Festus Keyamo Suspends the Concession of MMIA and NAIA: What Does This Mean for the Concessionaire and Investors?

The Minister of Aviation and Aerospace Development, Festus Keyamo, has suspended the concession of the Murtala Muhammed International Airport and Nnamdi Azikiwe International Airport, which were awarded to Corporacion American Airport Consortium (CAAC) by the Buhari administration in the last weeks of its term.

Keyamo said the concessions would be on hold until further notice. He stated that he needs to conduct a review of the process before it can go ahead. He also said that he wants to ensure that the concession is in the best interests of Nigeria. He announced the decisions on Thursday during his tour of the Murtala Muhammed International Airport (MMIA) in Lagos.

What does this mean for the Concessionaire and Investors?

The suspension of the concession raises questions about the rights of the concessionaire, the investors, and the lenders who have invested resources in the project.

Concessions are long-term agreements between the government and a private company. They are complex and involve several risks. One of the biggest risks is political risk.

What is a Political risk and how can it be mitigated?

This is the risk that a change in government will result in a change in the terms of the PPP or even the termination of the agreement. Change in government is a major risk in PPPs generally because a new government may have different policies and priorities than the previous government. For example, a new government may decide to cancel a PPP project that was initiated by the previous government.

However, the risk of change in government can be mitigated by including stabilization clauses in the Concession agreement. These clauses are designed to protect the concessionaire from changes in government policy that could adversely affect the project.

Stabilization clauses typically include provisions that prevent the government from changing the tax regime, regulations, or laws that apply to the project. They may also include provisions that require the government to compensate the private sector for any losses that they incur as a result of a change in government policy.

The use of stabilization clauses is not without controversy. Some have argued that these clauses give the private sector too much power and that they can be used to shield investors from legitimate government action. Others argue that stabilization clauses are necessary to attract private investment in PPP projects. Ultimately, the decision of whether or not to include stabilization clauses in a Concession agreement is a complex one that should be made on a case-by-case basis.

Where there is no Stabilization Clause in the Concession Agreement, are there other reliefs that the Concessionaire might be entitled to?

It is important to clearly define the rights of the parties in a concession agreement in case something goes wrong during the project. There are four main events that typically provide a party with relief in this situation; An event of default by either of the parties, Force Majeure, Expropriation, a Change in Law. In this case, the suspension of the concession by the government is clearly a case of default by the grantor. The specific consequences of this will depend on the terms of the concession agreement.

An event of default clause in a concession agreement defines the events that allow one party to terminate the agreement if the other party breaches its obligations. The breach must be serious and the other party must be given a reasonable opportunity to remedy it before termination can take place.

Some examples of events of default by the grant include:

1. Failure to perform or discharge its obligations under the concession agreement.
2. Abandoning or expressing its intention to terminate the agreement without being entitled to do so.
3. Failing to provide the concessionaire with the necessary permits or approvals.
4. Taking any action that materially prejudices the concessionaire's interests.

If the grantor defaults, the concessionaire may have the right to terminate the agreement. However, in some cases, the right to terminate may not be automatic. Instead, the parties may need to go through a remedial process, which is a set of steps designed to address the underlying event of default. If the default cannot be cured, then the concessionaire may terminate the agreement.

Generally, there are three main reasons why a concession agreement (CA) may be terminated early:

1. Default by the private party:?This means that the concessionaire fails to meet its obligations under the CA.
2. Termination by the public party:?This can happen for a variety of reasons, such as if the grantor defaults on its obligations, or if it decides that the CA is no longer in the public interest.
3. Early termination due to an external reason (force majeure):?This means that the CA is terminated due to an event that is beyond the control of the parties, such as a natural disaster or war.

In this case, the concessionaire can terminate the CA because the grantor has defaulted. A fair Concession Agreement would ensure that the concessionaire is not unfairly disadvantaged by this termination. Therefore, the concessionaire would be entitled to some compensation, which could include:

1. The return of the concessionaire's performance guarantee.
2. The breakage cost.
3. A termination payment, which is usually set to the value of the debt plus some measure of equity.
4. Lost future profits, if any.

The specific amount of compensation that the concessionaire is entitled to will depend on the terms of the CA. However, in general, the concessionaire should be compensated for any losses that it incurs as a result of the termination.

Plausible implications of this development

Summarily, the suspension of the concession could have a number of implications for the concessionaire and the investors.

1. The concessionaire may be entitled to compensation from the government.
2. The concession agreement may be terminated.
3. The concessionaire may be allowed to continue operating the airports under a new concession agreement.
4. The investors may also be affected by the suspension of the concession. They may lose money on their investments, or they may have to wait longer to see a return on their investment.

The rights of the Corporacion American Airport Consortium will depend on the terms of the concession agreement, which I believe were negotiated in good faith. It is hoped that any outcome will balance the public interest with the rights of the concessionaire and investors. I will be watching to see what steps the consortium takes (if this is ever made public).