04 Jul The Role of Public Private Partnerships (PPP) in Bridging Infrastructure Deficiencies in Nigeria
Nigeria is currently suffering from a large infrastructure decay and deficit estimated at US$300 billion. With the current recession and lack of funds in the country’s treasury, it has been argued in some quarters that the country needs to take Public Private Partnerships (PPP) more seriously to reduce infrastructure deficiencies in Nigeria.
As evidenced in other countries such as the United Kingdom, Senegal and the United Arab Emirates (UAE), to name a few, PPP has played a strategic and vital role in enhancing socio-economic development in such countries. With adequate implementation and thorough regulatory framework, these countries have managed to develop impressive infrastructure and edifices over the years.
Nigeria is not alien to PPP deals, some of which include inter alia Lekki-Epe Expressway Toll Road, Murtala Mohammed, MM2 Domestic Airport Terminal, MM International Airport Road, Lagos Ibadan Expressway and Kirikiri Lighter Terminal 1 & 2 however many of these agreements are currently locked in legal or out of court disputes.
This report will examine the nature of PPP’s, the benefits and challenges and how it can be used as a tool to bridging the infrastructure gap in Nigeria.
WHAT IS PPP?
PPP is a long term contractual agreement between a public agency (federal, state or local) and a private sector entity. For the duration of the agreement, the assets and expertise of each party (public and private) are shared for the provision of a public asset or service. In addition, both parties share the risk and reward emanating from delivery of the service/facility.
Essentially, PPP’s can be described as:
- Arrangement between a public and private party;
- Provision of service for public benefit by a private entity;
- Investment in and/or management of public assets by a private entity;
- Specified duration;
- Shared risk between public and private entities;
- Focus on quality of service/performance;
- Payments linked to performance.
PPP’s have been used worldwide for the delivery of specific services in sectors such as roads, aviation, power, education, healthcare among others.
TYPES OF PPP
In terms of structure, there are varying models of PPP’s differentiated by two key factors namely (i) risk allocation; and (ii) duration of contract. Some of the main types which we will elucidate on here are:
- Concession Agreement PPP’s;
- Build Operate Transfer (BOT);
- Management Contract PPP’s; and
- Lease Contract PPP’s.
Concession Agreement PPP
A concession grants a concessionaire (private entity) a right of utilization of a public asset for duration of time. The private entity is responsible for the operation of the asset and also provides the capital investment for the asset. Although the concessionaire has the right to use the asset, ownership of the asset is retained by the public entity even during the concession period. The concessionaire collects the tariffs directly from the end users.
Concession Agreements are typically for a long period of time i.e. 20-30 years to allow the private entity enough time to make requisite returns on its investment.
In a BOT project, the public sector grantor grants to a private entity, the right to build and operate a facility or system for a certain period in what would otherwise be a public sector project. In this instance the private entity finances, owns and constructs the facility or system and operates it commercially for the project period, after which the facility is transferred to the public entity.
The distinction between Concession and BOT PPP’s is that concessions are habitually the operation of existing systems or extension to existing systems while BOT’s are normally new “greenfield” projects where there is no income or revenue stream at inception.
Management Contract PPP
A Management Contract expands the services to be contracted out to include some or all of the management and operation of a public sector infrastructure service. Although ultimate obligation for service provision remains with the public sector, daily management control and authority is assigned to the private entity.
In most cases, the private partner provides working capital while the public sector retains the obligation for major capital investment.
Lease Contract PPP’s
Under this arrangement, full responsibility for the provision of the service is transferred from the public sector to the private entity. In addition, financial risk for maintenance and operation of the infrastructure service is vested entirely in the private entity. The private entity under the lease contract is obligated to make lease payments to the public sector. Lease Contracts are typically for a period of above 10 years subject to renewal.
BENEFITS OF PPP
Some of the key benefits of PPP include:
- Enhancement of socio-economic development;
- Supplementing the limited capabilities of the public sector to meet growing demand for infrastructure development;
- Promoting private sector technical expertise and innovation in the provision of better public services vide improved operational efficiency;
- Creating efficient and productive working relationships between the public and private sector;
- Risks fully appraised at an early stage to determine project feasibility;
- Timely project completion without delays.
CHALLENGES WITH PPP IN NIGERIA
- Private sector reluctance to do business with public sector;
- Weak legal/regulatory framework (the Infrastructure Concession Regulatory Commission (ICRC) Act does not adequately address protection for concessionaires and dispute resolution);
- Low investor confidence;
- Lack of transparency;
Although some of the problems with PPP in Nigeria have been enumerated above, the Federal Government is definitely making a concerted effort to promote PPP with a view to closing the large infrastructural gap in Nigeria.
Indeed, we have seen varying tiers of government clamour for more frequent utilisation of PPP’s. To this end, the ICRC has recently partnered with the Institute for Public Private Partnerships with the aim of delivering improved infrastructure in the country. Both parties have entered into a two year agreement subject to renewal to meet its goal.
It is apparent that the Federal Government can no longer meet the infrastructural needs of a vastly growing country due to deficits and sovereign debts. It is essential that private sector involvement is pervasive in the quest for more PPP projects. We have already seen a trend in Africa whereby international multilateral Development Financing Institutions such as African Development Bank and International Finance Corporation are engaging governments in Africa with an intention of improving the infrastructure network in Africa.
With a more rigorous PPP regulatory framework and a boost in private investor confidence, there are no bounds to what PPP projects can do in terms of infrastructure development. It is important that Nigeria uses other countries as a blueprint to achieving successful PPP projects.
Our Firm is conversant with PPP structures and is able to advise further as and when required.
The content of this document is solely for information purposes only and should not in any way be construed as a legal opinion. If you require specific legal advice on any of the matters covered in this article please contact firstname.lastname@example.org