Nigeria: Public-Private Partnerships: The Prospects For Standard Infrastructural Developments In Nigeria

Last Updated: 18 March 2019
Article by Dayo Adu, Blessing Adepoju and Adeola Oyeola

INTRODUCTION

Ideologically, it is expected that the government provides basic social amenities and infrastructure for its populace largely through taxes paid by citizens. In reality, taxes paid by citizens are not sufficient to ensure that these social amenities and infrastructures are provided for. It is no news that there is shortage of funding available for essential services and infrastructural development by the government in Nigeria and in almost every country in the world thereby creating a gap which NGOs and companies through their Corporate Social Responsibilities (CSR) have attempted to fill. The inability of the government to meet up with the increasing responsibility to provide and maintain infrastructure in the country and the need to regulate the contribution of private individuals to infrastructural development has led to the concept of Public-Private Partnership (PPP).

This article discusses the concept of Public-Private Partnership (PPP), clauses, examples, advantages, disadvantages and recommendations for its success.

A public- private partnership can be described as a co-operation between the public and the private sector, in which the government and the private sector jointly carry out a project  on the basis of an agreed division of tasks and risks, each party retaining its own identity and responsibilities. It is a way for governments to mobilise funds and deliver what they would not have otherwise been able to provide i.e. the public infrastructure and services that the citizens require.

The underlying principle of PPPs is that, the public sector needs to be responsible for the delivery of a particular service, it does not have  to be involved in the actual provision the service or for undertaking the investment themselves. In this way, all actors of a public private partnership can concentrate on doing their part of the agreement. PPP agreements are aimed at optimising the input of knowledge and resources from both sectors.

Major  public infrastructural  developments have always  been undertaken by the private  sector under contract. The major difference  between a normal contract from the government and a private sector  and public – private partnerships is the fact that the private  sector can be regarded as a full-fledged contributor.

Essential features of PPP are:

  • A  significant  level of responsibility  and risk is transferred from  the public sector to the private sector; there is no PPP without risk sharing. There are different categories of risk such as political, planning, design, construction, maintenance, operational, usage, legal & regulatory and financial risk. The appropriate  rule regarding risk transfer is that it should be allocated to the party which is best able to manage it and at the least cost.
  • Contractual arrangements are built around performance-based outcomes, rather than work specifications. There is room for minimum and maximum bidders, the best is given.

For a standard Public-private Partnership, transparency over projects funded and accountability for delivery needs to be explicitly defined, and the clauses spelled out in publicly available contracts. Thus, essential clauses in a PPP agreement are:

  • Performance requirements defining the required quality and quantity of assets and services, along with monitoring and enforcement mechanisms, including penalties. Performance requirements also entail utility restructuring, corporatization and decentralisation, and service contracts.
  • Payment mechanisms—defining how the private party will be paid, through user charges, government payments based on usage or availability, or a combination, and how bonuses and penalties can be built in.
  • Adjustment mechanisms—building into the contract mechanisms for handling changes, such as extraordinary reviews of tariffs, or changing service requirements.
  • Dispute resolution procedures—defining institutional mechanisms for how contractual disputes will be resolved, such as the role of the regulator and courts, or the use of expert panels or international arbitration
  • Termination provisions—defining the contract term, handover provisions, and circumstances and implications of early termination.
  • Management and Operating Agreements.
  • Joint Ventures and Partial Divestiture of Public Assets or Full Divestiture.

In Nigeria, The Infrastructure Concession Regulatory Commission (ICRC) established under the Infrastructure Concession Regulatory Commission Act 2005 is saddled with the responsibility of addressing Nigeria's physical infrastructure deficit which hampers economic development. The body has been active in the development of PPP and part of their activities is the establishment of Nigerian Public Private Partnership Network in collaboration with Lagos state.

A number of projects have been executed and are being executed in Nigeria through PPP, some of which are:

  1. Murtala Muhammed Airport 2 between Bi-Courtney Limited and the Federal Government.
  2. Delivery of 3.4bcf of Gas by 2020 between NNPC and Seplat Petroleum Development Company Limited.
  3. Lekki Road Concession

It must be noted that there is anticipation for a larger number of projects to be executed through PPPs as a result of the newly signed Executive Order 007 of 2018 by President Muhammed Buhari on the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme Order.

The benefits of PPP cannot be over emphasised. They provide better infrastructure solutions than an initiative that is wholly public or wholly private giving each participant the opportunity to do what it does best. They also result in faster project completions and reduced delays on infrastructure projects by including time-to-completion as a measure of performance and therefore of profit.

A public-private partnership's return on investment (ROI) might be greater than projects with traditional, all-private or all-government fulfilment. Innovative design and financing approaches become available when the two entities work together. Risks are fully appraised early on to determine project feasibility. In this sense, the private partner can serve as a check against unrealistic government promises or expectations. The operational and project execution risks are transferred from the government to the private participant, which usually has more experience in cost containment.

Public-private partnerships may include early completion bonuses that further increase efficiency. They can sometimes reduce change order costs as well. By increasing the efficiency of the government's investment, it allows government funds to be redirected to other important socio-economic areas. The greater efficiency of PPP reduces government budgets and budget deficits.

High-quality standards are better obtained and maintained throughout the life cycle of the project. Public-private partnerships that reduce costs potentially can lead to lower taxes.

It is noteworthy that PPPs are not without drawbacks as every public-private partnership involves risks for the private participant, who reasonably expects to be compensated for accepting those risks. This can increase government costs.

When there are only a limited number of private entities that have the capability to complete a project, such as with a major construction, the limited number of private participants that are big enough to take these tasks on might limit the competitiveness required for cost-effective partnering. Profits of the projects can vary depending on the assumed risk, the level of competition, and the complexity and scope of the project.

If the expertise in the partnership lies heavily on the private side, the government is at an inherent disadvantage. For example, it might be unable to accurately assess the proposed costs.

In conclusion, there should be promotion and increment in PPP participation in Nigeria as the benefits are immense in comparison with the disadvantages. It is, however, important that the government or the public sector and the private sectors embrace transparency and accountability while working together to ensure that the basic needs of the populace being the targeted beneficiaries of these partnerships are considerably met.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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