Advances in Management & Applied Economics, vol. 3, no.6, 2013, 113-127 ISSN: 1792-7544 (print version), 1792-7552(online) Scienpress Ltd, 2013

Public-Private-Partnership andSustainable Development ofInfrastructures in Nigeria

Uwem Essia1 and Abubakar Yusuf2

Abstract There is broad acceptance that Public-Private-Partnership(PPP) can improve cost effectiveness and render moresatisfactory performance of infrastructure projects. But itis also widely accepted that the PPP option is yet to befully utilized for the building and management ofinfrastructures in Nigeria. The paper reviews PPP practicesand institutional framework in Nigeria, compares them withwhat obtains in selected global best practice countries, andsuggests how PPP can become self sustaining. Among otherrecommendations, the paper calls for mainstreaming of PPPthrough an institutional restructuring process that createsa cocktail of full service PPP agencies, vested with bothregulatory and executive powers as is the case in manyglobal best practice countries. Success with the proposedframework, however, calls for more holistic PPP legislation,sustainable long term financing models, and a comprehensivebusiness dispute resolution framework.

1 University of Calabar, Calabar, Nigeria. 2 National Iron Ore Company, Itakpe, Kogi State, Nigeria. Article Info: Received : August 10, 2013. Revised : September 19, 2013. Published online : November15, 2013

114 Uwem Essia and Abubakar Yusuf JEL classification numbers: Q43, Q21, M48, L32, H11, H54 Keywords: PPP, regulation, implementation, finance,contract, private investor 1 Introduction PPP is a contractual arrangement between government andprivate investor(s) where mutual benefits are sought, andthe private sector provides operating services and/orfinance. A PPP agency refers to an establishment (eitherwithin or connected to government) that provides servicesrelated exclusively to PPPs to government and private sectorclients (Farrugia et. al., 2008). PPP enables government tofocus more on facilitation and regulation, and allows theprivate partners to build facilities or deliver servicesoften on cost recovery terms. The primary goal is to promotevalue-for-money and risk sharing by private investors insocial development. This paper critically examines PPPpractices and institutional architecture in Nigeria based onlessons drawn from a review of selected global bestpractices, and then proposes a self-sustaining framework forPPP in Nigeria. 2 Preliminary Notes 2.1 Public-Private-Partnership Terminologies The popularly used PPP terminologies and execution models asexplained in Afolabi (2011) and CSMI (2010) are summarizedin Table 1 below.

Table 1: Public-Private-Partnership Terminologies Commonly used Terminology MeaningBOT – Build-Operate-Transfer Private investor builds a facility,

sells the output to the public, andtransfers it at the end of thecontract.

BRT - Build-Rent-Transfer Private investor builds facility,

Public-Private-Partnership and Sustainable Development in Nigeria115

rents it out, and transfers at theend of contract.

BTO – Build-Transfer-Operate Private vendor builds facility,transfers to government, andgovernment either operates directlyor contract out. The private vendoreither gets full payment at the endof contract or shares in the earningsfrom operation thereafter.

CONCESSION Private vendor (concessionaire) mayor may not build facility, but isallowed to manage the facility andcharge users a fee for use of thefacility.

DBB – Design-Bid-Build Government agency provides design,puts out tenders, and winner buildsthe facility.

DBFO - Design, Build, Finance andOperate,

Government designs the facility,private vendor finances building andoperates for cost recovery.

DBMF - Design, Construct, Maintain and Finance

Government designs, private sectorconstructs and maintains, andgovernment finances.

EPC CONTRACT – Engineering,

Procurement and Construction

Contract whereby the contractorproves a complete installation (e.g.a power plant) to specification, at afixed price and to a fixed schedule.

FRANCHISE The service provider (franchisee) isallowed to charge a service fee forthe use of the infrastructure orservice which has already been built.The franchisee pays a lump sum togovernment.

Lease/Maintain Private vendor pays rent for facilityand utilizes the resources.

Output specification Government agency specifies“outputs,” and private vendordesigns, finances and builds theinfrastructure.

116 Uwem Essia and Abubakar Yusuf RLT - Rehabilitate-Lease-Transfer

Private vendor rehabilitates afacility, signs lease agreement onfacility with government agency, andtransfers at the end of contract.

ROT-Rehabilitate-Operate-Transfer

Private entity rehabilitate facility,operates to the extent of full costrecovery, and transfers.

Sources: Afolabi (2011) and Centre for Sustainability inMining and Industry (CSMI) (2010) 2.2 The Political Economy of PPP Adoption The conduct of PPP differs from country to country dependingon the prevalent political economic conditions and risks.The political case for PPP in Nigeria is at present lesscompelling; due to the dominant extractive, rent seeking,political culture. There is strong likelihood that the useof PPP for building infrastructures would be resisted, andthe prospective private partners frustrated, by self-seekingpoliticians and top public servants because projectprioritization, appointments, and award of contracts arecurrently, largely, politically motivated. Accordingly,having the political will to reform the way government businessis carried out is the key determining factor for success ofPPP in Nigeria. The economic case for PPP in Nigeria ishowever quite compelling: first, is that PPP can be used toreduce the funding gap that arises from the mismatch of oilexport earnings’ flow and the financing needs forinfrastructure development; second is paucity of long termfunds for financing capital projects in Nigeria, and theglobal unpredictability of foreign direct investment (FDI)and foreign aid flows; and third is the need to sanitizepublic procurement through strong commitment to value-for-money project appraisal that private sector involvement can,more candidly, bring to bear. Akinyosoye (2010) opines that the use of PPP was largelyresponsible for faster development in Indonesia compared toNigeria. In 1965, both countries had GDPs of $4-5 billionand comparable populations of about 100 million. Both werein the early stages of becoming major oil exporters, andover the past 50 years have earned roughly similar amountsfrom crude oil exports. But non-oil exports have grown

Public-Private-Partnership and Sustainable Development in Nigeria117 faster in Indonesia; from about $500 million in 1965 (whenit was comparable to Nigeria’s), to about $30 billion in2009 (when Nigeria’s non-oil exports was below $1 billion).Over the same period also, Indonesia’s GDP grew five timesfaster than Nigeria’s, and electricity generation inIndonesia was seven times more than in Nigeria. Nigeria’sGDP per capita was $2,300 while Indonesia’s was $3,900 by2008 estimates. Per capita income performed better inIndonesia despite its faster population growth rate(Indonesia’s population was estimated at 240 million in2008, compared to 150 million for Nigeria). Despite havingsimilar initial conditions, Indonesia performedsignificantly better than Nigeria due to stronger privatesector involvement in infrastructure development. Attempts to adopt PPP in Nigeria are so far fraught withmajor disagreements on several sides. For example, two PPPcontracts of the Federal Government and Bi-Courtney Limited;one for construction of the Lagos-Ibadan expressway, and theother for a new terminal at the Murtala Mohammed Airport(MMA2) ended in fiasco. Many argue that revocation of thecontracts for both projects in 2012 did not follow dueprocess. Moreover, the arrest of Dr. Babalakin, Bi-Courtney’s chairman/chief executive officer, by operativesof the Economic and Financial Crimes Commission (EFCC) justafter MMA2 was revoked casts doubt on government’scommitment to PPPs. Bi-Courtney attributes its incapacity todeliver the projects to non-accessibility of long termfunds, and accused the Federal Government of refusing toguarantee its application for mortgage loan. And, while itmay be true that Bi-Courtney failed in its obligations,government’s readiness to flexibly assist it or follow dueprocess to terminate the contracts was questionable. PPP mainstreaming would however demand a change in the waypublic goods are perceived by the people. In particular, thethinking that public goods ought to be free has to give wayto acceptability of cost recovery as the bastion ofsustainability. The average Nigerian should, for instance,accept that it is cheaper to drive through a well maintainedtolled road than drive through a free but poorly maintainedand risky road. This calls for persistent reorientation,effective communication, and transparency of PPP

118 Uwem Essia and Abubakar Yusuf procurements. However, cost recovery needs to be balancedwith the fact that infrastructural projects generate somemeasure of externalities, which require reasonable measureof government subsidies and high degree of flexibility incarrying along the private partners and the benefittingpublic. Equally, a sustainable long term financing modelthat renders credit accessible and affordable is critical tosuccess of PPP. There is also need for a comprehensivedispute resolution framework for dealing impartially withpartnership disputes and ensuring that contracts areenforced. Wading through these concerns with reasonablesensitivity to the needs of all parties, to render PPP aneasy-to-adopt infrastructure development option in Nigeria,is the motivation for this paper. 3 Main Results 3.1 PPP Practices in Nigeria PPP procurements and contracts in Nigeria are currentlygoverned by the infrastructure Concession RegulatoryCommission (ICRC) Act of 2005, the Public Procurement Act2007, and relevant regulations issued by the ICRC. Theequivalent state PPP laws are generally in sync with theICRC Act. The Act empowers ICRC to develop guidelines,policies, and procurement processes for PPP projects inNigeria. In addition, ICRC takes custody of concessionagreements made under the Act and monitors to enforcecompliance. Under the Act, the Federal and State Governmentscan initiate and manage PPPs, but some State PPP projectsmay require Federal Government guarantee in order to earnthe confidence of major financiers. The Act envisages thatPPP projects would be initiated by a government Ministry,Department, and Agency (MDA), who is expected to process theapplication up to when approval is obtained. Wherecounterpart fund is required, the sponsoring MDA has toensure it is in place (ICRC, 2012). The ICRC Act identifies nine steps to packaging a PPPcontract. Step I is identification and prioritization of aPPP project by an MDA. Step 2, the MDA obtains clarificationfrom the National Planning Commission (NPC) that the project

Public-Private-Partnership and Sustainable Development in Nigeria119 is in line with plan priorities. Step 3, MDA submitsspending plan for PPP project to the Ministry of Finance(MoF) and the Debt Management Office (DMO) for appraisal. InStep 4, MoF and DMO review the costs and contingentliabilities of the proposed projects and advice the MDA onpossible revisions, where necessary. Step 5, the MDAincludes accepted spending plans in the budget as agreed byMOF and DMO. Budget is approved in Step 6 by theLegislature. Step 7, MDA is permitted to move spendingbetween different budget heads. In Step 8, funds aredisbursed to the MDA, and Step 9 is preparation/auditing ofannual accounts. Step 10 is consolidation of contractualpayments under PPP projects into the national account.Acceptability of a PPP proposal by the MoF and DMO is hingedon the credibility of the private partner, bankability ofthe project, government prioritization, expected cash flowsfrom the project, and availability of third-party supportfrom development partners, multilateral agencies, and so on(ICRC, 2012). The PPP approval process outlined above is not differentfrom the regular budget process of government. Counterpartfunds for PPP projects are budgeted for like other capitalprojects of the MDA. There are no special incentives forparticipating MDAs. No fiscal rule mandates that a share ofthe capital budget be financed or implemented through PPP.The ICRC Act fails to articulate the funding challenges PPPprojects may face. The Act neither has a dispute resolutionmechanism nor explains how the private investors can beprotected in the event of disagreement with MDAs. There arealso no mechanisms for receiving and examining unsolicitedPPP proposals from prospective private investors forassessment and sponsorship. Most regrettably, the ICRC isnot empowered to package its PPP projects; it merely givesapprovals and engages in advocacies. Thus, the criticalinstitutional platform for nurturing PPP projects tomaturity is lacking in Nigeria, and the entire institutionalarchitecture for capital budget execution is warped. Twoforemost PPP projects in Nigeria; one belonging to theFederal Government, and the other to the Lagos StateGovernment were reviewed from Afolabi (2011), Happiday(2012), and Nigerian Orient News (2013) and presented below

120 Uwem Essia and Abubakar Yusuf for insight on how PPPs in Nigeria can be rendered moreeffective and sustainable. 3.1.1 Domestic terminal at Murtala Muhammed Airport, Lagos This was a concession/BOT to build a new domestic terminaland ancillary facilities at the Murtala Muhammed Airport(MMA2) in Lagos. MMA2 was the first major BOT infrastructureproject to be contracted by a Nigerian company. The contractwas awarded in 2003 to Bi-Courtney Aviation Services (asubsidiary of Bi-Courtney Limited) following directnegotiations with the company for a period of 12 years andsubsequently extended to 36 years. The contracting entitieswere the Minister of Aviation, and Federal AirportsAuthority of Nigeria (FAAN). The estimated cost of theproject was US$200m. The project was part-financed with aloan of US$150m from a consortium of six money deposit banks(MDBs)— Oceanic Bank International Plc, Zenith Bank Plc, GTBank Plc, First Bank Plc, First City Monument Bank Plc, andAccess Bank Plc. The project encountered variousdifficulties, including; challenges in securing long termfinancing agreement, and unwillingness of FAAN to supportthe project by enforcing use of MMA2 by airlines as requiredin the PPP agreement. There were several claims of breach ofcontractual rights by both parties. A review of MMA2 PPPbrings to fore a number of learning points for rendering PPPmore sustainable in Nigeria. Firstly, the absence of a transparent and sustainable longterm financing model for PPPs was a major challenge.Secondly, many of Bi-Courtney’s shortcomings werepredictable and avoidable with effective planning, andrealistic setting of goals and timelines. Thirdly, theframework for periodic monitoring and evaluation of PPPprojects was weak, making enforcement of requiredoperational standards difficult. Fourthly, there was littleroom for review of the project to accommodate unforeseenchanges. Fifthly, the absence of dedicated disputeresolution mechanism for PPP projects allowed controversiesto escalate. The situation was compounded by FAAN’s refusalto obey several court orders, and incapacity of ICRC todefend PPP projects or protect private investors.

Public-Private-Partnership and Sustainable Development in Nigeria121 3.1.2 Lekki Toll road concession project, Lagos Lekki Toll Road Phase I was a Lagos State Government PPPproject involving upgrading and maintenance of approximately50 km of the Lekki-Epe Expressway. The concession period wasfor 30 years. The Concession for Phase 1 was awarded toLekki Concession Company Limited (LCC), a Special PurposeVehicle (SPV) formed for the project. The project was fundedusing a mix of debt and equity with some support from theState and the Federal Government of Nigeria. The majorshareholders in the project included Macquarie Bank and OldMutual of South Africa through the African Infrastructure Investment Fund. The project was able to raise the firstever 15-year tenured local-currency debt financing inNigeria from Standard Bank. Support from Lagos StateGovernment was in the form of a mezzanine loan. Lessons learned from the Lekki road project include theimportance of stakeholder consultation and ownership ascommunities living along the Lekki-Epe corridor protestedabout having to pay tolls, and following a court actiontolling was suspended. There is need also for strongcapacity for negotiating and managing PPPs by governmentoperatives, and effective planning. More seriously a people-centred mechanism for managing beneficiaries’ perceptionsduring project implementation needs to be developed andsustained. This would have reduced commuter frustration withthe perceived lack of progress on the project. There is alsoneed for agreed performance standards that are backed by aneffective penalty regime, and a sustainable long termfinancing model, with monitoring framework for ensuringvalue-for-money. Generally, it is fair to submit that thecontribution of PPP to infrastructural development inNigeria is very limited. 3.2 Global Best Practices and Lessons for Nigeria Globally, over 25 national and sub-national governmententities established PPP agencies between 1998 and 2008. Thecommonly used labels are as summarized in Table I. While thedifferent labels may suggest slight variations, the centralidea is government partnering with private investors tofinance, build, maintain or manage facilities. The PPP

122 Uwem Essia and Abubakar Yusuf agency is essentially the vehicle for planning,implementation, and management of the contracts. PPPagencies are characterized as review agencies or full serviceagencies. Review agencies essentially appraise PPP projectsand advise government on their workability/viability, andmay perform other regulatory roles as provided for by thelaw establishing them. Full service agencies implement PPPprojects in addition to carrying out the functions of reviewagencies (Farrugia et. al. 2008). Most PPP agencies, whether review or full service, arefunded by the government. But full service PPP agencies withsubstantial degree of financial self-sufficiency have beenfound to be more stable, better positioned to defend theintegrity of PPP contracts within the larger government, andcapable of attracting more local and international players.A PPP agency can become a Center of Excellence when it is able tocompile and disseminate research information, and educatepotential investors on best-practices. Most PPP agencies areunder the treasury department of ministry of finance. InNigeria, ICRC and other sub-national PPP agencies can atbest be described as neophyte review bodies, and nonequalifies as full service agency or centre of excellence. Typically, a full service PPP agency engages in businessplanning, procurement processing, project implementation,and market development. Few PPP agencies are involved in aconsulting capacity for both project management andtechnical support. PPP agencies can contribute to marketdevelopment by providing support services for both potentialand successful private investors; offering knowledge,understanding, expertise and practical experience, andlobbying for more friendly legislations and legal frameworkthrough improved private – government dialogue. Theactivities of PPP agencies in selected countries, withsubstantial successes in planning, design, andimplementation of PPP projects, are discussed briefly below(see Gemini Global Group (2013) and Farrugia et. al. (2008)for detailed discussions). The aim is to draw lessons fordeveloping PPP as a major means of deliveringinfrastructures in Nigeria.

Public-Private-Partnership and Sustainable Development in Nigeria123 3.2.1 The United States of America A.Colorado State University (CSU) Colorado State University (CSU) entered into a design,build, finance, operate contract for developing a 30-acre,23,000-panel solar power plant. Under the contract, CSUagreed to lease the land and purchase electricity producedby the plant at a fixed rate for 20 years. The contractallowed CSU to pay fixed rate for electricity with noupfront payment, while the energy firm had guaranteedrevenue for 20 years. CSU had the option to purchase theplant at the end of the contract term. B.Shelby County, Alaska Shelby County sold its old wastewater treatment plant to aprivate partner, and used the proceeds to fund theconstruction of a new water treatment plant that the privatepartner also operated and maintained. This improved the rateof recycling and increased revenue streams to the County andthe private investor. C.University of Arkansas The University of Arkansas partnered with a private investorfor operation of its wastewater facilities to producebiodiesel and preserve its wildlife reserve. The privatepartner benefited from guaranteed steady revenue streams,the University benefited from a better managed wastewatersystem and steady supply of biodiesel, and tax payersbenefited from the value created without new taxes. D.Road Project in Texas The first privately developed and operated open toll roadfacility in Texas was developed under a PPP. The PPP was todesign, finance, construct, operate, and maintain the state-owned toll road for 50 years at an estimated cost of $1.3billion. The state got a much-needed transportation upgradethat taxpayers could not finance and the private sectorpartner had guaranteed stable revenue stream for many years.E.Tourism and Hospitality The Arizona Game and Fishing Department entered into PPP fordesign, build, finance, operate, manage and transfer a newbuilding of $20.9 million. The agreement allowed the privateinvestor to manage and maintain the property for 25 yearsand thereafter transfer facility to the state.

124 Uwem Essia and Abubakar Yusuf F.United States Army The US Army in Yuma, Arizona, entered into partnership witha private contractor to design, build, finance, operate andtransfer special runway for hot weather vehicle testing. Theprivate partner was allowed to use the facility for testingits products, and after the lease period ownership of thefacility returned to the army. G.JFK Airport Facility A design, builds, finance and operate PPP for a new terminalat JFK airport worth $1.4 billion. The private partnermanaged and operated the old terminal while constructing itsreplacement on the same site. Revenue from the old terminalimproved and the private partner continued to operate bothterminals even after construction of the new terminal wascompleted. 3.2.1.1 Learning points for Nigeria from the US experience PPP is not the exclusive reserve of Federal and StateGovernments; local governments, parastatals, and communitiescan also use PPP to implement projects. Doing so, however,calls for flexible PPP models and legislation. 3.2.2 The United Kingdom (UK) A.Highways Agency The Highways Agency was established as an executive agencyof UK’s Department of Transport in 1994. It operates andmanages UK’s road network, which supports nearly one-thirdof all traffic in the UK and over two-thirds of all freighttraffic. The agency can use public or private finance for aproject depending on which gives the highest value-for-money, in terms of cost effectiveness and service delivery.The Highway agency does not have a specific PPP unit, butevaluating and managing PPPs is an integral part of the workschedule of its employees. The Agency has eight coredepartments, namely; procurement, network strategy, trafficoperations, major projects, safety standards and research,finance services, human resource services, and theinformation directorate. Highways Agency earns revenue fromconsultancy services and profit from PPP projects. B.Partnerships UK

Public-Private-Partnership and Sustainable Development in Nigeria125 Partnerships UK (PUK) was established in 1999 and becameoperational in 2000. Its primary mission is to acceleratethe development, procurement and implementation of PPPs. PUKis itself a PPP enterprise with 51 percent private ownershipand 49 percent public sector ownership. It supportsprocuring government MDAs with technical information andfacilitation, and has its own capital and the autonomy tomake investment and operational decisions withoutnecessarily needing the approvals typical of an entitywholly controlled by a government department. Moreimportantly, PUK has a motivational model that brings outpatriotic zeal among private investors, and many of itsprivate partners seriously desire to help ensure effectivedelivery of public projects, expand options for the deliveryof infrastructure, and improve the environment in the UK.PUK has two main roles, namely; regulation and review of PPPprojects, and program and policy support. PUK’s projectsupport role is limited to 10-15 percent of the PPP projectsin the United Kingdom, and it focuses on pathfinder,strategic projects. 3.2.2.1 Learning Points from UK’s PPP experience • Highway Agency – making PPP an integral part of the job

task for its employees, ability to earn and reinvest itsrevenue from PPPs (not charges extracted from privateinvestors), and use of value-for-money (VfM) calculationsto determine whether to use PPP or direct funding forcapital projects are key learning points to note.

• Partnerships UK – capacity to motivate private firms toinvest for patriotic reasons despite, itself, being a PPPventure, and having its revenue and autonomy to undertakePPP investments profitably are the key learning points.

3.2.3 Canada A.Infrastructure Ontario (IO) IO is a sub national PPP agency formed in 2005 to expand andmaintain public assets, and disseminate best practices forPPP projects. IO is fully funded by the Ontario provincialgovernment. It has projects, and loans and services as thekey departments. IO works hand-in-hand with the provincialinfrastructure agency (OSIFA) that provides Ontario

126 Uwem Essia and Abubakar Yusuf municipalities, universities and other public bodies withaffordable loans to build and renew local publicinfrastructure. IO solicits private financing for some ofthe province’s largest projects and also provides access toaffordable loans for government parastatals such asmunicipalities and universities. B.Partnerships BC Partnerships BC is a sub national PPP agency set up in 2002by the British Columbia Treasury Board to promote PPPmarkets, and ensure effective and efficient management ofinfrastructure projects. Though Partnerships BC is fullygovernment owned, its financial structure has evolved from afully government backed model to one that generates themajority of its income using fee-for-service platforms.Partnerships BC determines and manages its budget andbusiness plans. It equally develops PPP policies, conductsfeasibility analyses, develops competitive selectionprocesses, and recommends whether a project qualifies as aviable PPP. But the final approval lies with the MoF. 3.2.3.1 Learning points from Canada’s PPP experience • Infrastructure Ontario (IO) – ability to combine

implementation and funding functions, capacity forattracting finance for building infrastructures, andaffiliation with an existing funding agency are keylearning points.

• Partnerships BC – being a review agency that is able toearn revenue from providing consultancy services isnotable.

3.2.4 France

Mission d’Appui aux PPP France enacted a new PPP procedure in 2004 which set upMission d’Appui à la Réalisation des Contrats de Partenariat(MAPPP) as a PPP (service) regulatory agency. MAPPP is afully government funded task force, within the MoF, that isresponsible for all PPPs in France. All decisions regardingstructure, roles, responsibilities and governance of PPPsare submitted to it for approval. MAPPP promotes the PPPmarket in France through publication of newsletters and

Public-Private-Partnership and Sustainable Development in Nigeria127 participation in related conferences. But MAPPP is notinvolved in the day-to-day management of PPP procurements. 3.2.4.1 Learning points from France MAPPP’s roles as central PPP service (regulatory) agency andpromoter of PPP markets in France are notable learningpoints. 3.2.5 Portugal Parpublica Although Portugal has been undertaking PPP projects sincethe late 1980s, the Parpublica PPP Unit was not formed until2003, when the relevant PPP law was passed. Like MAPPP,Parpublica operates under the MOF and is charged withmanaging and privatizing government assets. A service agencydesiring to conduct a PPP will seek the approval of theMinister of Finance, who will request an assessment of theproject from the PPP Unit. 3.2.5.1 Learning points from Portugal The key learning point from Parpublica is that the centralPPP agency can also be charged with the responsibility ofmanaging government assets andprivatization/commercialization. By this, it may make senseto consider merging ICRC, the Bureau of Public Enterprises(BPE), the National Council on Privatization (NCP) and otherenterprise promotion/development agencies as roles played bythose agencies are effectively performed in Portugal by thecentral PPP agency, Parpublica. 3.2.6 Australia Partnerships South Australia Partnerships South Australia (PSA) is a sub national PPPagency of the state of South Australia. During the 1980s and1990s the state was involved in the private provision ofinfrastructure. PSA is similar to MAPPP and Parpublica inthe sense that it is a branch within the government and notan arm-length organization. It sits within the Treasury andreports to the Under Treasurer (Treasury’s Chief Executive).It is funded by the cabinet, including both start-up andoperations costs.

128 Uwem Essia and Abubakar Yusuf 3.2.6.1 Learning points from South Australia Provision of infrastructure through PPP at the sub nationallevel indicates that states with low earnings in Nigeria canstill build infrastructures effectively with private sectorfinance. It is also generally preferred to situate the PPPagency under the MoF, instead of making it a standaloneagency. 3.2.7 South Africa South Africa PPP Unit The South Africa PPP Unit was established to support policyand regulatory framework for PPPs in the country. PPPprojects account for about 6 percent of publicinfrastructure and service delivery programs. Since itsinception in 2000, the South Africa PPP Unit has brought tofinancial close 20 PPP deals worth a combined $5.5 billion.The South Africa PPP agency resides within the MoF and isfully funded by government. The Unit equally evaluates fullyfunded government projects to ensure value-for-money, andfocuses on social infrastructure and transportationservices. 3.2.7.1 Learning points from South Africa South Africa’s capacity to fund infrastructure developmentwith huge private sector funds is notable, equally havingthe PPP agency to conduct value-for-money assessments forfully funded major capital projects indicates that thecurrent Bureau for Public Procurement (BPP) can become adepartment of a full service central PPP for Nigeria. Theenvisaged central PPP agency can as well close contractawards and spare the National and State Executive Councilsthe task of awarding contracts that, many agree, iscurrently highly politicized. 3.3 Pillars of Sound PPP institutions Arising from the review of selected best practices above,the following five pillars of sound PPP institutions werediscerned.

Public-Private-Partnership and Sustainable Development in Nigeria129 1. Demand-driven – successful PPP institutions focus on

pressing market needs in the industry, sector, and thesociety.

2. Transcendence - strong PPP agencies have capacity forobtaining value out of materials that could normally bewasted, and deriving benefits from collaborating networksthat pool different stakeholders together.

3. Long-term horizon – capacity for measuring success overtime based on established metrics, and track performancebased on those metrics.

4. Financial independence – seeking revenue streams beyondallocation from government enhances the PPP agency’scapacity to operate in highly competitive environments,and drive towards innovation and efficiency.

5. Core structural integrity – sound PPP agencies establisha track record of trust, timeliness, reciprocity, andresourcefulness.

4 Frameworks for Sustainability of PPP in Nigeria Figure 1 illustrates the proposed model for sustainabilityof PPP in Nigeria as consisting of three sets of verticalbuilding blocks and three sets of horizontal enablers. Thevertical building blocks are mainstreaming of PPP, stablesource of long term finance, and responsive disputeresolution mechanism. The horizontal enablers are monitoringand evaluation, effective audit processes, and participatoryplanning. The vertical building blocks ensure steady growth,while the horizontal enablers eliminate the bottlenecks anddistortions that inhibit or affect growth adversely.

130 Uwem Essia and Abubakar Yusuf

Figure 1: Building blocks for a sustainable PPP framework Figure 2 presents a framework for mainstreaming PPP inNigeria. Basically, a three-step PPP mainstreaming frameworkis proposed. It requires creation of viable PPP institutionswith regulatory and executive powers at the national andsub-national levels of government. The first step is torequire each MDA and the LGCs to finance/implement a certainpercentage of its capital budget through PPP. By such afiscal rule, MDAs and the LGCs would need to createfunctional PPP units/departments. The second step is tocreate specialized PPP agencies for critical infrastructureslike electricity, highways, rail system, Internet coverage,and so on, with a view to speeding up their development. Thespecialized PPP agencies should solicit for private partnersand implement PPP projects. The third step is to create acentral PPP agency empowered to regulate and participate inPPP projects. The central PPP agency should be a statutorysubsidiary of the Ministry of Finance. The enabling PPP laws envisaged in Figure 2 should beholistic and more encompassing than the current ICRC Act.The double arrows show the importance of effectivecommunication among the stakeholders. The central or GeneralPurpose PPP agency is conceived here as the prime PPPinstitutions with dual roles as regulators and executors ofmulti-sector PPP projects. Example of such a project isbuilding of a dam, which apart from being highly capitalintensive, has several enterprise chains, including;

Participatory Planning

Audit scrutiny

Monitoring and Evaluation

Main

stre

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PPP

Long

Term

Fina

nce

Disp

utes

Reso

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Public-Private-Partnership and Sustainable Development in Nigeria131 electricity generation, irrigation, flood control and watermanagement, tourism, and fisheries. The central PPP agenciesshould coordinate such projects along with PPP units of therelevant MDAs and the relevant specialized PPP agencies. Thedual role of the central PPP agencies, as regulators andexecutors, will allow them have firsthand experience of howthe business environment impinge on PPP projects, and ensureoptimal regulation and support. Participation in PPPdirectly exposes the central PPP agency to practicalrealities and enriches their regulatory capacity whileallowing them to earn some revenue through successful PPPs.

THE GENERAL PURPOSE PPP AGENCY

SOURCE OF DISPUTE LONG TERM RESOLUTION

FINANCE MECHANISM

Specialized PPP Agencies for Strategic Infrastructures – automobile development, PPP agencies of Federal and

national highways, rail system, State MDAs (including oil and gas, electricity and so on parastatals) and the LGCs

Figure 2: Proposed PPP institutional framework for Nigeria The specialized PPP agencies are to generate and manage PPPprojects in the relevant sectors. Their activities should beregulated by the relevant departments of the central PPPagency and other guidelines specific to the sector. Lastly,

132 Uwem Essia and Abubakar Yusuf the PPP units of Federal and State MDAs, and the LGCs are toexecute a specified minimum proportion of their capitalbudgets through PPP. This is to ensure mainstreaming of PPPin all tiers of government. Figure 2 assumes however that afunctional market for long term finance for differentcategories of finance-deficit units is in place. It equallyassumes the existence of a comprehensive dispute resolutionframework to handle partnership disputes expeditiously. Figure 3 proposes that some existing Government MDAs, at thenational level, should be merged to create the proposedcentral PPP agency. These MDAs include; InfrastructureConcessioning Regulatory Commission (ICRC), NigerianInvestment Promotion Commission (NIPC), Nigerian SovereignInvestment Authority (NSIA), National Council onPrivatization (NCP), Bureau for Public Enterprises (BPE),Bureau for Public Procurement (BPP), and Nigeria ExportProcessing Zone Authority (NEPZA). As indicated, ICRC andNEPZA will fit into the regulatory unit of the proposedcentral PPP agency. NCP and BPE will together become thepublic enterprises’ restructuring unit, while NIPC fit intothe market development unit. NISA will constitute theimplementation/facilitation unit, and BPP the projectassessment unit. Apart from cutting cost and eliminatingunnecessary bureaucracy, the merger will put the key aspectsof infrastructure development - market development,facilitation, implementation, regulation, and value-for-money assessment - on an institutional platform that canmore appropriately be described as one-stop-shop for privatesector participation promotion and value-for-money procurement.

CURRENT OVER FRAGMENTED AGENCIES

Nigerian Investment Promotion MARKET DEVELOPMENT

Commission (NIPC) UNIT

National Council on Privatization (NCP) PUBLIC ENTERPRISES’ THE

UNIT IN THEPROPOSED

CENTRAL PPPAGENCY

Public-Private-Partnership and Sustainable Development in Nigeria133 Bureau for Public Enterprises RESTRUCTURING UNIT CENTRAL

(BPE) (GENERAL

Nigerian Sovereign Investment IMPLEMENTATION/ PURPOSE) Authority (NSIA) FACILITATION UNIT

PPP AGENCY Nigeria Export Processing Zone

Authority (NEPZA) REGULATORY/MONITORI Infrastructure Concessioning NG & EVALUATION UNIT Regulatory Commission (ICRC)

Bureau for Public Procurement PROJECT ASSESSMENT (BPP) UNIT

Figure 3: Creating a sustainable central PPP agency The specialized PPP agencies can as well be created byrestructuring existing agencies. For instance, theNational Electricity Regulatory Commission (NERC) inNigeria can be restructured to handle PPPs in theelectricity sector in addition to its regulatoryfunctions. Equally Federal and State MDAs and the LGCs canset up PPP units/departments from the existing pool ofstaff without having to employ additional staff. 4.1 Agenda for Reforming the PPP Framework in Nigeria Our discussions so far indicate that the followingrecommendations are pertinent: i. Decentralization of PPP planning, authorization, and implementation

There is utility in emphasizing involvement of theprivate sector and banks in the financing of capitalprojects in all government MDAs and the LGCs. This isdemonstrated clearly in the US examples where counties(equivalent of local or community governments inNigeria), universities, the armed forces, and state andfederal agencies, alike, package PPP agreements with

134 Uwem Essia and Abubakar Yusuf

minimal authorization hurdles. Such a diffused PPPapproval and engagement mechanism is necessary formainstreaming PPP and ensuring value-for-money incapital budget implementation. Decentralized and simplified approval processes can

speed up mainstreaming of PPP. ii. Necessity ofspecialized agencies for critical infrastructures

It is needful to have specialized PPP agencies for keyinfrastructures like highways, petroleum explorationand refining, gas pipelines, rail systems, ICTbroadcasting, electricity, and so on. Such agencies canbe given initial working capital, but their successshould be assessed by the value of profits earned fromdirect participation in PPP projects and fee-for-service consultancy platforms. Earnings frominvestments and consultancies by government agenciesshould be rated higher than money raised from taxes,charges, and fines. Wholly regulatory agencies shouldbe restructured and required to make profits from PPPprojects and consultancy functions. Dependence ontaxes, charges, and fines as major sources ofgovernment IGR has put far too little pressure on thepublic service to build capacity for sound servicedelivery.

iii. Importance of Central full scale PPP Agencies Central PPP agencies equipped with strong capacitiesfor regulation, planning, implementation, facilitation,and market development would make PPP execution andregulation more effective and efficient. The presentsituation where these functions are performed bydifferent independent agencies creates unnecessarybottlenecks, ring-fencing, and competition (instead ofcomplementarities). The merger of ICRC, NSIA, BPP, NCP,BPE, and NEPZA to form the central PPP agency willattract more private funding; promote value-for-money,and reduce the number of procedures associated withdealing with different government agencies in a corruptand rent seeking public service. As it is commonpractice, the central PPP agency should be a revenueearning parastatal of the MoF.

Public-Private-Partnership and Sustainable Development in Nigeria135 iv. MDAs and the LGCs use PPP to support capital budget

implementation Fiscal Strategy Papers (FSPs) of government shouldencourage MDAs and the LGCs to finance/implement anincreasing percentage of their capital budget throughPPPs to instill fiscal discipline and the culture ofcost recovery. This will prompt MDAs and the LGCs tomake PPP an integral part of the budget process.

v. Creating a comprehensive dispute resolution mechanism An unbiased and responsive dispute resolutionmechanism, with dedicated courts for business disputes,would reduce sundry risks and render the businessenvironment more investor friendly. The unilateraltermination of contracts for Lagos–Ibadan expresswayand MMA2 projects could have been averted ifcomprehensive business dispute resolution mechanismswere in place.

vi. Inevitability of a sustainable long term financing modelA sustainable long term financing mechanism is criticalfor success of PPPs. It is quite inappropriate tofinance infrastructure projects having long termpayback period with loans from MDBs. More so, theexternalities and uncertainties associated withinfrastructure PPPs make building in some measure ofgovernment subsidy and flexibility in funding of utmostnecessity. Clearly, it is only a government agency thatcan provide long term finance for buildinginfrastructures sustainably.

5 Conclusion PPP can enhance sustainability of infrastructuredevelopment through value-for-money project assessmentsand improved delivery performance. But achieving theselaudable outcomes call for an institutional architecture,with strong bias for private participation promotion,which handles market development, regulation,facilitation, assessment, and implementation ofinfrastructure projects in a single hull. Accordingly, thepaper emphasizes the need to create full service central

136 Uwem Essia and Abubakar Yusuf PPP agencies from the merger of a number of related MDAs.The proposed PPP agency should be a subsidiary of theMinistry of Finance as is the case in a number of bestpractice countries. Next in line are specialized PPPagencies for strategic infrastructures. Thereafter,Federal and State MDAs and the LGCs should be encouragedto implement some percentage of their capital budgetthrough PPP to institutionalize cost recovery, andrestructure the mindset that government services oughtalways to be free. ACKNOWLEDGEMENTS: This paper, and another on sustainablefinancing model, were motivated by announcement of the 2ndBi-Annual Regional Conference, on ‘Financing and BuildingInfrastructure for Sustainable Development in WestAfrica’, of the West African Institute for Financial andEconomic Management (WAIFEM). The lead author is gratefulto Dr. Lionel Effiom of the Department of Economics,University of Calabar, Nigeria for giving him informationon the ‘Call for Papers” for the Conference. References [1] Afolabi, E. (2011). Examining Public Private

Partnership in Nigeria: Potentials and Challenges.resourcedat.com

[2] Akinyosoye, M. (2010). Infrastructure Development inNigeria: Road Map To Sustainable Development. WorkingPaper greenhillts.com

[3] Centre for Sustainability in Mining and Industry(CSMI) (2010).Good Practice Note: publicInfrastructure and Mining. www.eisourcebook.org

[4] Farrugia, C., T. Reynolds, & O. Ryan (2008). Public-Private Partnership Agencies: A Global Perspective.Collaboratory for Research on Global Projects. WorkingPaper39. http://crgp.stanford.edu (August)

[5] Gemini Global Group (2013) Government officialslooking for ‘best practices’ as they enter intopublic-private-partnerships. geminiglobalgroup.com

Public-Private-Partnership and Sustainable Development in Nigeria137

(July) [6] Happiday, L. (2012). Report on PPP inNigeria: www.slideshare.net/Myhappiday/report-on-ppp-in-nigeria(Dec.)

[7] ICRC (2012). Nigerian Public-Private PartnershipsManual.ppptoolkit.icrc.gov.ng

[8] Nigerian Orient News (2013). The Truth Is Yet to beTold about AMCON and Babalakin’s Dispute,www.nigerianorientnews.com (July 25)