upgrading of the Wellington – Masiaka Highway to a four-lane dual carriageway should be welcomed by all. However, the government needs to open this concession agreement to the public for public scrutiny and guidance. There should be no doubt that the WMTR is tied to the Mamamah Airport with the funding coming likely from the same source, the CEB. We may link the WMTR project to the modified Project ID Number for the airport project (31019).
In the case, the funding for the toll road is directly sourced by CRSG (as widely being mentioned), the onerous is with the government to ensure that the country’s procurement laws are followed and value for money is obtained in ensuring that multiple inputs (vendors) have been reviewed, with the procurement of the least cost for the acceptant level of quality. In other words, if the funding was not a “tied” aid as is the case with the Mamamah Airport, then, the government should have placed the WMTR for open tender. This agreement, unless we see it with our eyes, should be rescinded and renegotiated. The secrecy surrounded with this PPP is unwarranted. This agreement, like no other by our government, is tantamount to a commercial contract and the people will continue to bear the brunt of its calculations through year 2044.
The Chinese have just started to foray into infrastructure driven PPP in Africa in the last eight years, and our government cannot settle, wholesale, for the advice from China in carving out a PPP between our government and what amounts to a Chinese government-owned construction firm. In 2011, our government was convinced that the proposal by CRSG for the Mamamah Airport was very good for this country. Then, persistent counselling from Bretton Woods seems to have changed the dichotomy of that airport proposal (financials). So, is it also possible that our government has fell short on the WMTR front (project economics and financing)?
One of the brightest minds on infrastructure based PPP at the World Bank, is no other person than Mr. Henri Kerali, the World Bank Country Director for Sierra Leone and he has produced and published discussion points on toll roads and PPP. Our government, as it has done with the Mamamah Airport, could also seek inputs from the World Bank on this all-important toll road undertaking. In Uganda for instance, with the PPP agreement for the construction of the Entebbe – Kampala Expressway (54 Km toll road funded through the CEB) between the Government of Uganda (GOU) and the Chinese state-owned firm, China Communications Construction Company (CCCC), the government will involve the International Finance Corporation (IFC) in certain aspects of the process.
PPP, road tolling, etc., are all new “enchiladas” on the plates of our authorities and decision makers. Our government must be encouraged to tap into the minds of our external partners that could provide us with solid advice on these new public measures and undertakings. Are we getting value for money with the present arrangement or agreement for the Wellington – Masiaka Toll Road?
We [THE CITIZENS] need answers and we need them yesterday. The government should openly and transparently review, revise and reintroduce its concession agreement with CRSG for the WMTR. The clock is ticking and ticking very fast.
By Ibrahim S. Conteh
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