May 30, 2020

Recalcitrance Threatens TCN’s $100m Fibre Optic Deal

The current rift over the $100 million concession agreement deal signed between the Transmission Company of Nigeria (TCN) and the concessionaire, Phase3 Telecom Ltd and Alheri Engineering Services on March 20, 2006 has assumed a new dimension, with the refusal by TCN to abide by the recommendations of critical stakeholders to abide by the terms of the deal threatening to frustrate the project.

According to investigations on the subject matter, the project was designed to “build, finance and operate the fibre optic network infrastructure in Nigeria,” with the concessionaire using “TCN’s existing and future fibre optic network infrastructure; consideration for the rights granted the Concessionaire shall be $40 million each and Royalty of two-and-half percent of revenue payable in instalments to be agreed by parties (per articles 13:2 (a) and (b) of the Agreement, and that the duration of the concession shall be 15 years and renewable for another five years.”

The liberalisation of the Fibre Optic Network in 2010 would later necessitate the need for review of the contract, especially as it relates to concession fees payable to TCN. Following the liberalization of the National long-distance Fibre Optic landscape in Nigeria by the NCC, the Infrastructure Concession Regulatory Commission (ICRC) had approved the concessionaire’s demand for a review, insisting that liberalisation of the fibre optic landscape in the country had led to a major decline in market share and prices collapsed by 90% from 2010 to date. In clear demonstration that a review for the concession agreement was inescapable, even the Federal Government in a circular in 2013 directed the TCN that the price of Right of Way on Power Transmission Lines should not exceed N200 per linear meter, compared to about N2, 000, 00 demanded by TCN.

The road to disagreement over the contract deal had commenced early in the life of the project when the concessionaires had found TCN’s facilities to be obsolete and unfit for use, thereby leading to the two firms spending addition funds to meet the expectations of the project.

“Phase3, according to an insider, “resorted to spending an additional whopping sum of $50 million, while Alheri spent $25 million in rolling out fibre optic infrastructure using TCN’s right of way. On its part, Phase3 hired a Chinese Firm – Fiberhome – to produce over 2,000 km of Fibre Optic Cables (FOC) and manufacture of DWDM (Dense Wavelength Division Multiplexing Systems) and SDH equipment which it deployed along transmission lines and installed at TCN’s substations.

“On the part of Alheri, the company engaged SDH/AFL and Huawei for the installation of 1,000km of fibre optic cable and commissioning equipment. As at 2015, according to documents, Phase3 had spent N9.6 billion in operating and maintaining the FOC network, while Alheri expended N1.19 billion. In addition, the companies also made available fiber optic cores for use by TCN for its Supervisory Control and Data Acquisition (SCADA) for real-time monitoring of the National Grid which value is in excess of $15 million that was supposed to be paid for by TCN.”

 “Coupled with the unexpected bleak in revenue expectations, it was, therefore, imperious to review terms of the Agreement to conform to current economic realities as brought about by the liberalization of the National Long-Distance Fibre Optic landscape. However, despite the difficulties encountered as enunciated above, Phase3 and Alheri had in 2015 paid a Concession fee of $3.6 million and $3. 4 million respectively”, the ICRC maintained.

TCN Resists Review of Concession Terms

In a bid to resolve the issue of review of terms of contracts as contained in the terms of the concession deal, both TCN and the concessionaires approached the ICRC, being an agency of the Federal Government established via the ICRC Act 2005 to, among other things, “specifically regulate Public Private Partnership (PPP) endeavours of the Federal Government of Nigeria with a view to addressing Nigeria’s physical infrastructure deficit which hampers economic development. Thus, ICRC was the right body to mediate in view of its direct statutory powers and functions over the Agreement. The ICRC in collaboration with TCN and Concessionaires, had on 14th November 2014 agreed to have an independent and comprehensive technical and financial audit on the agreement.”

Through the amicable intervention of the ICRC, the need for review was further recommended by  an audit firm engaged by both parties in the dispute-SIAO-, which called for a review, insisting that in view of changes of laws/regulations and liberalisation of the Fibre Optic network, renegotiating the concession terms was inevitable.

While negotiations were on for peaceful resolution of the matter, the TCN Managing Director, Mr Usman Gur Mohammed, purportedly cancelled the contract, alleging that the concessionaire have not lived up to the terms of the contract agreement, sparking a row that has thrown spanners in the works for the project.

The TCN boss did not only order the shutdown of power stations owned by the concessionaires, workers of the firms were disallowed access to their substations, thereby disrupting internet services to their clients in various parts of the country.         More worrisome, both Phase3 and Alheri could not continue with laying another 3,000-km fibre optic cables due to refusal by TCN to re-open shutdown power stations and obey court orders on the matter.

 The purported termination of the contract by the TCN boss has been described by industry experts as a gross act of violation of the agreement. After the concessionaires approached the Presidency for intervention, President Muhammadu Buhari referred the matter to the ICRC for advice and recommendation. In a letter addressed to the Permanent Secretary of the Federal Minister of power, Works and Housing, dated 23rd November 2017, entitled, ‘The opinion of the Infrastructure Concession Regulatory Commission on the recent Termination of the TCN’s Fibre Optic telecommunication Infrastructure Projects,’ the ICRC described the purported cancelation as illegal.

 “TCN’s action regarding the concession arrangement is likely to generate deep negative concerns amongst investors, thereby further frustrating and in the potential extreme case truncating government efforts at bridging the infrastructure gap in our country,” the ICRC averred.

Criticising the TCN for unilaterally cancelling the Agreement without recourse to laid down rules, the ICRC reportedly noted in a letter on the matter that, “In addition, in line with the circular from office of the National Security Adviser (ONSA) IN December 2016, any deliberate closure of telecoms sites or substations which results in disruption of services by anyone or organisation shall be treated as a breach of national security. TCN should therefore bear in mind that Telecoms infrastructure are critical national assets with high security implications, especially considering the importance attached to broadband services by the Federal Government.”

AGF Malami’s Legal Advice  

The Presidency sought for a legal advice from the Minister of Justice in a last attempt to resolve the matter that was causing disquiet among industry experts. In a letter addressed to the then Minister of Power, Works and Housing, Mr Babatunde Fashola, and dated January 10, 2018, Malami deprecated the TCN over its purported cancelation of the Agreement.

According to the AGF: “Several meetings were held at the instance of ICRC, with Concessionaires and TCN in attendance.  When the dispute could not be amicably resolved, it was agreed by (ICRC, TCN, and Concessionaire) to jointly engage an auditor to review the issues in dispute and make recommendations to bind and guide the parties going forward. Consequently, an audit firm –SIAO- was appointed to carry out financial and technical audits of the situation. In summary, SIAO found that the Agreement and financial obligations thereunder are not sustainable in line with present realities in the industry.”

The audit report by SIAO, according to Malami, that was submitted to the ICRC was not accepted, as “TCN failed to give effect to the findings of SIAO and every attempt by the Concessionaires to meet with TCN towards resolving the dispute was to no avail. It is important to note that a dispute resolution meeting was held on 18th August, 2017 where TCN inter alia requested for concessionaire’s proposal for restructuring which was submitted by Concessionaires on 24th August 2017.  Unfortunately, however, rather than respond to the restructuring proposal one way or the other for further engagement with a view to resolving the dispute or refer same for arbitration as agreed by the Parties under the Agreement, TCN via a letter dated 30th August 2017 terminated the Agreement.

“Upon the letter dated 30th August, TCN has subsequently taken further actions to deny Concessionaires access to their sub-stations where Concessionaires have installed active transmission equipment, thereby preventing Concessionaires from monitoring the national fibre network. TCN has also locked Concessionaire Equipment Room’s nationwide, thereby making access impossible for maintenance to the fibre optic network infrastructure. These acts by TCN have allegedly led to disruption of services nationwide,” the AGF said.

“The purported termination of the Agreement,” the AGF further notes in his letter, “was arbitrary, premature, illegal, null and void, having been issued in violation of the terms of Agreement which mandates under Article 31:1 that Parties shall go to arbitration panel where disputes cannot be resolved amicably.”

Power Sector On Its Knees

There is no denying the fact that the refusal by TCN to abide by the rules of the contract for a review constitutes an act of unconstitutionality. More worrisome, the inability of the Federal Government to rein in the excesses of Mr. Mohammed sends wrong signals to both local and foreign investors as Nigeria strives to bridge financing gaps threatening infrastructural development in the country.

Nigeria’s inability to develop Supervisory Control And Data Acquisition (SCADA) was tied to inability to develop the fibre optic network that is aimed at real-time monitoring of the National Grid to ensure quick intervention in case of failure. In the first quarter of 2019 alone, the nation embarrassingly experienced no fewer than eight breakdowns of the National Grid, thus plunging the country into avoidable rounds of darkness for several days.

“As long as the Fibre Optic Network concession agreement is delayed in resolving, so long will hope of monitoring the National Grid through SCADA remains a pipe dream and cause anxious moments to the nation’s power sector,” an industry expert noted.

Many experts in the power sector are getting worried, as non-resolution of the concession agreement may resort to yet another long court process that lead to yet another embarrassing judgement like the London court judgement which awarded $9 billion against Nigeria over failure to meet some contractual obligations to P &ID on gas projects. The Federal Government, according to a source who sought anonymity, could step into another avoidable embarrassment if nothing is done to resolve the issues surrounding the cancellation of the purported cancellation of the concession agreement that had lingered for over two years.

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