ECONOMY - 13 FEB 2018

On Lekki Toll Gate Prices

On Lekki Toll Gate Prices
Lekki Toll gate prices were recently increased, leading to protests from Nigerians

Since 2011, the Lekki Concession Company (LCC) has been charging users of the Eti-Osa/Lekki-Epe expressway a toll fee. This was part of an original agreement with the Lagos state government allowing LCC expand, upgrade and maintain the 50-km expressway. The logic is that the government would focus on other budgetary requirements such as education while the LCC covers the costs of building the road with a 30-year toll collection. Lagosians have just about accepted life with the toll gate, but the recent price hike led to outrage.   

Times have been tough for both consumers and businesses as higher costs from different fronts have attacked the country in the form of a weaker naira and higher interest rates. The LCC has largely carried this burden; now, it argues that ballooning maintenance costs and foreign loan burdens made the tariff revision "necessary." 

But is the hike justified?  

 

Pay for what you use

The relationship between the Lagos State Government (LASG) and LCC has been a strange one. LCC is a Special Purpose Vehicle set up by LASG to execute the toll road. It is a Public Private Partnership (PPP); under a Build-Operate-Transfer (BoT) model, the project was concessioned to LCC for 30 years, during which they would manage and toll the road, before transferring ownership back to the LASG.  

But, in 2013, LASG had a rethink about its public-private partnership agreement with the LCC and bought back the concession. It is reported that the decision was taken to keep the LCC from acting within its original agreed rights of increasing the toll prices with inflation and exchange rate depreciation.

Today, the tolls remain, and according to the LCC website; the government has "control over the determination of toll rates in order to continue to make it affordable for road users." In short, it is likely that the LASG has been absorbing the added cost of operating the road – effectively subsidising it for road-users. 

 

Why toll at all? 

Markets often fail, leading to situations of overconsumption; think of how the world is polluting itself. As individuals, when we make decisions, we only consider our private costs and benefits. So when we decide to drive, we only consider the time and effort it takes to get to our next destination, we don't consider the extra hassle we impose on everyone else by being on the road. With an ever-growing population, having tolled roads could solve the problem of congestion. Tolls impose an explicit price on motorists so that they internalise the implicit cost they inflict on others.  

But our tolls have done little to solve the congestion problem. Motorists from the U.K. to Ghana might have to pay fares for travelling on certain roads, but they at least use tolls that are fast and efficient. Not so in Nigeria. Where other countries have automated systems, we have to wait while the operator searches for change. 

Moreover, the economic idea of tolling a particular road to reduce congestion only works when there are viable alternative routes – in Lekki's case, it's more of a congested detour. Unsurprisingly, the area has seen few of the purported benefits of tolling roads, due to poor execution.

Even if tolls could make our roads less congested and efficient, we cannot discount the equity side of the argument. The fixed toll price and its subsequent increase are regressive. Lower income earners feel the impact of it more than the rich. The toll price hike increases the cost of living for Lagosians who are already getting paid peanuts. Even with the NURTW's assurances, transport fares are more than likely to increase, placing even more pressure on the average income earner's salary.

Perhaps a more convincing proposal would be to scrap toll fares for transport vehicles, which solves two problems. First, more people could be encouraged to use public transport, and second, the toll becomes more progressive as those earning higher incomes take most of the hit.  

 

One for the road 

The toughest part of the toll equation is choosing an accurate or "fair" price to charge motorists. The original agreement with LCC factored in periodic price adjustments based on inflation. (Un)fortunately, weak political will has prevented the LASG from following through with that. Until now.  

There's a price level at which the LCC can cover costs with perhaps some help from the government, but at the same time would be a "fair" price for hardworking Lagosians and would improve congestion. This is a difficult task given that "fair" depends on the individual and people have different values of their time in traffic. 

Road pricing will always look better on paper than it does in practice. Economics not only explains why there are no free lunches but can highlight why some roads can't be free too. But the backlash from motorists over tolls needs to be met with forward-thinking policies from the government. Demand for the roads leading into Lekki is only going to keep going up, given developments like Dangote's refinery. Realistically, further toll hikes are imminent, how those hikes are handled is the real issue.

 

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Fadekemi Abiru

Fadekemi Abiru

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