‘More Countries Are Adopting Land Swap Policy’

Farouk Sani, lawyer and co-coordinator of Abuja Infrastructure Investment Centre, an agency of the FCT administration that promotes and facilitates private sector investment and public infrastructure, explains the concept and execution of the policy in this interview with Anayochukwu Agbo, general editor; Tajudeen Suleiman, senior associate editor; and Chinenye Eseke, reporter. Excerpts:

 

Farouk-Sani-2

Farouk Sani

What is land swap all about?

Land swap is just a branch of that bigger picture as far as the FCT administration is concerned. As you are aware, the basic policy trust of the present administration is to allow the private sector take the commanding height of the economy. For FCT in particular, the administration has come to realise that it cannot fund infrastructure 100 per cent by itself, and therefore there must be that partnership, that engagement with the private sector. We had experiences of private sector engagement from 2004. When we started, the intention was to build Abuja 100 per cent by the government but then as time went on, everybody came to the realisation that government could not do it alone, so we started these engagements as far back as 2004.

What the honourable minister has done in respect to this sector is to unbundle the private sector participation into the public infrastructure. That is why this office was created and that is why all the necessary legal frameworks for the institutionalisation of this office have been done, that is why the honourable minister has given us optimum support for us to be able to discharge our responsibility. The administration has been able to unbundle private sector participation in building public infrastructure into three basic categories; the first one is the PPPs, in the strict sense of the word public/private partnership. Those ones are projects that are usually regulated by the Infrastructure Concession Regulatory Commission, ICRC. The ICRC is the agency that regulates all PPPs of the federal government, and you know, the FCT administration is part and parcel of the federal government and therefore is bound to operate on the rules, regulations and natural policies of the federal government.

The second category of private sector participation in the FCT is the private sector collaboration. There are projects that are of interest to the FCT. These are projects that are envisaged under the Abuja Master Plan. These are projects which the administration is obligated to deliver, but then, because of their commercial viability and realities, they can be taken over by the private sector without any risk on the part of the government either in terms of finances or in terms of technical or in terms of demand risk. We have so many projects, for example, the Katampe project is a provision of infrastructure over 200 hectares of land in Katampe district. The private component that we are working with is the Shanga Nig. Ltd. We are also developing other projects using the PPP model, for example the provision of district infrastructure in Mabushi, Kado and Gwarimpa 1.

So far we have concluded the procurement processes of the Mabushi district infrastructure project; we are just waiting for the necessary approval of FEC (Federal Executive Council), whereas Kado, Wuye and Gwarimpa 1 are all in advanced processes of conceptualisation. The same thing (is happening) in respect of Kuje waterworks, which we have got the World Bank to fund the outline business case. It is the outline business case that will be able to guide us on the structure of the project, the model of the PPP we are going to utilise at that project. Similarly, the World Bank is assisting us with respect to the Abuja light rail project.

Another example that I will give is the Abuja City Centre Development. If you go round Abuja, you will discover that it does not have a city centre. When you are going round, you will keep going round and round, you will not know the heart of the city. It is not that the city lacks that city centre. Under the Abuja Master Plan there is a centre but because of inadequate funding, we have not been able to develop that city centre. But now we have got a very competent investor in Chikason Group that is coming to develop that city centre for us. It is a 17-hectare land in which they are going to develop so many component properties of residential, commercial and others. But then our interest is the national mall which that company is developing that will cost nothing less than $40 million. That is part of the consideration given to the company. We are not giving the company kobo to develop the entire city centre, we are not giving them technical assistance and we are not giving them any guarantee that there will be demand.

The second project under that category is the Abuja Industrial Park. We are expecting a private promoter to provide infrastructure in accordance with the FCDA scope and specification in over 250 hectares of land; that is the first obligation. The second obligation is for them to attract industrialists that will establish factories in that place and then to maintain and manage for a particular period of time. The FCT minister is pursuing under this collaboration the land swap programme, which essentially is to look at land as a resource for infrastructural development. The third category of the private sector participation in FCT, which the minister has unbundled, is the enabling environment. You will understand that there are capable investors/entrepreneurs who will want to come to Abuja and invest without possibly wanting any partnership with the government. The only assistance they need is to be able to get that enabling environment. And the minister has been able to do that; that is why you have seen the World Trade Centre, Jahi village project, Shoprite and others. That is the enabling environment that the FCT minister has created to attract investment capital in the FCT. So these are the three categories of private sector participation in the FCT which we have been able to unbundle within this Transformation Agenda.

 

What do you mean by this enabling environment?

I will give you example. When the Honorable Minister came on board, he met a lot of problems with respect to that World Trade Centre. There were so many issues. So many issues to a point that the proponent wanted to hands off, but then, the minister intervened. One, to make sure that all issues relating to that land has been cleared. Secondly, the investors got necessary access to fund the project. And thirdly, to give them the necessary support not only to mobilise the contractors, but to make sure the work is going on without any hindrance. The same thing with Jabi Lake project. When he came in, in fact the problems were so much that the private investor and FCT were in court, but with wisdom and dexterity, he was able to get the parties to withdraw the case in court.

He sat down with them and cleared all the encumbrances. He also supported the investor in accessing the necessary funding. He ensures that investors get necessary incentives as provided under the Nigeria investment regulation. He also ensured that all the necessary permits and approvals that the investor would require for him to be able to commence work were done. And that is why if you go there, you will find out that they have already started working. These are purely private businesses but if the government does not provide that enabling environment, you will find out that the business might not be able to operate. So the enabling environment we are talking about are in terms of incentives, in terms of legal frameworks, in terms of developing contract approvals, in terms of clearing all encumbrances.

Are there some tax incentives as part of enabling environment?

Of course, it is all part of it, but as I said, we are part and parcel of the federal government; we don’t give tax incentives separate from the federal government, but like I said, the federal government has provided robust incentives for businessmen to come and do business, and you will get the details from Nigeria Investment Promotion Council, IPC.

Farouk-Sani,-Director-AIIC

Farouk Sani

What are the unique features of land swap policy?

The basic concept of the land swap policy is to look at the land in FCT as a resource for infrastructural development. Before now, previous administrations would give land to people and expect them to pay only the premium charge. In the beginning, the premium charge was less than N1,000, it was later increased to N2,000, then it was increased to N18,000 and right now, it is N5,000 per square metre. But that N5,000 per square metre cannot provide the kind of infrastructure we are providing in Abuja. Ironically, the man that is allocated land, without being to that site, will sell that land at over N200,000 per square metre and at the end of the day, the FCT administration will not get anything. So one of the things that we do is to be more realistic, to say yes, the land in Abuja has value quite all right. Under the Land Use Act, we are expected to allocate, but then we should recognise that it has value and we should recognise that we have an obligation to provide infrastructure. So the basic concept of land swap is to allocate a particular percentage of the land in a district to an investor for real property development in exchange we expect that the investor will provide infrastructure. The percentage of land we are giving the investor is not less than 60 per cent. The whole idea is to ensure that he is able to recover his investment in infrastructure plus reasonable return on his investment.

If you are dealing with investors the first thing that he will ask you is, what are your legal deals for going into this scheme? Even if the investor is so enthusiastic that he forgot to ask you, I can assure you that his financiers will ask you. So in coming up with this project, we also look out for legal basis for it. Under the Land Use Act, the minister has power delegated to him by Mr. President to allocate land within the FCT under section 5 of the Land Use Act. In the wisdom of that legislation, they created a window which has never been utilised by states which essentially created them as trustees of these lands. Under section 8 of the Land Use Act, it specifically states that the governor – and in case of FCT, the minister – can allocate land subject to a special contract. What we are doing in respect to land swap programme is to say that, yes, we will allocate land to you on condition that you will provide ABCD infrastructure.

As for the features you asked, one of the things that we did was to leverage on our past experience. Like I did mention before, we started engaging the private sector as early as 2004, when we started with accelerated housing development in which the administration gave land to the private sector in places where there is infrastructure. When those areas became exhausted, the administration came up with a new policy of mass housing development. And under mass housing development, what the administration was doing was to allocate land in an area where there is no infrastructure to an investor with a stipulation that, that investor will provide secondary infrastructure within that estate while the administration will provide the primary infrastructure. So we leverage a lot on our past experience in the FCT, because we want to make it succeed, we want to maintain the standard; we want quality houses to be determined. We don’t want to end up with white elephant projects. We don’t want a situation whereby our lands will be used for speculation. We don’t want a situation whereby investors will freeze the Abuja land by keeping the title, so one of things that we did was that, before we sign any legal agreement with you we expect you to make a comprehensive proposal that is acceptable to the administration.

And we would not just learn it like that, but rather we stipulate what to be done, these are basic features of land swap policy. First of all we say, you must provide N350 million to fund preliminary technical activities. Now this N350 million is not paid to FCT administration; what we expect is that the investor should open a project account in his name, dedicated to the funding of the preliminary technical works with an instruction to the bank to allow Abuja Infrastructure Investment Centre to perform oversight functions over that account, to be sure that money is there and is funding the preliminary technical activities. Also, part of the features, in order to ensure Abuja master plan implementation as we are dealing with multiple investors, we have to be sure that all the designs could be integrated in harmony. Therefore the administration engaged supervising consultants and coordinating consultants to ensure that there is harmony in all the designs. Now, the findings of the consultants are binding on the investors, and that is why we are saying that this is a project that is 100 per cent funded by the private sector.

Farouk-Sani-2

Farouk Sani

From your investigation, in which countries has land swap worked?

I can tell you there are many countries both in the developed world and the developing countries. If you look at the United Kingdom, UK, when they came out from the World War, they were able to successfully build 23 towns using this concept, and if you go to Milton Gigs you will find out that essentially that was the model that was used. Let us look at it in proper context, the examples of countries that utilised their land as a resource for infrastructural development. They can use it under three situations. You can use it to build a complete new section as in UK. In Sweden they used it to build a complete new town together with a 32-kilometre rail network, and that is what they are doing in Egypt (as well). The second category is that you can use it to fund infrastructure, (and) that is what they did in New York. If you look at the history of the old World Trade Centre, that was what happened. Local council sold the land to Silver Sten Group, and in the process they used the amount to rehabilitate the rail system in Manhattan area.

Thirdly, you can use the process to augment your budgetary deficit. But then in all these situations, it is agreed globally that government resort to looking at their land as a resource when they are having problems with their budgetary system. And then the system has the capacity to increase your revenue for infrastructure. For instance, in France, in the 1900s they had problems with reining in of their city, Paris, they equally used this concept and were able to raise substantial sum that was more than five years of their budget allocations. You will find out that there are more countries that are doing this, even the World Bank and other global funding experts have advised developing countries to start looking at land as resource for infrastructural development. And remember, the quality of infrastructure is what attracts investment into a country.

You visited a number of countries when you were doing the visibility study of the concept. Now how do you select investors, how many applications have you received, how did you select the 15 or 16 that you had in the first batch?

One of the things we do is to recognise the peculiar environment. Since the city is expanding and growing, the minister said I cannot fold my hands and watch; the only thing I can do is to look at those people that I know who have both the competence and passion to do this job. And I can tell you the minister went out of his way to do that and that is why we are dealing with so many real property developers and financial investors. In some cases, it was the minister that encouraged, invited them to come and participate. In one of the projects, the minister travelled about three times to Dallas to be able to encourage an investor to come and invest. He invited Dangote, he invited Alakija to come. He was able to go into our archives to look at all investors that from one time or the other applied to FCT Administration for massive real estate developments. So we sent invitation for them to make proposals within the context of the Land Use Act. And the reason we did that was because the minister was concerned that he only wanted people that will deliver. And I think he has made a very right decision.

You are eager to have investors. Do you have time to do due diligence on these investors?

What we had to do was to work within a particular framework, quite all right, the minister was not under any obligation to do that kind of due diligence you are talking about because what it required under the Land Use Act is for somebody to make an application to the minister for land allocation. But we pleaded with him and he allowed us to put in place a particular structure that will ensure that investors are competent, capable and could put the right/standard structure for the successful implementation of this project. Structure is very important. What we tried to do was to come with a structure that all investors must conform to. That is the reason among the 15 investors that we started with, 13 investors are working in line with all our expectation, for the simple reason that we have designed a structure and insisted that they must follow this format.

What is the game plan for resettlement?

Fundamentally, there are two objectives of this land swap. The first objective is to provide infrastructure because we don’t have money to provide. The second objective is to take care of compensation and resettlement in the FCT. From the beginning when Abuja was created, the thinking of the government was to resettle everybody outside Abuja. But along the way, government realised that it was going to be very difficult. So what they did was to say, let’s go for partial resettlement. What does that mean? Allow them to stay in FCT but outside the 250 square kilometres of the Federal Capital City, FCC. They started implementing it, and that also become problematic, so that government changed to total integration but then, it became a problem and that is why you have to understand that when government realised that total integration could not work, it said let us go for partial integration. That was when government started constructing resettlement areas, like Wasa, etc. That too failed and that is where we are now.

With all these, don’t you think the price of plot will not cost beyond average?

We need to appreciate that this is the capital city of Nigeria. We have already crafted our vision to make Abuja one of the 20 topmost cities by the year 2020. And whether you like it or not, Abuja cannot operate differently from other capital cities of the world. By the time you look at what is happening in other capital cities of the world, you will know that Abuja will not be going in that direction. We have done study of real property prices in capital cities of the world and one of the things that we have found out was that, other capital cities are more expensive than Abuja. I am not only talking in terms of Washington, Hong Kong, Singapore, I am talking in terms of Nairobi [Kenya] here, Khartoum [Sudan], and I can provide you with the statistics you will see.

So what we have done is we looked at the prices of land in districts that have infrastructure in Abuja. We also looked at prices of land in districts that do not have infrastructure in Abuja. So what we are saying is that unlike Asokoro and Maitama where you have infrastructure and prices have gone higher, where a plot of 1,000 square metres is going for over N200 million, that is N200,000 per square metre, in this case, it may be costing N25,000 to N30,000 per square metre. By the time we put stock of houses in the FCT, prices of house will surely come down. And remember we are dealing with investors who will source their money from financial institutions, because that is what we stipulated. So they cannot just lock their house, because they must repay their loans, so they must do their best to make people buy or rent these houses. So at the end of the day you will see, yes the premium charge will increase, but in real terms based on the principles of demand and supply, the Abuja property will come down to a more realistic level.

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