Concession negotiations spend a disproportionate amount of time on the termination-payment cap — the maximum amount payable if the government ends the arrangement early. The formula used to calculate the actual payment within that cap is what determines whether the investor is made whole, and it receives far less scrutiny than it deserves.
Book value versus actual debt
A formula tied to depreciated book value of assets, rather than outstanding project debt and equity return, systematically under-compensates the investor in the early and middle years of a concession — precisely when termination risk (change of administration, policy reversal) is highest.
The cap tells you the ceiling. The formula tells you what you’ll actually be paid if the ceiling is ever tested.
Lender step-in rights
Project lenders will insist the termination formula produces enough to cover outstanding senior debt — if it does not, the project is unbankable regardless of how generous the headline cap looks. Aligning the formula with lender requirements early avoids a late-stage renegotiation that weakens the sponsor’s position.
Negotiating the right variable
The productive negotiation is not over the cap number — it is over which variable (book value, replacement cost, discounted project cash flows) the formula actually uses, since that variable is what determines the real-world payout under every termination scenario the parties are trying to protect against.
This note is general commentary on Nigerian legal practice and does not constitute legal advice or create a lawyer–client relationship. Outcomes depend on the specific facts and the applicable law at the time. For advice on a particular matter, speak with the firm.
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