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Nigeria: Design, Implementation and Workability of PPP

Wale Babalakin

26 September 2008

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analysis

Lagos — The Public-Private Partnership (PPP) concept which is relatively new has gradually gained grounds in terms of implementation and in recent years, the volume and number of projects which are implemented under this arrangement have increased significantly worldwide.

This is not unconnected with the fact that it is now an accepted fact that Government at all levels is unable to exclusively provide all the infrastructure and amenities needed for the well-being of the populace and to develop the economy.

Nature of PPPs

PPP is a system through which public sector deliverables are provided by the private sector under a pre-arranged system. Under a PPP arrangement, Government uses the resources and expertise of the private sector to deliver services of the best quality and at the best price thereby releasing Government's scarce resources for other projects.

Public Private Partnerships (PPPs)

- Sustainable access to socio-economic services and products can be achieved through PPPs where the private sector is permitted to bring skills and core competencies to bear in its collaboration with the government to deliver these services.

- The collaboration between the government and the private sector in PPPs is especially productive in promoting poverty alleviation and enhancing healthy partnership.

- Where properly regulated, PPPs allow for flexible risk sharing between the public and private sectors.

Design of PPPs

There are varied models of Public-Private Partnerships and they are useful in describing the relationship between the public and private sector as it relates to the implementation of projects.

- Design-Build (DB) - The private sector designs and builds infrastructure to meet public sector performance specifications, often for a fixed price, so the risk of cost overruns is transferred to the private sector.

- Operation & Maintenance Contract (O & M) - A private sector, under contract, operates a publicly owned asset for a specified term. Ownership of the asset remains with the public entity.

- Design-Build-Finance-Operate (DBFO) - The private sector designs, finances and constructs a new facility under a long-term lease, and operates the facility during the term of the lease. The private partner transfers the new facility to the public sector at the end of the lease term.

- Build-Own-Operate (BOO) - The private sector finances, builds, owns and operates a facility or service in perpetuity. The public constraints are stated in the original agreement and through ongoing regulatory authority.

- Build-Own-Operate-Transfer (BOOT) - A private entity receives a concession to finance, design, build and operate a facility (and to charge user fees) for a specified period, after which ownership is transferred back to the public sector. A classical example of this arrangement is the Concession Agreement between the Federal Government of Nigeria through the Federal Airport Authority of Nigeria on one part and Bi-Courtney Limited and Stabilini Visinoni Limited on the other hand for the design and construction of the Murtala Mohammed Domestic Airport Terminal 2.

- Buy-Build-Operate (BBO) - Transfer of a public asset to a private or quasi-public entity usually under contract that the assets are to be upgraded and operated for a specified period of time. Public control is exercised through the contract at the time of transfer.

- Operation Licence - A private operator receives a licence or rights to operate a public service, usually for a specified term. This is often used in IT projects.

- Finance Only - A private entity, usually a financial services company, funds a project directly or uses various mechanisms such as a long-term lease or bond issue.

Implementation of PPPs

- Although a PPP is based on overlapping goals, there is much potential for conflict, especially where the PPP involves long-term arrangements between two or more parties. This is because PPPs can involve a myriad of complex legal arrangements, the interpretation or misinterpretation of which can lead to conflict between the parties to the agreements.

Challenges to Successful Implementation of PPPs

- There are numerous other challenges that may arise in the course of a PPP, particularly in a developing economy such as Nigeria's. Some of the challenges that may give rise to conflict are enumerated below:

-Absence of Policy Framework

-Inadequate Regulatory and Legal Framework

- Inadequate Judicial Processes

- Bureaucracy and Red-Tapism

- Corruption

- Policy Instability

- Tariffs, Revenue and Cost Recovery

- Vested Interests

Policy framework plays an essential role in a PPP enabling regime. A clear well articulated policy will be found in the form of a governmental endorsement which will typically state the Government's vision of PPP development in the country, its objectives, the principles it sets to promote including the legal and regulatory regime, institutional framework and possibly training policy and educational campaign where necessary.

Inadequate Regulatory and Legal Framework

- Until very recently, there was no regulatory framework guiding the operation of PPPs and in Nigeria. However, in 2003, the Federal Government adopted the National Economic Empowerment Development Strategy (NEEDS) which has highlighted our socio-economic developmental aspirations to be reform of the public sector, enabling a robust private sector-led economy and the implementation of an effective social charter for the purposes of reducing poverty, creating wealth, generating employment and re-orientating national values.

- A fundamental feature of NEEDS is that it clearly delineates responsibilities between government and the private sector in its component strategies, plans and targets; Government would provide the enabling business and regulatory environment while the private sector is to invest in and manage ventures that would stimulate and support socio economic development. NEEDS is therefore a broadbased Public Private Partnership (PPP) initiative which all stakeholders in the developmental process are expected to buy into for optimal success in implementation.

- In 2004, the National Assembly passed the Infrastructure Concession Regulatory Commission (Establishment Etc) Act into Law.

- The Act provides a legal basis for any Federal Government Ministry, agency, incorporation or body involved in financing, construction, operation or maintenance of infrastructure to enter into a contract or grant concession to any duly pre-qualified proponent in the private sector for the financing, construction, operation or maintenance of any infrastructure that is financially viable or any development facility of the Federal Government.

- The Act also establishes the Infrastructure Concession Regulatory Commission which has general supervisory powers over concessions granted by the Federal Government and its Agencies to private investors.

- The Act however forbids any Government Ministry agency or corporation to give any letter of comfort or undertaking in respect of any concession agreement made pursuant to the Act without the approval of the Federal Executive Council.

- Prior to the enactment of the Act, there was no regulatory framework in respect of PPP and BOT in Nigeria. The Murtala Mohammed Domestic Airport Terminal 2 was therefore a journey into largely uncharted waters.

- In addition, the Government's commitment and support is required to successfully complete a PPP project in order to avoid the adverse consequences of opportunistic and arbitrary actions by government agencies.

- The Government must also demonstrate a strong commitment in terms of preventing delays in implementation and grant of permits and approvals in order for such projects to be and remain on schedule. This because the existing administrative framework is inefficient and ingrained with complex and often unnecessary bureaucratic constraints which occasion delay.

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