Home News Visionscape fear of contract termination As Governor Ambode losses 2nd Term Mandate

Visionscape fear of contract termination As Governor Ambode losses 2nd Term Mandate

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Visionscape fear of contract termination As Governor Ambode losses 2nd Term Mandate

On February 23, 2017 Visionscape executed a Memorandum of Understanding which authorised the incorporation of a Special Purpose Vehicle (“SPV”) – the Municipality Waste Management Contractors Limited for the purpose of issuing Medium Term Notes (bonds) to finance implementation of the CLI.

 

There are growing concerns over the continuity of a subsisting waste management contract signed by the Lagos State Government with Visionscape Sanitation Solutions limited, a municipal waste management firm, following the unexpected failure of Governor Akinwunmi Ambode to get a second term mandate from his party that would have seen him stay in power till 2023.

Having failed to secure the ticket of his party- the All Progressives Congress (APC) to contest in the 2019 governorship election, Ambode’s tenure terminates automatically on May 29, 2019, when a new administration will also take effect.

This has raised fears that a new administration, whether formed by the APC or the opposition Peoples Democratic Party (PDP) would not want to continue with the Visionscape, one of the main reasons Ambode is said to have lost the support of his party members and many residents of Lagos.

Legal practitioners have however warned of the implications of terminating the waste management contract, saying either of the parties have the right to seek redress, and that if it is the Lagos State Government that terminates, it will cost tax payers a lot more.

The allegations that put outgoing governor Ambode on a collision course with backstage power brokers in Lagos include claims that he deviated from an inherited Lagos economic blue print, as well as a purported deliberate detachment of himself from party men.

Ambode’s termination of the contracts of private sector participants (PSPs) in the waste management sector, with a combined workforce put at about 25,000 workers, to introduce Visionscape as replacement was also said to have riled the party and many more interest groups and individuals to no end.

Already, Visionscape has threatened to suspend operations in Lagos, following alleged consistent attacks on its equipment and personnel in the line of duty.

Some observers say a this is suggestive of raging anger against the company on the perception in some quarters that it has failed to live up to the expectations of the public in the management of waste in the state. Other observers say the company is simply the victim of an unfortunate political backlash.

The Ambode-led government first began a reform of the waste management processes in 2016 and by 2017 consolidated the various environmental laws and policies, including restructuring of existing waste collection and management system, to ensure efficiency and corporate global best practices.

The government, through the ministry of the environment, introduced the Cleaner Lagos Initiative (CLI) backed by the Environmental Management and Protection Law passed by the House of Assembly and signed by the governor. It subsequently awarded contracts to Visionscape Sanitations Solutions Limited and its strategic partners for deployment of waste management infrastructure.

On February 23, 2017 Visionscape executed a Memorandum of Understanding which authorised the incorporation of a Special Purpose Vehicle (“SPV”) – the Municipality Waste Management Contractors Limited for the purpose of issuing Medium Term Notes (bonds) to finance implementation of the CLI.

On March 21, the State Executive Council presided over by Ambode passed a resolution to secure the financing structure adopted by Visionscape and its partners to raise up to N50 billion in bonds for the implementation of the CLI through issuance of an Irrevocable Standing Payment Order (ISPO) as a charge on the State Internally Generated Revenue Account/ Environmental Trust Fund.

This means that the state government will pay, in the case of default, for a N50 billion bond programme the Visionscape Group through its SPV issued.

With this guarantee, the Visionscape Group raised an initial first tranche of its bond issuance, a N27 billion, 17.5 percent, fixed rate five- year bond due 2022.

In the letter guarantying the issuance, Lagos State assured that “Consequent upon the above, this office would implement the monthly remittance of the gross sum of Seven Hundred and Thirteen Million, Seven Hundred Thousand Naira Only (NGN713,700,000) as a first line charge from the revenue account of Lagos State Government which is to commence in June 2017 and terminate in June 2027.”

The consequence of this is that in a one-year period, the state would spend N8.56 billion as guarantees for the bond and be on the hook for about N85 billion over the 10-year timeline on this one transaction, something that a new governor may not find acceptable considering that the system that Visionscape replaced was not costing the state any cash.

The information memorandum (issued in lieu of a prospectus for private placements) sent out to prospective investors and seen by BusinessDay, included an excerpt from Agusto & co that said:

“We estimate that the duly executed ISPO on Lagos State’s revenue account constitutes sufficient security for the issue as the remittances…will be adequate to cover the cumulative obligations (coupon payments and principal repayments) of the Series 1 Note 1.03 times.”

A source close to the APC told BusinessDay on Wednesday that a new administration in the state would be sympathetic with PSP operators, whose business and over N6 billion investments was disrupted by Ambode.

Debo Adeniran, a legal practitioner says there are grave implications for both parties depending on the terms of agreement signed. “Each of the parties has a right and obligation in the agreement. It will be a breach of agreement if Lagos State terminates the contract and it will cost tax payers more. Any new government is supposed to continue with the agreement because government is a continuum.”

Adeniran, who is the executive director of the Centre for Anti-Corruption and Open Leadership (CACOL) said that he believes that “Visionscape has not failed” and therefore there is no need for the contract to be terminated.

Adetokunbo Mumuni, another legal practitioner and executive director of Socio-Economic Rights and Accountability Project (SERAP), said such contracts are binding on parties involved and whatever happens, the parties would fall back on the terms of the contract.

“If the Lagos State Government stood as a surety on the bond issued by the company, then the state will have to look at the implications. But if due diligence was not done to ascertain the capacity of the company in the first place, then there is still something for the parties to fall back on,” said Mumuni.

Signs of tough times ahead for Visionscape are already emerging, as the company last weekend threatened to suspend operations over claims of reported attacks on its staff and destruction of its vehicles and equipment as a result of political outcomes in the state.

In a statement signed by Simon Reading, chairman of the Board of Investors, the company stated that it had become necessary to raise its concerns over volatility in Lagos and its impact on its operations.

“Security reports brought to our attention contain details of a surge in violent attacks on the trucks and equipment and in some cases, the operators.”

The firm claimed that the opposition party in the just concluded gubernatorial race used subversive language about the residential collections contract and called it “a misadventure”.

If the Visionscape is terminated, it would not be the first time that the Lagos State Government will be getting out of a Public Private Sector Partnership (PPP) that it voluntarily entered into. The Lagos State Government, in August 2013, terminated a Public Private Partnership (PPP) entered into with the Lekki Concession Company (LCC) that would have seen the company fully fund the construction of the Lekki-Epe Expressway, and recoup its investment through tolling on the road over a period of 30 years. To avoid a legal battle, the government opted to buy back the concession agreement by way of buying the company.

The fate of Visionscape, going forward, will pose a test for the state and indeed the nation, observers say, because of the perception in some quarters, that otherwise binding legal agreements are often flouted in Nigeria and some other developing nations.

There is also the perception in some quarters that the judicial system is often too slow and winding to offer due reliefs.

 

BUSINESSDAY

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