Primero Transport Services Limited is one of the operators of the Bus Rapid Transit (BRT) in Lagos State, with about 500 buses operating within the Ikorodu to TBS corridor. In this exclusive interview, Fola Tinubu, MD/CEO of Primero TSL, shared the journey of the company in the last 10 years, including how the naira devaluation ballooned the firm’s debt, while calling on the federal government to integrate the CNG initiatives with BRT to slash costs, hurting operations. BusinessDay’s Osa Victor and Wasiu Alli bring the excerpt:
Looking back, what has kept Primero TSL going, and how has the business sustained growth over the past decade?
We survived by God’s grace. With the help of our bank, our bankers, and the hard work of my team. And you know, I get the smallest credit for it. The biggest credit goes to God, to the bank, and also to the Primero team, because without them, none of these would have been possible. The challenges have been numerous, and they are very straightforward. I’ve talked about it extensively with other media organisations. So, there’s nothing to hide. Part of it is that the cost of operation keeps galloping. And the way it keeps on galloping, it’s astronomical. And I’ve used the example of diesel: when we started 10 years ago, diesel was 115 naira per litre. We are buying the same diesel now at 1,100 and something naira a litre. And, you know, it went as high as 1,600 at a time before it came down.
When we started, the naira was 169 naira to a dollar. Now the same naira is 1,500 naira to 1,520 or 1,515 to a dollar. It went as high as 1,800 before it came down. And I’ve said several times that none of the things that we use on the buses are manufactured in Nigeria. They’re all imported. And the moment the naira changes value, everything goes up in price. I’ll give you another easy example. Tyres, when we started, we were buying them at about forty-something thousand naira. And those were high-end tyres because when we started, I used to tell people I didn’t want any Chinese tyres. We are now buying the Chinese one that I said no to before. We’re now buying about 250 to 350,000 per one. How much have our fares gone up? Our fares have gone up, maybe by 100% from where we started then. So, our cost of operation has gone up by God knows how many 34,000 per cent, and our revenue has gone up by maybe about 200%. Everybody should be asking, ‘How did you guys survive? How did you weather this? How did you manage this? ‘How did you do this?’ Because there’s nothing I’ve said to you now I haven’t said in the last 10 years. I’ve been consistently saying the same thing for the last 10 years.
Business owners are now saying that there’s a bit of predictability in the market dynamics. Did you see any improvement in the market so far, say in the last two years?
Yes, there’s been some marginal improvement, and I’ll give you a couple of examples. Inflation has actually tapered a little bit. In fact, I read somewhere in your newspaper that inflation is now about 16% or something like that. And there was a time your newspaper was reporting inflation as about 30 per cent or something like that last year. So, that is getting better. The government book seems to be getting stronger and cleaner because they’re getting more revenue in. So, that aspect of it is actually getting better. It has not percolated yet to us. But I can see light at the end of the tunnel. And, you know, I’ve been upfront with you. We are presently talking to the federal government about converting 200 of our buses from diesel engines to CNG. If we do that, then I’m working with them to beg, call, cajole, and cry for them to at least maybe pay for it. If you can do that for us, that will reduce our cost of operation drastically because 80% or 85% of our revenue right now goes to buy diesel. So if you can reduce that by 20, 30, or 40%, that changes the paradigm; that changes the dynamics. Will this solve all our problems? No, it will not. But it will put us in a much, much better situation. All right.
Since you are talking about what the government and other stakeholders should do. Are there specific reforms that you would recommend or that you would love to see to ease your business and to also accelerate growth?
Let me say something. Without us getting a world-class public transport system, Nigeria cannot get to the $1 trillion economy that the federal government is shooting for. Lagos State, whether you like it or not, is the backbone of Nigeria. And whatever happens in Lagos State affects the whole of Nigeria. Lagos State is a very small landmass. Cannot build enough roads to accommodate the needs of, you know, if everybody starts buying cars and everything. It’s in Nigeria’s interest to ensure that Lagos State has a very, very robust public transport system. Because when Lagos State sneezes, Nigeria catches a cold. And if Lagos State can get a robust, viable public transport system, not only will it change the fortune of Lagos State, but it will also change the fortune of Nigeria. I’ve said it several times, and I’ll say it again, because you can Google all my past interviews, and you’ll see exactly what I’m about to say in the end. Now, we need to decide on Lagos State. Do we want an Okada mode of public transport system, or do we want a world-class system? If we want a world-class system, it has to be paid for. The question is, who pays for it? But you don’t transfer the social responsibility of all three federal, state, and local governments to a private company. We don’t do that.
Lagos State needs a minimum of about 5,000 to 7,000 new buses on the road to cater to the needs. And the same thing goes for the rail, and the same thing goes for ferries. Okay. For the kind of investment that entails, the government cannot write a cheque for that. Because if the government writes a check for that kind of investment, then what about education? What about healthcare? What about security? What about all the other things that the government needs to do? So, to make this thing work, Lagos State has to get the private sector to invest heavily in the public transportation system. And whether we like it or not, public transportation is a capital-intensive business. If Lagos State is going to attract money from the private sector to come in, then the private sector has to at least know that they can make money. At least break even. Even if you don’t make a profit. That’s the only way the private sector will invest because the private sector money is looking for returns, is looking for profit, and it will only go to sectors or areas where they have good returns. To go back to your question, we need to sit down and decide if we need an Okada mode of public transport or if we need a working-class system of transport. If we need a working-class system, we need to be upfront with each other. You know, we have to do what is necessary. I know subsidies in this area in Nigeria connote corruption. Connotes everything bad, you know, when you mention everything bad. Yeah, but the reality is all over the world.
Public transport is subsidised heavily because if you want to charge the full price, it will not be affordable, and if you take the affordability out, it becomes an elitist mode of transportation; it becomes Uber. It becomes something like, you know, people like Fola Tinubu can afford. So, you cannot turn away from the affordability part of it. And I was happy when the governor said that the train is going to be 500 naira, or something like that. Okay, that is the affordability part of it. But if you’re going to do that, you have to be sure that the business can survive at that price, because that price may not be enough to cover the cost of operations and to cover money to reinvest to bring new things in. London transport is subsidised both by the British government, which is the national government, and the city of London. And you can Google it online. It says online that about 35-36% of their revenue comes from the subsidy from both the British government and the City of London. Greater London Council. So, I’m not pointing fingers at just Lagos State. I’m pointing fingers at the federal government, I’m pointing fingers at the state government, and I’m pointing fingers at the local government, because the local government can also do something.
Do you believe mass transit can attract long-term, sustainable private sector investment?
That’s what I’m saying, if you want, and I’m happy this is BusinessDay because I know the people that are going to read this are business people, you know, and they understand fully what I’m saying now. If you want a world-class service, the Lagos State government cannot do it by itself. It requires the private sector to come up with a lot of the money to do it. But if they’re going to do that, remember you’re taking money from things, you know, that could be invested in other things. So, you have to make sure that they have enough; they’re going to make enough money, not only to cover their cost but for them to make a profit. Yes, they can say, ‘Okay, let’s be altruistic.’ Yes, we can make 20% over there. But because this is our state, okay, we’ll accept 3%, whatever, okay, but then most have to make some sort of profit to justify the investment. If I go to my board now and say, “I want to invest in so-and-so, and we’re not going to make money,” the board of directors will look at me and say, “Did you smoke your lunch, or is it your breakfast you drank, or which one of them?” So, why do we need to put money in there when we can leave the money in the bank and you’re getting 15-20% interest without any problem, and your money is guaranteed by, you know, by the federal government, that I can get my money back if anything happens to the bank? I can go to sleep and, you know, get that kind of return. Or I can buy treasury bills, and I can go to bed. You know, relax; the Nigerian government will pay me my money. So, those are the things that public transport is competing against, whether you like it or not.
You mentioned the other time that operating costs have gone up, and you have tried to manage and survive over the years. So, what are the strategic initiatives or strategies that you adopted to stay afloat for the past decade?
You don’t even want to know the financial engineering we’ve been doing for the last 10 years. But honestly, look, at this point, I doff my hat to Sterling Bank. Honestly, I don’t have arguments with them all the time. We are always fighting them. But I doff my hat to them. Because without them, we would not be where we are today. They’ve gone way beyond the call of duty to make sure Primero survives. In fact, most other banks could have, or may have, pulled the plug on us a long time ago. But they believe in the vision, and they stood with us because we believe in the vision, and we believe we are Lagosians, and we have to do the best for Lagos State and Nigeria. And it’s not just about Naira and Kobo at the end of the day; it’s more about development.
To wrap up, I will ask you two questions in one. The first being the last 10 years, if you could reflect, what has been the defining moment for Primero, defining moments in terms of the economic realities, and how have you been together with your team and been able to weather the storm? Then secondly, what advice would you give potential investors on new entrants that are willing to come into this space?
The defining moment for Primero was when Naira moved from 160 and initially went to 500 and something before it settled down at 350, 360 for a while, before it started jumping up. That was a rude shock for us because when we wanted to start Primero, as I said, the naira was about 160 to 168 or 169, and when we were doing our calculation, we used about 300 naira to a dollar to do our projections. And I remember I was in the meeting, and somebody said, “How can you go to 300 naira?” You know, you guys have been too pessimistic. Eventually, we use 350 for our projections. But look at it today. It’s 1,500 and something. That is the defining moment for Primero because from that moment on, it changed everything. It changed the dynamics, and the total debt that was supposed to be about 11 billion or between 10 and 12 billion, ballooned to over 20 billion overnight without us borrowing one naira extra just because of the naira devaluation. We bought these buses from China, and we took a loan from the manufacturer. Unfortunately for Nigeria, people come to me and say, “Oh, why didn’t you hedge?’ But how many banks provide hedges in Nigeria? The only bank that I know that will provide a hedge is Standard Chartered.
Look, the Nigerian banking space is actually getting more and more sophisticated every day. And I’m proud to say that Primero is one of the few firms that has really helped, in a way, change the Nigerian investment banking space. When we go to the bond market, before you go to the bond market, they only look at your balance sheet to make sure that you can afford to pay the debt back. But for the first time, we used the cash flow to get the bond, and we got about 16.5 billion from the market. We got 16.5 billion, but the most important thing was that our investment bankers put their thinking cap on and realised that we have to come up with, and I won’t say esoteric, but I would say a different paradigm, a different way of securing the bond. And they use cash flow instead of the balance sheet. I think I believe we’re the first ones that did it. Our investment banker even won an award that year for that particular product. So, what I’m saying is we are pioneers not only in the transport space but also, by default, in the investment banking space. Because I’ve read about quite a few other companies going to the market, raising money based on the cash flow of whatever they are. They’re doing or selling or making or, you know, something like that. When we were trying it about 5 or 6 years ago, people were looking at us and saying, “This is not possible.” So, the major investment banking space is changing rapidly, and part of the changes is because of all these young, savvy guys and ladies that have gone to all these – quote on quote – all these business schools, and they are coming back to work in Nigeria. And they come back with all these new ideas, and I keep telling people, I love having young people around me. Because they don’t know there’s a limit to anything. But when you have all these young people, they think, “Why not? Let’s give it a push.” “Let’s try it. Why not?” And they come up with us, “Why not?” The goods are just there. Yeah. And ‘why not’ is what is changing the investment space in Nigeria.
In the next 5 years, what is your projection? Would you want to sell in order to get more money to run this business? Is selling shares your projection for the next five years?
We are not averse to going into the market to raise capital. And our going to the bond market has clearly demonstrated that, because for us to go to the bond market to raise money even shows that we believe. So we are definitely not averse to going to the equity market to raise funds. The question is not us going to the equity market. The question is, is the equity market going to invest? And they will only do that if my books can show that Primero is a viable company that you can put your money in. And that can only happen if we change the business model. The business model right now, where the federal, state, and local governments push their social responsibility to a private company, is not sustainable. So, the best way out is to change the paradigm and change the business model so that when I go to the market, you will write a check.
I remember when I was in business school, one of my teachers asked me if I wanted to do any investments. The first question you should ask yourself is, Will I invest my grandmother’s service or my grandfather’s service in this venture? If the answer is no, then don’t do it. Because you know, yes, every investment is a risk, but if it’s your grandfather’s or your grandmother’s money. You don’t want to go back to Grandpa or Grandma and say, “Ah, guess what? I’m sorry. I lost your money.” You can lose your own money, but you don’t want to go to your grandpa or your grandma and say, Ah, I’m sorry, Ma, I lost your money. So, we have to make it in such a way that everybody wants to invest their grandpa and grandma’s money in the public transport system.
