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The Lagos and Visionscape Deal That Costs Taxpayers Up To N85bn and More

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Friday, March 16, 2018   02.26PM / Patrick ATUANYA of businessdayonline.com   

We herewith republish the above named article authored by Businessday Newspapers as a matter of public record and responsibility. We intend to expand on the arguments and central theme of the message given the discretionary rate reduction announced yesterday which elicits questions about best governance practices. We believe that this gallant approach to financial journalism by BusinessDay must be recognized as is; and built upon – Editorial Board 

In 2016, Akinwunmi Ambode the Lagos State Governor had a bright idea to reform the established Waste Management processes for one of the largest cities in the world.

He would consolidate the various environmental policies in the state including restructuring of the existing waste collection and management system to ensure efficiency and incorporate global best practices.
 

Soon, the Government of Lagos State of Nigeria through the Ministry of the Environment introduced the Cleaner Lagos Initiative (CLI) backed by a recently passed Environmental Management and Protection Law.
 

The Lagos State Government then awarded contracts to the Visionscape Sanitations Solutions limited and its strategic partners for deployment of waste management infrastructure.

Visionscape Group executed a Memorandum of Understanding on February 23, 2017 authorising 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.
 

In an unprecedented move the State Executive Council at a meeting held on March 21, 2017 passed a resolution to secure the financing structure adopted by the Consortium to raise funds for the project via issuance of an Irrevocable Standing Payment Order (ISPO) as a charge on the State Internally Generated Revenue account/ Environmental Trust Fund.

This meant the Lagos State Government was basically agreeing to be on the hook in case of default for a N50 billion bond programme the Visionscape Group through its SPV was set to issue.
 

A letter from the State Government seen by BusinessDay which was dated 20th April 2017, signed by the Director of Treasury operations and Permanent Secretary/Accountant General of Lagos State and addressed to Municipality Waste Management Contractors Limited, said:
“Pursuant to the Lagos State Executive Council Resolution (Ref. No.SSG/CO/S.126/VOL.XVI/60) passed on the Provision of a Guarantee for the above mentioned contract, and following the execution of State wide Residential and General Waste Collection Agreement between Visionscape Sanitation Solutions Limited, and the Lagos State Government, and under which Agreement the LASG is required to issue to the Contractor a guarantee, I am directed to convey the approval for an Irrevocable Standing Payment Order (ISPO) in respect of the above referenced Contract Agreement.” 

The letter goes on to read : “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 1 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 just this one transaction.

Armed with the letter, the Visionscape Group now began to market the first tranche of its proposed bond issuance, a N27 billion, 17.5 percent, fixed rate 5 year bond due 2022, to high net worth individuals.
 

Ratings agency, Messrs Agusto & Co. rated the debt offer from the relatively unknown SPV an A+ largely on the back of the Lagos State guarantee
(no excuse for a possible absence of an alternative rating without a state government guarantee). 

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.” 

Lagos is Nigeria’s largest city and financial hub with a GDP that is bigger than that of major African countries such as Ethiopia, Kenya and Ghana.
 

With a population estimated by the state at over 20 million as at 2015, and growing at an average rate of 3 percent, over 10,000 tons of waste is produced by residents in Lagos daily.

BusinessDay had numerous interviews for this story with analysts and market operators who preferred to speak anonymously although the common thread was that the State government should have been careful especially in dismantling the former waste management agreements and in appointing a new firm to oversee Waste collection in the state.
 

It is understandable many chose to speak annonymously as Lagos State remains a lucrative partner to do business with.
 

Take the five firms which brought the N27 billion Visionscape bond to market last year led by lead issuing house and arranger Eczellon Capital.

They earned N967 million in total from the deal or 3.85 percent of issue size, according to data from the information memorandum.

The big problem though for the State Government and its plan to reform the waste management process in the state is that the coming on board of Visionscape has coincided with a return of trash heaps and dirt across most roads and streets in Lagos.
 

“They have bitten off more than they can chew. This was supposed to be a wholesale change but it has now unravelled,” said Feyi Fawehinmi, accountant and writer based in the U.K.

“The other big challenge now is that the Public Utility Levy (PUL) which was supposed to fund this has not been rolled out and will be a lot more difficult to do given the current tax climate. In the meantime the state Govt is paying Visionscape N1.5bn per month. So we need a lot more transparency around this deal and for the state to treat it as a crisis and find a way to walk some of it back. There appears to be no future for Visionscape to make this work,” Fawehinmi told BusinessDay.

Once ranked as one of the dirtiest cities in the world, Lagos state which had unprecedented piles of waste competing with pedestrians and vehicles in 1999 got a facelift after the Lagos state government carried out various reforms to improve the Private Sector Participants (PSP) in waste management.

A trip to various parts of the state last week, particularly Surulere, Egbeda, Agege, Idumota, Lagos badagry expressway from Alakija to Orile, Alapere, Ikorodu, Jibowu, Iyana-Ipaja, Lagos Island and broad street revealed an overwhelming volume of waste spilling over from bins and open spaces converted to dumpsites.

‘‘Solid waste if not managed will be a breeding ground for rodents and varmints like rats which could spread Lassa fever,’’ said Bayo Onajole, a public health expert at Lagos University Teaching Hospital, LUTH.

‘‘It also allows contamination of water bodies and it can lead to ill-health. People will come down with health defects and economically, it’s a loss of revenue to the state.’’

According to Oladipo Egbeyemi, the chairman of Association of Waste Managers of Nigeria, 80 percent of their work was conceded to a foreign company (Visionscape) risking their N6bn investment and the livelihood of over 35,000 employees.

The chairman said after a meeting with Akinwunmi Ambode, the Lagos state governor, PSP operators were told to explore the possibilities of working with Visionscape.

‘‘Immediately after the meeting, we tried to engage with Visionscape. We asked for their terms of engagement and mode of operations, and we did all that was required of us. I and my executives also met with John Irvine, the CEO of Visionscape and he promised us that he has intentions of working with us. we expect that by now negotiations would have been concluded but unfortunately we are yet to see anything in black and white to signify interest,’’ Egbeyemi said.

Attempts to get comments from Visionscape proved abortive, as numerous calls put to the Dubai listed number on the firms website went unanswered.

When BusinessDay contacted, Segun Adeniji, the managing director of Lagos State Waste Management Agency, LAWMA, he said the agency, Visionscape and some local governments are collaborating to evacuate the trash.

‘‘We are working night and day to ensure that the refuse are removed. This is a transition period and these problems will be there while we are transiting but I assure you that very soon all these will be over,’’ Adeniji said.

The Visionscape group projected in the information memorandum that about N16.3 billion of the bond proceeds will be used to acquire fleet for the transfer loading stations, strategic acquisitions and related infrastructure, expected by September 30, 2017.

Containers and operational equipment is to cost N3.13 billion, and waste facilities upgrade N2.58 billion, while working capital would gulp N2.5 billion.

Also embedded in the Information Memorandum documents is a disclosure that the Visionscape SPV is expected to incur management fees of N406.2 million for 2017, which moves up 101 percent to N820 million in 2018, while projecting an operating loss of N508.4 million for 2017.
 

BusinessDay digging into the ownership structure of Visionscape shows that ABC Sanitations Solutions Limited accounts for a 15 percent stake in the Visionscape SPV and is in a strategic partnership with CSH Environmental.
 

CSH environmental is a UK based company that is a family owned British waste disposal business.
 

On the board of Visionscape is a Nigerian Niyi Makanjuola a founding director of Caverton Offshore Support Group, information from the company website shows.
 

“Lagos has gotten progressively less transparent today, they don’t even bother,” said Tunde Leye, Consulting Partner at SBM Intelligence.

“Under the previous Governor Fashola for example, even though the budget was not detailed, you could find procurement information on the LASG website (that’s how we knew how much he spent on the website or boreholes for example). We know exactly the cost of building the Lekki Ikoyi Bridge. Compare to Ambode where we do not know how much he spent to build the Ajah flyover or anything else. Civil society has tried to invoke the freedom of information (FOI) act repeatedly but they have either been ignored or blown off. Lagos is very opaque.”
 
 

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