Brands & Marketing

$2.3trn Infrastructure Requirements: Public Private Partnership to Fill the Gap

Growth in the world today cannot be achieved without quality infrastructural development, which is said to be the bedrock of every society as well as the foundation for good democratic governance.

Recently, Nigeria’s Vice President, Prof. Yemi Osinbajo, revealed that the country needs $2.3trn in the next 25 years to remarkably address her current infrastructure challenges.

This means the country will need to be spending tens of billions of dollars annually to bridge infrastructural gap. Regrettably, the country’s infrastructure budget any year has never gone beyond $2.53b. This why Vice President Osinbajo also stressed that Public Private Partnership (PPP) is the solution to the country’s infrastructural deficit.

Public Private Partnerships (PPPs) are quite popular in developed countries mostly for large scale infrastructure and public works projects. The return of democratic governance in 1999 under the Obasanjo Administration gave PPP a renewed boost in Nigeria as a development model which subsequent governments also keyed into.

The fundamental assumption for PPP is that public sector funds are limited, and therefore, there is a need for the injection of private capital, both local and foreign, to deliver major infrastructure projects.

Private capital will always seek productivity and reward. That is, private capital invests in places with guaranteed returns. This arrangement, to some extent, has spurred economic growth in some sectors of the economy with the completion of some abandoned projects in rail transportation, road construction, agriculture, among others.

Currently, government’s efforts at engaging the private sector in massive infrastructure development to meet its goals have not been quite successful. Reports show that the private sector has not been too keen in partnering with the government on infrastructure development because of failed experiences in the past.

However, officials of the Federal Capital Development Authority (FCDA) and the Federal Capital Territory (FCT) keyed into PPP a long time ago. They are not strangers to PPPs given the avalanche of infrastructure works in the FCT since 1976. They saw the need to further embrace the PPP horizon to accomplish infrastructure outlay in the FCT, especially during the Obasanjo Administration, when the PPP model was introduced.

Revelations from officials of FCDA indicate that since 2006, five districts in the FCT have been penciled down for development using the PPP window. They include Katampe, Mabushi, Duromi, Kado, and Gwarimpa 1. The pilot scheme has been Katampe district. The project has had its own ups and downs as the concept was new, but it seems the challenges are being resolved.

There are other very critical infrastructure projects that are coming up in the FCT with several unsolicited bids from investors who want to execute the projects. For instance, there is a PPP plan for a transit system in the FCT where bus lanes and rails will intersect. It is one fundamental project that will go a long way in addressing transport issues in Abuja.

FCDA seems to have evolved over time with the creation of the Infrastructure Concession Regulatory Commission (ICRC) which has provided a legal and institutional regulatory framework.

It is worthy to note that ICRC Act was enacted in 2005 while the Regulatory Commission, flowing from that Act, was established in 2008 as the agency charged with supporting the federal government’s drive towards PPP model in order to deliver infrastructure projects in the country.

The Act provides for the participation of the private sector in financing the construction, development, operation and maintenance of infrastructure or development projects. It also encompasses the creation, expansion as well as refurbishment of preexisting assets. This means that any category of public infrastructure could benefit from a PPP model including power generation plants, transmission and distribution networks, water supply treatment and distribution systems, solid waste management, as well as educational, housing, and health care facilities, among others.

Authorities of ICRC have described Nigeria as the first country in the world to have a PPP disclosure portal. This means that on the ICRC website, every PPP project is openly disclosed. The World Bank has recognized Nigeria for that.

There are projects that can serve as examples of what can be described as successful PPP schemes in Nigeria. They include Obajana Road, part of Apapa-Oworonshoki Expressway rehabilitation, Apapa Port, the Murtala Muhammed International Airport 2 (MMA2), among others. Apapa Port concession has brought relative sanity in the port environment following the absence of wharf rats, among others. Experts believe what will help in solving the problem in Apapa Port, which is a river port, are deep water ports. According to ICRC, work is ongoing in some of the ports which will be completed in about 30 months.

Statistics from ICRC reveal that the regulatory body has about 69 PPP projects which are post-contracts that are doing well. The power infrastructure may not be a PPP arrangement because PPP involves a procurement process. However, experts believe there are three elements of the power sector which are PPP projects and they are the most successful. They include the three hydro-power plants namely, Kainji, Jebba and Shiroro. These plants were concessioned to the private sector and today, they are producing the lowest cost of power for the country. Industry players reveal that when Kainji and Jebba were concessioned, they were producing about 400 megawatts. Today, they are producing about 900 megawatts.

In concessioning the silos, the Federal Government is paying N1.4b of revenue upfront. Over a period of time, another tranche of N20b revenue will be earmarked to spread over 10 years. The silos seem to have been brought back to life, and farmers are the major beneficiaries.

The Garki Hospital is a PPP which is a unique success because it is probably the only PPP based on user-pay for social services.

Nigerians have been expecting PPP in road infrastructure. That is about to happen as ICRC is expected to choose one road per geopolitical zone. The intention is to turn the roads into commercial ventures as it is done in advanced economies.

According to ICRC, four airports will be concessioned, as work is ongoing with specifications about the maintenance, repair and overhaul facilities on PPP basis.

These projects wouldn’t have attracted the patronage of the private sector if they are not bankable. And it should be stated that one of the biggest problems of PPP is lack of technical capacity to prepare bankable projects. For the purpose of creating capacity, ICRC established the Nigerian Infrastructure and PPP Institute. But the capacity of the institution needs to be broadened to address issues of project monitoring and political interference in project selection.

The issue of transparency is vital especially during the bid process. The bid requirement as contained in the ICRC Act says that the bidder that submits the technically and economically more comprehensive bid should be awarded the contract. But sometimes, what is a technically and economically more comprehensive bid can be subjective.

In Nigeria, infrastructure deficit has remained one of the major drawbacks in the country’s drive to becoming one of the top economies of the world. Abandonment of projects by some investors raises concern, with some investors pointing at lack of funding, while other stakeholders describe it as lack of commitment by the investors.

What should not be lost in the mix is the fact that almost all the PPP arrangements that government entered into, fell below the expectation of Nigerians in terms of sustainability and development in all sectors. There are certain projects that have been concessioned yet not much can be identified as low hanging fruits to give the people economic advantage and economic power.

There are many beautifully packaged documents that specify and outline business cases in bidding processes. But during implementation, all the technical details, astute ideas, financial analysis and projections fall apart. Private funders especially foreigners, spin the projects for us. Most times, they underestimate the cost and overestimate the benefits. Sometimes, they want to carry out bankability study when the project has already started.

More so, engaging in bankability study after awarding the contract is against the ICRC Act. In fact, it is a whole institutional weakness we are dealing with: the weakness in implementation and disregard for contract procedures which need to be reviewed critically.

In arresting what could appear to be too good to be true in a bid document, every PPP project should have a financial adviser who is supposed to look at the feasibility study, test the scenarios, pick out the gaps and do the cost calibration.

There are reports that many projects failed because they commenced before the experimentation of PPP. However, there are grey areas surrounding the concept of PPP which make it complicated especially when many partners are involved. There are transaction advisers and financiers; there are people that form the SPVs that will execute the project. The private investor wants to make as much gain as possible from his investment. And if there is no prospect of guarantee for return, he may get discouraged and possibly withdraw from the enterprise.

Many years after the commencement of PPP model up to around 2015, public sector personnel still lacked capacity. There were no PPP units in Ministries, Departments and Agencies (MDAs). As a result, the MDAs that were supposed to package PPP business cases in the first instance, didn’t even have the requisite skills.

Sometimes, good consortium partners may be involved in a competitive bid process in compliance with ICRC rules. Surprisingly, when the bid is won and lost, the lead consortium partner decides to leave the enterprise midway for no justifiable reason.

PPP has suffered serious setbacks and lack of patriotism by officials involved, especially when it comes to project execution. The PPP model is meant to galvanise and accelerate development, but sadly in this part of the world, it is still faced with bureaucratic bottlenecks that have slowed its effect which is why there is a slow pace in delivery. At the heart of Nigeria’s abysmal performance in experimenting with PPP is greed and insincerity of purpose.

A look at the majority of the roads particularly federal highways will raise questions as to why PPP appears not to have been deployed on road infrastructure. For instance, it has been very difficult to complete work on Abuja-Lokoja, Lokoja-Ajaokuta, Lokoja-Benin, Owerri-Onitsha, among others. Perhaps the Sukuk Bond deployed for these projects is not achieving much. More importantly, it appears that we did not have a formal direction and philosophical undercurrent until the establishment of ICRC.

Read Also: Power Sector Challenges: Would There Be Light At The End Of The Tunnel?

The way to go is to stop the obsession with federal PPPs because PPPs are equally important at the sub-national level. Medical, transport and educational services need to be improved at both the state and local government levels. It is encouraging that the ICRC has partnered with the Nigerian Governors Forum to open the Nigerian PPP network to ensure that local and state governments use PPPs.

There are positive signs in this regard. The Kadikowa Hydro-Power Plant is a product of PPP from the sub-national entity. Sources from ICRC reveal that the power plant has forty (40) megawatts of power on the grid. It is the first on-grid power plant in the Northeast. More importantly, because it involves a sub-station and transmission system, it has created a stable system that supplies power to Biu and other parts of the Northeast.

For a successful bid process, due diligence has to be carried out. This could be done in two stages. The first due diligence should be done during the bid process, and secondly, at the end of the bid process. At the second stage, the draft agreement will be used to confirm if the bidder has the capacity to carry out what is contained in the draft. The objective is to deliver important infrastructure and projects which serve as lifelines for economic growth and poverty reduction.

Moses Amadi