The Lagos State government is planning to introduce a new license agreement for bike hailing startups to allow them to operate within the state. A source who spoke to TechCabal on the condition of anonymity said startups will pay a license fee of N25 million (about $70,000) annually per 1,000 bikes. A further N30,000 will be paid for each registered bike rider after the 1,000 mark.

Discussions about the proposed licenses are still at an early stage, another source told TechCabal.

“Yes it is happening,” the source said.

“Conversations are ongoing, but the discussions are not at a stage where anybody can say this is the official position. There are still a lot of moving parts and a lot of things could still change,” the source said.

Another source with knowledge of the license agreement revealed that the government started making moves in this direction three months ago.

We’ve reached out to representatives of each bike hailing startup for comments about this news. Gokada and SafeBoda declined to comment, while ORide is yet to respond. We’ve also reached out to the Lagos State Ministry of Transport for comment and are awaiting their response.

Is the proposed license good news?

Regulation has been a concern for bike hailing startups, with many previously disclosing that they would welcome government regulation in their industry. The proposed license agreement is a step in this direction. However, the financial side of the license is a slippery slope to future problems for the bike hailing business.

For instance, startups like Gokada and MAX already have over 1,000 bike riders each. With the proposed license agreement, they will both have to shell out $140,000 annually to the Lagos state government. That’s a considerable sum considering the size of their recent funding rounds and the fact that Lagos is just one state they operate in.

Bike hailing startups are operating in a regulatory grey area in Lagos. The proposed license offers a way out, but at an unsustainable N25m annual fee.

Expansion is on the agenda for every bike hailing startup. ORide, MAX and Gokada have already announced new operations in other parts of Nigeria.

But the proposed license agreement could create big obstacles for startups. If the proposed fees become a reality, it could encourage governments in other locations, both within and outside Nigeria, to follow suit.

The license fee could also discourage new players from entering the bike hailing market in Lagos. One example is Uber which has already launched its own bike hailing service UberBoda in countries like Uganda. The company has stayed away from the Nigerian market because of the uncertain regulatory environment. Brooks Entwistle, Uber’s Head of Global Business Development, disclosed earlier this month that the company is interested in this market but is watching developments closely. Lagos’ proposed license agreement could add to their previous reservations about Nigeria.

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