Home Finance Public private partnership the new way to infrastructural provision, Nigeria’s bid

Public private partnership the new way to infrastructural provision, Nigeria’s bid

by Business News Report

By Omoh Gabriel, Business Editor.
The debate as to what should be the role of government in the provision of infrastructure is an aged long dabate. Economist in the late sixties attempted to draw a line on what should be the role of government in economic activities. To the economist then public goods were such goods which usage by one person can not preclude others from using them. Such goods include security. If there is security and peace in an environment no one single person can be prevented from enjoying such peace. However private goods were regarded as those whose usage others who did not pay for them can be ecluded from thier usage. Such goods that people can be excluded were regarded as private goods that are better left in the hand of the private sector.But all that is changing as more and more countries are parnering with the private sector in the provision of basic infrastructure through Public Private Partnership (PPP).
The Nigeria Public and private sector managers on Monday sat together to brain storm on how to fashion a way forward in public private sector parnership in Nigeria in the provision of basic infrastructure. The talkshop was put together by the Nigeria Economic Summit Group (NESG) and sponsored by several multilateral agencies. PPP as it is popularly referred to has become the most widely used vehicle for social economic transformation of society both in the developed and developing economies. In Britain the system was introduced in 1992 and since then several social infrastucture has been developed through it. Incindentally, one of the chief sucess factor of the scheme in Britain is a Nigeria, Mr. Wale Shonibare Associate Director of KPMG in London. He has travelled to almost all the continents of the world consulting for governments on PPP.
Governnments across the globe have come to terms with the fact that public sector alone can not provide the needed infrastructure and have come to the conclusion that private sector participation in the provision of infrastructure is inevitable.
The concept is not entirly novel to Nigeria. Some elemnt of it are found in the Independent Power Plant arrange made with some private companies to generat power supply, The Lagos state government arrangement nwith some firms on waste collection and disposal, the federal government arrangement with Solgas to get Ajeaokutal Steel plant in operation etc are some of such project already in operation. What is new how ever is that a formal frame work that will ensure trasparent and competitive bidding is being put in place by the government.

Experts have suggested that partnership between the two sectors should be central to any government’s aim of establishing first class public services and infrastructure and promoting economic growth and regeneration. The aim of the partnership it suggested should always be to make the best use of what both sectors have to offer to deliver higher quality and cost effective public service. The World Bank it said has also recognised that the public sector engaging the private sector in a kind of partnership to fund public projects is a favoured option for solving the increasing demand for services. This is said to be particularly urgent for a developing country like Nigeria that require new infrastruture in its bid to alleviate poverty and infant mortality. The worl Bank studies have shown that within this decade, developing countries alone will need to invest over $200billion per year in basic infrastructure, $2trillion by 2005. Over $1.2 trillion is said to be needed in East Asia alone, which implies about 7 per cent of the region’s GDP.
According to Dr. Kassim Gidado Head of Contruction Research Team, Faculty of Engineering School of the Environment, University of Brighton, UK, there are variety of concession and partnership arrangements. Some of the most commonly used are Private Finance Initiative(PFI) and Public/Private Partnership (PPP). The advantage of these two methods of procurement is that almost all the risk lies with the private sector and therefore ensures project delivery and compliance to international standard. It is arguable that with this benefit, the PPP and PFI methods of procurement are the solution to the problems faced by governments like Nigeria, that are trying to provide or fulfil the demand for services and infrastructure.
There are various types and forms of public-private partnership currently used around the globe. These are;
– Service contract, where the government awards a private party the rights and obligation to perform a specific service , within well defined specifications and period. Government retain ownership and control of all facilities, capital assets and properties.
– Management contract, where responsibility and control over a departmental function is transferred to the private party who is generally not expected to invest in the facilty.
– Lease, where the private party becomes the asset manager and operator of an existing publicly owned facility and pays a specified lease payment to the government. The operator collects the authorised tariff and earns profit but not expected to invest in the facility improvements.
– Concessions, where the private party takes over all aspects of facility management and operation from the government, often on a long-term basis. The private party responsibilities include maintenance and specified rehabilitation and capital investment in facility upgrades and enhancement. The private party is fully responsible for raising the required capital. This may take the form of build-operate-transfer (BOT), Build-operate-own (BOO) or build-own-operate-transfer (BOOT), design-build-operate-transfer (DBOT), design-build, finance and operate (DBFO). Other less common variants include BRT or BLT (build, rent/lease and transfer and (BTO) build transfer and operate.
– Private finance initiative (PFI), a concept where the private-sector provides the government a complete scheme or a project that the government would be interested in. The private party fully funds the development and operates it for an agreed period, during which the services produced are to be purchased by the government or other stakeholders.
It is important to note that PPP or PFI differs from out right privatisation in that the public sector retains substantial role in PFI projects, either as the main purchaser of the services provided or as an essential ebabler of the project. It equally differ in contracting out in that the private sector is involved as a provider of the capital asset as well as a provider of services. The main aim of the initiative is to bring private sector skills and finance into projects that would have previously been wholly or mainly provided by the public sector. The projects could range from financially freestanding projects, where the private sector takes on various risks associated with such projects, to joint ventures between the private and public sectors, where the risks are shared.
The desire of the federal government to follow globe trends in the provision of basic infrastructure led to the idea of port concessioning and the unbundling of NEPA If the current thinking in government is anything to go by the government must go beyond rhetorics and show the political will and commitment to ensuring that PPP is a reality in Nigeria. The federal government must equally develop a transparent and competitive and succinct bidding process devoid of under the table dealing. Alluding to the essential ingredient for PPP sucess Shonibare said that government must develop a framework for prioritising projects that would be undertaken as well as gather and disseminate the required information. Government he continued must ensure that it gets value for taxpayers molney in projects tha tare undertaken through PPP. Further Shonibare stressed that both the pulic sector and the private sector operators involved inb PPP project must learn to manage and influence public opinion to favour the PPP project. For a successful PPP in Nigeria he said that government must encourage the development of a deep and innovative capital market for long term lending as money markets are in the habit of short term financing. He alsom suggested that Nigeria should develop appropriate legal and regulatory framework for the PPP projects and maintain economic and political stability as well as promote value for money audits of signed projects.
Siting the experience of Britain, Shonibare said that since the scheme was introduced in 1992 over 600 deals have been signed which included 34 hospital and over 200 new and refurbished schools. He disclosed that there are over 70 more projects being negotiated with captive value of approximately #24.8billion pound sterling. According to him survey result has shown that 89 per cent of projects are delivered on time or early, all such projects in the survey delivered to public sector budgets, 77 per cent of public sector managers stated that projects were meeting initial expectations. He said that private sector investment now accounts for 10-14 per cent of total investment in public infrastructure in Britain. Projects in the pipeline he said includes, prisons, schools, hospitals, roads, courts, IT, government accommodation, light rail, defence, energy etc.
Sharing South Africa experience with PPP, Mr. Uven Bunsee said that South Africa in providing a regulatory framework for PPP entrenched it in the constitution act 108 of 1996 section 217(1) which states that ‚ÄúWhen an organ of state—-contracts for goods or services,it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost effective. He further disclosed that regulation 16 of South Africa requires that all PPP project deals to obtain treasury approvals for affordability, value for money, and appropriate allocation of risk. Mr. Bunsee said that certain inception steps were taken in all PPP projects in South Africa. They include ;
* Register the project with the PPP unit, which was in the office of the National Treasury.
* Appoint project officers who reports to the accounting officer/accountig authority
*Do an initial options assessment
*Draft terms of reference for transaction advisor team,
* Identify budget available and add PPP schedule to MTEF budget plan.
He said that Transaction advisor are necessary in PPP to assist institutions to bring PPP from concept through feasibility, bidding, negotiation, award, to execution. According to him the transaction advisor is appointed based on reports to project officer, who reports to accounting officer. Such persons or firm is appointed through open bid, with bidder’s conference to clarify terms of reference. Such a body is a consortium that must include financial, legal, technical and empowerment skill and experience. Such advisor is selected on technical, empowerment, price criteria. He said that sector specialist are beginning to emerge in PPP transaction advisor market in South Africa.
Mr. Bunsee said that in South Africa the selection of transaction advisor must ensure that the technical part of the bid show the company and individual PPP and sector experience as well as key individual availability. The empowerment part of the bid he stressed must show strong black equity in consortium and strong levels of black professionals on the team. The price of the bid he disclosed is in two parts,
-retainer fee (paid at deliverables in PPP project cycle) and
– Success fee (paid wholly or in parts from the PPP itself at financial closure.
Dr. Julius Bala Director General Bureau of Public Enterprises in his presentation argued that emperical evidence on relationship between infrastructure and economic development shows that efficient infrastructure creates employment, developps human capital, promotes local and foreign investment, raises standards of living, and improves access to critical services. Continuing Dr. Bala said that developing countries need to strengthen and expand dramatically their physical, economic and social infrastructure. He told participant that government lack the significant investment capital required to develop infrastructure in power, telecommunication, water, sanitation, education etc. He said that the mismatch between investment needs and available resources has resulted in the reliance upon PPP. Dr. Bala said that the private participation in infrastructure grew in LDCs from $16billion to $120billion between 1990 and 19997.
According to Bala trends in cummulative investment in nifrastructure projects with private participation by region show that in the middle east investment stood at 3 per cent, sub-saharan Africa 3 per cent, South Asia 5 per cent,Europe and Central Asia 13 per cent, East Asia and Pacific 28 per cent while Latin america and the Caribbean has a record figure of 48 per cent.
Dr. Bala further disclosed that in social statistics the average for six African countries; Ethiopia, Ghana, Kenya, Senegal, Tanzania and Uganda indicate that paved road person is 0.01 while that the average for non African developing countries is 4.49 per person. In the case of electricity, while the average for African countries is 118.5 KWh, that of the non Africa developing countries stand at 1,227.9 KWh per person. Public health spending per person he said has a record of $6.2 per person in Africa and $87.5 per person elsewhere. In primary education, Africa countries have on the average 44.7 pupil-teacher ratio while others have 27.6.
Mr. Bode Augusto the Director General, Budget office of the federation see the PPP as a vehicle to strenthen NEEDS. He said that over dependence on the federal government has stifled economic growth and private investment. According to him government has embraced privatisation, liberalisation, and deregulation. He disclosed that government preoccupation now is to concentrate on services in the key priority areas and capacity building while partnering with private investors to develop and maitain infrastructure in priority areas. Government he said will continue to provide the enabling environment for investors to operate in a free market place. Analysing the Nigeria economic environment he stated that over three quarters of government revenue comes from crude oil coupled with high government spending and high level of debt, high inflation and nominal interest rates, high unemployment rate and low income levels, high dependence on government for services and infrastructure. He said with this militating factor Nigeria is regarded as a high risk area that is not attractive to foreign investor. In order to encourage investor he said their is the need to provide fiscal incentives that will help mitigate commercial, financial, country , performance and market risks. He said that government in order to make the Nigeria competitive in PPP will provide take off grants to induce private sector to invest, adopt ring fence cash flow from PPP related projects for use to service project obligations. He said that government would also ensure that private sector operators are given the freedom to charge fair economic rates and that a review of property ownership rights for adequate protection of PPP related properties is done.
Bode disclosed that government is ready to consider projects for PPP in the following priority areas; Power, Roads, waterways, Railways, Refuse collection and disposal and any project that meets the aspiration of the needs strategy.
Part 2
The federal government is determind as it were to see the PPP project through. Apparently government has learnt that it can not do it alone. As a result it ie reorientating its officials that gone are the days when government officials feel that government has all the resources at its disposal and can do without the private sector. In the immediate hardly will government official afford the luxury of sitting through a seminar, rather they form part of the opening ceremony and move off with either the president or the minister as the case may be. But this time around government functionaries did not only participate, they facilitated the workshop. At least four ministers were physically present. The sat through the seminar taking notes and asking question. It demostrated the desire of the key ministry to find ways of delivering the ever eluding dividend of democracy to the citizenry. The Director General Budget office of the federation was at the seminar all through ditto for the Anthony General of the federation, the minister of Works, the minister of power and Steel. Almost all the states of the federation were represented. To further demostrate the seriousness of government, the President chief Olusegun Obasanjo has sent the Public Private Partnership (PPP) bill to the National Assembly in fresh effort at sourcing private sector funds for infrastructural development in the country. The purpose of the Bill Titled “Infrastructure Concession regulatory Bill, is to create the enabling environment and provide the legal frame work for the Public Private Partnership to thrive in Nigeria. By the provision of the Bill a contractor will be allowed to undertake the construction, including financing of any infrastructure, facility and operate, as well as maitain, and charge users of such facilities accordingly. The infrastructure that will come under the arrangement according to the proposed bill include: roads, railways, refineries, seaports, canals, dams, water supply, irrigation, steel plants, power plants, satellite plants, land reclamation projects, information technology networks, data base, drainage, dredging and sewage. The president said that decision of government to explore the PPP option was borne out of the inadequacy of government funds to provide all the needed infrastructures in the country, a situation that has left Nigerians with collapsing social facilities in most parts of the country.
Obasanjo said “We have identified at this point the inadequacies in allowing government alone to develop infrastructures. Experience has shown that our finances and capacity are inadequate to develop all our infrastructures. We have therefore been left with failed, abandoned or collapsing infrastructuress.” The PPP bill also proposes the establishment of a regulatory Commission to ensure that all factors that could discourage private investors in the facilities were eliminated and create a level playing field for all investors. However many of the participant at the workshop feels that such a body was not necessary that a unit can be carved out of the federal ministry of finance to handle all issues relating to PPP as is done in South Africa.
Allaying the fears of the international as well as local business community that corruption may mar the PPP project in Nigeria Mrs Obiageli Ezekwesili said that the government through her unit Budget Monitoring and Price Intelligence Unit is giving corroption in the service a hard knock. She said that the enemy of corruption is openess. She said that in the past government procurementg processes were shroweded with secrecy adding that it was only a priveledged few that had access to the federal government procurement process hence the high level of corruption. She said that corruption in Nigeria was carried out by a predictory inefficient and under developed private sector that can not compete internationally but rely on their parasitic counterpart in the civil service to win contract through corrupt means. She said that most of the corruption in the civil service were being perpetuiated by foreigners who hide under the cloke of business to take undue advantage of the country. She disclosed that since the setting up of the due process unit in the presidency two years ago, the nation was saved over N110 billion. She said the way Nigeria was doing business in the past was bad. According to her contracts were awarded without due process and as a result they were over loaded. She said that it was discovered that some contracts paid for were not executed.. According to her rules were simple not followed. All that is gone now as all contracts and expenditure of government have to pass through due process. She sited the example of NITEL were a contract for $102 billion was to be awarded and how those involved were trying to play a fast one by avoiding the due process unit and sending the proposal to the executive council directing under matters of National urgency. He said that the President querry the proposal by asking if it has gone through the due process. On learning that it has not gone through the process directed that it should do so. She said when the due process unit subjected to its test the bid did not meet up with laid down rules and have to be councelled. She also,disclosed that when the 2002 budget was being prepared ministries submitted N1.5 trillion request for capital project. She said that after the requests were passed through due process the entire request went down to N550billion. She said that it was said that professional were acting in most unprofessional manner just for the sake of making money. She said things got so bad that it was very costly to be of good behaviour. She said that inorder ti instil confidence in the Nigeria procurement system information about government procurement have to be made available to as many people as possible through open bidding, fairness and competitiveness.
She said that the due process unit in Fiscal year 2002/2003 yielded savings of N89.367 billion from a total of 588 projects. she said that due process has brought about improved system planning and project preparation work leading to accuracy of costing, cost/benefit analysis and prioritisation in deciding the spending pattern and plan for any given year. The due process she disclosed has led to improved fiscal management through more effective expenditure management, institutionsw, processes and control mechanisms. The due process system has also enthroned in the federal civil service improved technical efficiency in managing and utilising resources through improved information flows more relevant to decision responsibility of managers. It has also brought about enhanced transparency and accountability of government, providing better historic information as a guide to the future.
Mrs Victoria Kwakwa, a lead economist with the world said that Nigeria need PPP because the traditional model of government providing education and health services alone and for free is not working. She said that the public sector is increasingly incapable of meeting present and future demand for education and health. She ndisclosed that partnerships can bring together the complementary strengths of the private and the public sectors and enlarge the financial base for social services to be adequately provided. She said that evidence shows that there is scope for a wide range of private activity and innovative arrangements beyond two extremes of each sector going solo. PPP she further said can help address some of the key concerns about private provision of social serviceds.
Kwakwa listed poor access to capital at affordable rates to finance facility construction and expansion, lack of skilled staff, lack of access to building and land, demand impedements, bureaucratic hurdles as constraints to effective private private participation in Nigeria. She said that in order to promote successful PPP in Nigeria both party must realise that partnership is not a panacea but a means to harness strengths of each sector. She said that both the public and private sectors alike must come to terms with the fact that no size fits all. She further said that a few key areas need to be addressed which include the need to make clear the specific responsibilities of each tiers of govrnment and the need for a proper legal frame work for management, regulation for private participation.
PPP is not just any how project. What is always important to bear in mind is that any infrastructure services project to be developed as a PPP must demostrate a clear commercial benefit for doing so. What PPP can not do is to facilitate the development of ill cnceived or weak projects. To attract the high quality of bidders that is essential to run public infrastructure services for 20/30 years as well as a good number of bidders to obtain a rigorous competition, a project must be able to demostrate that it is commercially viable in its own right. There is no magic about this as PPP projects are no differnt to any other commercial business that has to stand on its own two feet to survive.

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