The Lekki-Epe Road Project: The Need For Contingent Valuation (Part 2)

Written by  Adeyinka Adewale, PROPERTYGATE Published in Editorial Wednesday, 27 July 2011 15:31
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The first part of this article painted a picture of the origins of the Lekki-Epe road project and the objectives of the parties involved in the scheme. It went ahead to discuss from a historic point of view the success and downfall of the toll-road strategy in Nigeria, the same now being adopted by LCC in the Lekki-Epe project. This concluding bit adopts a first principle approach to evaluate the recent dispute between Lagosians and the combined duo of LCC and the State Government.


Back to first principles, ideally, projects of this nature and magnitude embarked upon anywhere in the world are carefully considered before they are plunged into. For example, a thorough stakeholder analysis should have revealed potential costs and benefit to every kind of stakeholder directly or indirectly impacted by the project. From this, decisions that suite the most important stakeholders can thus be taken. In practical terms, the decision of who the most important stakeholders are is quite difficult, yet the fact that the scheme was done for the government points to the fact that it has to be ‘populace friendly’. Whilst from a capitalist point of view, the need to make profit is there; such profits will have to be smartly made in such a way that eyebrows will not be raised. Fulfilling both objectives in an obviously exploitative manner has left LCC and the government stuck in the middle, one key reason for the breakdown we have today.

Prior to a thorough stakeholder analysis being carried out, a vital tool that should have been at the foundation of the decision to invest or otherwise is the willingness to pay (WTP) analysis which is meant to reveal in clear terms the cash flow of how much the masses are willing to pay based on perceived economic value of the project to them. A cash flow based on these figures would have generated an overall capital outlay beyond which the investment will be a disaster. In other words, having a start-up capital to invest should not be the sole determinant of decisions to invest but also the willingness to pay for the infrastructure by those that are being provided for. This is the gospel of contingent valuation. Whist this article is not suggesting emphatically that LCC did not embark on this kind of multi-stage rigorous investment analysis in making their decisions, it is only opining that perhaps this was not properly done.

Expounding a bit more on the contingent valuation point of view, when an infrastructure project is embarked upon, there is a need to measure in clear numerical terms the perceived economic value to the society at large. In other words, if the public fails to see reasonable economic value in such a project, expected returns are bound to fail,especially when they are investment partnerships with a life span. Economists base the concept of value on decision framework within which rational individuals make the bestuse of resources and opportunities. The framework assumes that the individual members of the economy react systematically to perceived changes in their situation. Suchchanges can include addition to the quantity and quality of the road resource of primary interest, prices, costs, institutional constraints and incentives, income and wealth(Young, 2006). From a utilitarian approach, a commodity has economic value when users are willing to pay for it rather than do without, also called the greatest good to thegreatest number of people.

But, an analysis of economic values for road-related projects is seldom an easy task. The analysis of the demand side for road infrastructure projects requires as muchspecialised skill as is required by our colleagues from engineering to perform their supply-side studies. It is from this that the WTP for the infrastructure is determined. In clearerterms, WTP is a monetary measure of the intensity of individual road user preferences. The overall outcome of this investigation should be the basis of all decisions to be madeabout the project. In conclusion therefore, as decisions on the way forward hangs aloof, LCC may be forced to undertake further studies using the tools described above todetermine reasonable levies that will not cause discomfort for the masses, failure of which will amount to further mess.

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