Nigeria: Selective tax waiver and govt’s support

The airport concession by the Federal Government of Nigeria is said to be moving fast towards actualisation amid calls by some aviation stakeholders for a halt of the process.

The Ministry of Aviation is to midwife the process, as the four major aerodromes in Lagos, Abuja, Port Harcourt and Kano could be handed over to the private sector as early as the second quarter of 2022.

The decision of the Ministry of Aviation to invite bidders through a recent advertisement, despite the opposition by some stakeholders, largely the labour movement, showed the Federal Government’s readiness to go ahead with the concession.

Airports’ concession is part of the aviation roadmap unveiled by the Minister of Aviation, Senator Hadi Sirika. It has dragged on for over six years since the birth of the administration because the move met stiff resistance from some industry stakeholders, especially the labour unions.

Also, retirees of Federal Airports Authority of Nigeria, including a body of former managing directors and directors, stoutly opposed the move.

Apart from airport concession, other projects highlighted in the roadmap include the establishment of a national carrier, Maintenance, Repair and Overhaul, as well as Aviation Leasing Company. But the airport concession has been the most controversial, creating tension and in the industry, with stakeholders sharply divided over the issue.

The preferred bidders were to have been announced on September 27, 2021, but the process had to be pushed forward to the last week of October to enable more bidders to participate.

However, Bi-Courtney Aviation Services Limited is not pleased with the idea. It expressed displeasure that it ought to be given the right of first refusal to bid for the concession of the four airports since it had experience in running concessioned terminals.

It is understood that the airport terminal manager has put in a strong bid for one of the airports.

While the ministry is midwifing another airport concession, it makes sense to ask if BASL is not making a fair demand for the right of first refusal, going by its running a complex business of airport terminal adjudged to be the best in Nigeria.

Rather than encourage the promoters of MMA2, the government had been in a long battle with Bi-Courtney.

The 36 years concession granted Bi-Courtney to Build, Operate and Transfer the MMA2 was very unpopular at inception among policymakers in the sector, and, as such, suffered untold neglect and/or outright rejection.

Particularly, those who ought to know better are now embracing the idea, after it became clear that government could no longer sustain enormous funds channelled to airport infrastructure. This certainly is not unconnected with the many positives derivable from the system.

The Delta State government also toed the same path of concession by handing over its airport facility to the management of Asaba Airport Company, which emerged victorious during the concession bid of the airport.

The Asaba International Airport was concessioned on February 23, 2021, after a competitive bidding process.

It is gratifying to hear from industry stakeholders the merits of allowing private initiatives to take centre stage in the nation’s aviation industry; and why governments at all levels must support this laudable initiative and ultimately see to its logical formulation and eventual take-off.

Experts, who were worried by the state of all the government-managed airports across the country, see concession as the only guarantee for the survival of the weather-beaten airports dotting the country’s landscape.

That Nigerian airports are in a decrepit state is not in doubt. The decay stares one in the face. This also throws up the issue of over N500bn allegedly spent on airports’ remodelling. Not a few believe that the project was a scam.

According to details of the agreement signed with China Civil Engineering and Construction Corporation, the four airport terminals were to be completed by March 2015, but till date, only two – Abuja and Port Harcourt – have been commissioned, while those of Lagos and Kano are awaiting commissioning.

In February this year, BASL, which operates the MMA2, said it was upgrading the terminal by importing $500,000 X-ray machines and other equipment.

The decrepit facilities at most of the country’s aerodromes have negatively affected passenger traffic, as recorded by FAAN. These poor facilities have also not helped in pushing Nigeria up when it comes to global airports rating.

Aviation was one of the fastest-growing sectors in Nigeria before the Coronavirus Disease visited the country in 2020. It grew by 13 per cent in 2019 compared to the overall Gross Domestic Product growth of 2.2 per cent. The number of passengers on domestic flights at the nation’s 31 airports was about six million in the first half of that year alone.

To put this scale in perspective, domestic passenger traffic was less than five million in Kenya and 415,000 in Ghana in 2018. Seventy-six per cent of the traffic in Nigeria goes through the four airports that are now up for concession.

The scale and growth of Nigeria’s aviation sector are partly attributable to privatisation reforms that were introduced in 2000.

Despite their evident successes, the reforms have been accompanied by contract frustration and regulatory disputes.

One example is the aborted partnership between the Nigerian government and Virgin Atlantic to establish a national airline in 2004. Another is the concession of the MMA2 terminal to BASL, owned by Nigerian businessman, Dr Wale Babalakin. The latter is particularly instructive.

The face-off between BASL and the FAAN reared its ugly head early this year when the Minister of Aviation, Hadi Sirika, alleged that BASL was indebted to FAAN to the tune of N14bn, while the terminal operator said the agency owed it over N200bn.

Since the commencement of the agreement in 2007, BASL has consistently accused FAAN of not adhering to the terms and conditions of the contract, leading to loss of revenue.

It said FAAN’s indebtedness arose by the former opening and operating the General Aviation Terminal, thus competing with BASL using government’s money in the running of the domestic terminal, in flagrant breach of the concession agreement.

Spokesman for BASL, Mikhail Mumuni, had emphasised that the N14bn mentioned by the minister was totally inconsistent with the demand by FAAN, the agency he said had been liaising with BASL.

According to him, the agency’s last demand was about N1bn, adding that the claim was debunked by BASL.

Mumuni added, “We believe that the minister was not properly briefed by FAAN, as we also pay our electricity bills as and when due. We equally provide elaborate security at the terminal, which has continued to attract commendation from stakeholders.”

He declared that BASL, as a law-abiding entity, would continue to obey the laws of the land, while providing exceptional services at its facilities.

While FAAN regaled the public with alleged indebtedness of the firm to it, the terminal operator has consistently refuted the claim.

However, one would have expected the Federal Government to support the operator with waivers and other incentives to promote corporate entities that decided to bail it out in times of need, as it is done to airline operators and other corporate organisations that have undertaken to build roads, bridges and other public utilities.

The aviation industry has enjoyed the government’s support for providing critical needs to the public, despite that they are private sector-driven.

And good example of the government’s support is the recent tax waiver on aircraft spare parts and equipment.

Recently, the Federal Government granted tax waivers to airlines. Virtually all the carriers, including Air Peace, Azman, Aero, Arik, Overland, Max Air, Green Africa, and United Airlines are to enjoy the government’s kind gesture and one that would make them remain in business. At the peak of COVID-19, all the carriers got N5bn bailout that helped them to stabilise, despite that it was a drop in an ocean.

Bi-Courtney is also a major player in the country’s aviation industry. The company, unlike other carriers that are private sector-owned, never got a penny from the government; a sign of animosity or grudge that FAAN still holds against a company that invested its money when the agency was in difficulty to rebuild the domestic terminal that went up in flames in 2000.

Tax expert, Taiwo Oyedele, via a tweet dated January 5, 2021, said operators in the aviation sector were convinced that the implementation of the Financial Act 2020 would ease the burden on them in 2021.

In July, the Nigerian Senate Committee on Aviation held an interactive meeting with aviation agencies to discuss the recent upsurge in flight delays and cancellations among other issues facing the aviation industry.

It was on this occasion that Airlines Operators of Nigeria presented the issue of the partial implementation of the Finance Act 2020, which prohibits the payment of duties and VAT on imported aircraft and spares. Of note was the presence of a seven percent surcharge on the assessed duties, which was not supposed to be.

This sounds great, but is the government’s kind-heartedness skewed towards a few entrepreneurs and not to other big firms that are providing services to the public? What’s sauce for the goose is sauce for the gander!

Ubabukoh, the Principal Consultant at Plexus Media Interlinks, writes from Lagos

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