REDEFINING NIGERIA S PUBLIC-PRIVATE PARTNERSHIP PHILOSOPHY THROUGH LEGISLATION

Transcription

1 REDEFINING NIGERIA S PUBLIC-PRIVATE PARTNERSHIP PHILOSOPHY THROUGH LEGISLATION Abstract Mr Olukayode Fabunmi (PPP and Infrastructure Practice) Partner J.O. Fabunmi & Co. Over the last few years, Nigeria has been making slow but steady progress towards developing its Public Private Partnership market. It has been widely acknowledged that Nigeria has a huge PPP market potential that has been largely undeveloped for many reasons. One of the many reasons cited for this slow progress is the lack of an effective legal or legislative framework that supports PPP in Nigeria. However, this situation is beginning to change as apart from the Federal legislation, the Infrastructure Concession Regulatory Commission Act (ICRC), more State Governments have in recent times positively demonstrated their willingness to support PPP by enacting legislation to strengthen and institutionalize PPP in their States. Despite these legislations, there has been little or insufficient financial closures of PPP transactions and/or operational PPP projects in Nigeria. Many reasons may be adduced for this anomaly between genuine intention of the government to execute PPP projects on one hand and the unsuccessful realization of PPP projects in Nigeria on the other hand. Out of the many possible reasons that may be adduced, the presentation will seek to examine the PPP philosophy in Nigeria today and question whether there is a need to redefine it in order to achieve the set objectives for PPP for Nigeria. This presentation will also seek to identify the evolution and development of the legislative framework for PPPs in Nigeria; where it came from, where it is now and where it ought to be. 1.0 INTRODUCTION It is an established fact that infrastructure is an enabler that acts as catalyst and is critical to human and economic development in every modern society. It defines a country s business competitiveness. A country s state of public infrastructure can be an indicator of the country s economic development and growth. This explains why in every nation, provision of infrastructure assets has always remained on the front-burner of governments agenda for development and policy. One of the primary functions of any government including that of Nigeria is the provision of public infrastructure. This responsibility has been further enshrined in the Nigerian Constitution. Chapter 2 of the 1999 Constitution of the Federal Republic of Nigeria (as amended) mandates the three tiers of government namely, the Federal, State and Local Governments to provide necessary social and economic infrastructure, albeit on different levels and scale in order to facilitate the economic development of the country. The extent of infrastructure deficit in Nigeria is well documented and talked about at different fora. This infrastructure gap also brings about huge potential investment opportunities in the provision of infrastructure. Various sources have estimated that Nigeria requires approximately $4 Billion annually for the next 10 years to effectively address Nigeria s infrastructure deficit. This infrastructural gap can be attributed to many years of misadministration and wasteful management of public funds, lack of planning and maintenance of Infrastructure and persistent neglect of infrastructural development by the government. Since the 1990s, especially from 1999 when Nigeria transited from Military to Civilian rule, concrete institutional steps have been taken by the Nigerian Government with a view to improve the provision of infrastructural services that were provided by the Government. The government 1

2 introduced the concept of commercialisation and privatisation as a preferred model of dealing with infrastructure and government owned companies in order to improve on service delivery from those infrastructure. The Public Enterprises (Privatization and Commercialization) Act of 1999 was enacted by the National Assembly to privatize and commercialize companies that were government-owned such as the Nigerian Ports Authority (NPA), the Federal Housing Authority (FHA), and the defunct Nigerian Electric Power Authority (NEPA) later referred to as Power Holding Company of Nigeria (PHCN) amongst others. One major implication of this is that key government infrastructural services that were provided at subsidized rates began to attract commercial rates. Inadvertently, the government became a commercial provider of infrastructure. This paper will seek to examine if this affected the philosophy of government in its dealing in PPP transactions and what impact it has had on infrastructure development. Furthermore, it will also examine whether the current legislation is adequate and if not whether there is the need for a new legislation. 2.0 IMPACT OF COMMERCIALISATION ON INFRASTRUCTURE This chapter will focus on the impact of commercialisation on infrastructural service delivery. It will also examine the responsibility of the government to provide infrastructure and whether a statutory or constitutional responsibility to do so exists. If there is, is the government facing any challenges in doing so and how have these challenges been addressed? 2.1 IS THERE A DUTY ON THE GOVERNMENT TO PROVIDE INFRASTRUCTURE? Historically, the answer to this question is debatable, however, it is not the intention of this paper to look at the historical trend on how the government has or has not been providing infrastructure. It suffices to say that provision of public infrastructure has become one of the core responsibilities of the government in modern economy. Infrastructure is the cornerstone of a modern society. Its availability and quality determines both standards of living and possibilities for economic growth. Public infrastructure touches on a wide spectrum of basic amenities which enhance the capacity of economic agents to conveniently engage in productive activities. Over the years, governments have sought to provide public infrastructure through variety of ways which comprises government ownership with government management, government ownership with private management, public-private ownership and joint management, private ownership and management, community provisioning etc. Most countries that have gone through colonial governance like Nigeria or are classified as emerging markets/third-world countries have had their governments provide infrastructure (commercial, social and physical). One of the key reasons that can be adduced for this is that the cost associated with the delivery of infrastructure is often high and only government can provide the funding required. Furthermore, if you take Nigeria as an example, the importance of the role of government in the provision of public infrastructure is statutory and constitutional. The Nigerian Constitution of 1999 makes it a duty on the government to provide necessary social and economic infrastructure to facilitate the economic development of the country. Chapter 2 of the Constitution which provides for the Fundamental Objectives and Directive Principles of State Policy states that for the purpose of promoting national integration, it shall be the duty of the State to provide adequate facilities for the people. In addition, certain key infrastructure such as hospitals, airports, roads, ports, Railways, schools etc all have statutory backing. For example, the National Railway Corporation Act provides for the operation and management of railways system in Nigeria, and the Federal Airport Authority Act provides for the management and maintenance of airports amongst others. Various legislations 2

3 also provide for the establishment of various universities such as the University of Ibadan Act, University of Lagos Act, and University of Benin Act amongst others. Likewise, States also have different laws that have been enacted that mandate the government to provide certain infrastructure. From the foregoing, one can safely conclude that the provision of infrastructure especially socioeconomic infrastructure is not discretionary upon the government to provide but a mandatory act. 2.2 IS THE GOVERNMENT FACING PROBLEMS IN PROVIDING THESE INFRASTRUCTURES? The demand for infrastructure continues to increase with the growth in population. If it is agreed that one of the government s primary responsibilities is the provision of infrastructure, then logically, the question is whether the government is fulfilling its mandate in providing adequate infrastructure to meet society s demands? The simple answer to this question is that the government has not done well enough, particularly the Government of Nigeria. There are a number of factors that are responsible for the failure of government to meet its responsibilities with respect to the provision of infrastructure. Some of them are excusable whilst mostly others are not. However, for the purpose of this paper, we will lump the reasons why government has failed in the past. One major reason for the government s failure is the escalating population growth which is considered as one of the highest in the world. Nigeria s population has consistently grown at an alarming rate of 2.7% over the last decade. The current Nigerian population is estimated at about 170 million and the National Population Commission projects that the population will be over 220 million by the year The second reason is urban migration. The definition for urban migration has somewhat changed within the Nigerian context. Traditionally, urban migration involves movement from rural areas to urban areas. However, over the last two decades, there has been a huge increase of urban to urban migration. A good example is movement of people from Lagos to Abuja. This new wave of urban migration has led to newer settlements being built to cater for new development, whilst the older settlements continue to require renovations and maintenance as villages become towns and towns become cities. Thirdly, when there is a need for new infrastructural facilities, it also means government would be required to spend more money which often times is not available. The uncertainty that characterises the revenue generated by government creates a gap in government s expenditure for infrastructure. At various times during economic downturns, one of the sectors that usually suffer from government s reduced spending is provision of infrastructure. Therefore, governments have had to downsize and reduce their expenditure on critical infrastructure despite the fact that the demand for them continues to grow. Fourthly, one of the major obstacles to governance around the world but more particularly pronounced in emerging markets/third world countries including Nigeria is management of resources. A lot of vices such as corruption, wastages, nepotism, bureaucracy etc, have plagued government institutions charged with provision of infrastructure. Where resources are scarce as it would always be, the need for prudency is often lost and government embarks on white elephant projects which have no bearing on the people and the pragmatic approach to important issues such as infrastructural development are often lost. From the foregoing, and in relation to Nigeria in particular, the fact that the Nigerian government will be required to spend over $40 Billion in the next 10 years supports the position that infrastructural development has been largely ignored and the government has not been able to perform its constitutional and in some cases, statutory roles in providing infrastructure. 3

4 2.3 HOW HAS THE GOVERNMENT ATTEMPTED TO TACKLE THESE PROBLEMS? One of the ways Nigerian government has attempted to solve these problems is to introduce the private sector into what was hitherto considered the government business. Following the reforms of the Structural Adjustment Program (SAP) era, the government introduced the commercialisation and privatisation programme. This concept was not new, having been successfully used in many other countries, especially the United Kingdom. In Nigeria, there was a realisation by the government that the involvement of the private sector will bring about improvement in infrastructure service delivery. The government set out in achieving this objective by promulgating the Privatisation and Commercialisation Decree of 1988 which later became the Public Enterprises (Privatisation and Commercialisation) Act of One of the major characteristics of the Act was to commercialise corporations that were providing infrastructure services on behalf of the government. The government was able to achieve this by setting up a Bureau under the presidency to oversee the commercialisation and privatisation exercise. To some extent, the commercialisation and privatisation programme was successful for government-owned companies such as National Insurance Company of Nigeria (NICON), NICON Hilton Hotel Ltd, Motor vehicle Assembly plants amongst others. However as it relates to some other core infrastructure assets such as the Nigerian Airways, Nigerian Telecommunications Limited (NITEL) etc, the programme was largely unsuccessful. The challenges faced by the government led to the enactment of the Infrastructure Concession Regulatory Commission (ICRC) Act 2005, which was a direct response to the inability of the BPE Act of 1999 to address the underlying problems. The ICRC Act created the Infrastructure Concession Regulatory Commission (ICRC) which is an agency of the government set up to regulate concessions of infrastructure assets that involved MDAs of the federal government. 2.4 HAS COMMERCIALISATION AFFECTED THE PHILOSOPHY OF THE GOVERNMENT IN THE PROVISION OF THESE INFRASTRUCTURES? The Federal Government of Nigeria introduced privatization along with a programme of Commercialisation. The Privatisation and Commercialisation Decree of 1988 defined commercialization as the reorganization of an enterprise wholly or partly owned by the Federal Government in which such Commercialised enterprises shall operate as profit making commercial venture and without subventions from the Federal Military Government. Under the current legislation i.e. the BPE Act of 1999, Commercialisation was characterised into two; full commercialisation and partial commercialisation. Enterprises designated under full commercialisation are expected to operate profitably on a commercial basis and be able to raise funds from the capital market without government guarantee. Such enterprises are expected to use private sector procedures in the running of their business. It is important to note however that turning an agency of government into a profit-making entity inadvertently changed the psyche in government quarters. One of the impacts of commercialisation is the clamour by government officials for the removal of subsidy in any form or guise on services rendered by the government. The principle of commercialisation has created a situation whereby there is a wholesale perception by government that subsidies or anything of that sort ought not to be the responsibility of the government. The policies that the government has been adopting especially as it relates to socio-economic infrastructure have been largely that of a commercial enterprise. Increasingly, government has 4

5 been liberalising the provision of infrastructure such as health, education, water, waste disposal etc. All the three tiers of Governments from the federal to the state and local government have liberalised the provision of key social infrastructure. For example, the educational sector where government used to provide educational subsidy for students studying in secondary and tertiary institutions has now been liberalised. Private secondary schools and private universities have now been established and students pay full commercial rates to obtain secondary and tertiary education. Also, the number of private health institutions far exceeds the number of existing public health institutions and this is a pointer to government s indirect policy of commercialising the provision of social infrastructure. Ordinarily, the responsibility to provide hospitals and health centres used to be that of the government however, over the last 20 years, the number of public health institutions are far less than privately-owned health institutions. 3.0 TRADITIONAL PUBLIC SECTOR PERCEPTION OF PPP This chapter will examine PPP from the conventional standpoint when a government is considering a PPP transaction. It will consider the benefits the government will derive from entering into a partnership with the private sector, as well as the roles that the government will play in actualising the effective delivery of PPP projects. The chapter will further take a look at what the expectations of a government are when embarking on a PPP project. 3.1 WHAT DOES GOVERNMENT WANT FROM PRIVATE SECTOR? With the overwhelming demand for infrastructure creating huge infrastructure deficit, the government is increasingly looking at the private sector as a reliable partner. Governments enter into PPP arrangements when they want to accelerate the implementation of high priority projects or need the private sector to provide specialized management capacity for large and complex projects. The ICRC Act has expressly allowed private sector entities to enter into partnership arrangements with the government in order to deliver infrastructure services. A number of reasons can be adduced as to why the government will be required to enter into partnership with the private sector in delivering infrastructure services. The first and perhaps, the most important reason is the availability of extra funds that the private sector will bring to the table in financing the provision of infrastructure assets. The sophistication of financial instruments coupled with the growth of stock and money markets available to the private sector make them a ready source of income that can be tapped into immediately by the government. Furthermore, as the concept of globalisation continues to gain grounds, more companies and financial institutions are becoming multinationals with a global spread and appetite to embark on large-ticket transactions like infrastructure projects. This makes the private sector a reliable partner for the government in terms of financing. The second point to note is the expertise that the private sector will bring to the partnership. Expertise in this context does not only relate to the management and operation of an asset but also, it may come in form of financial expertise, legal expertise, technical expertise, environmental expertise etc. It is generally accepted that since the private sector are set up to make profit and their commercial approach to problem-solving increases efficiency and cuts out wastages, they are dependable partners to the government in this regard. Private sector expertise will also increase efficiency and better utilisation of assets that are owned by the government through technology, innovation and know-how which will assist in the adequate and efficient delivery of infrastructure. Thirdly, one of the cardinal elements of PPP is the transfer of risk from the public sector to the private sector. The transfer of risk goes to the foundation of the concept of PPP. The ability of government to transfer many of the risks that it would normally assume makes PPP an attractive 5

6 alternative to the traditional government procurement. Risks that are more suited for the private sector to assume are transferred to them. Some of the important risks that are transferred to the private sector by the government include construction risk, financial risk, operation and maintenance risk. From the perspective of a public sector, the mitigation of these risks goes to the heart of provision of sustainable and functional infrastructure. Fourthly, value for money proposition that is often associated with PPP projects is debatable because of the long nature of PPP contracts. However, there is a general perception by the government that PPP offers better value for money than projects carried out under traditional procurement. Value for money in this context means cost effectiveness to the government and also the end-users will get a better deal than it will ordinarily get in terms of quality and pricing. 3.2 WHAT ROLE DOES GOVERNMENTS PLAY IN PPP TRANSACTIONS? For a PPP transaction to be successful, the government is required to perform some obligations which form the basis of a successful partnership with the private sector. Some of these obligations may include making direct payments or offtaking the services of the PPP project. In other words, governments may be required to be the end user of the service to be provided directly or indirectly. Government may be required to make equity investment in the Special Purpose Vehicle (SPV) that is set up to operate the PPP project. In some cases, government also provides guarantees to cover debt, exchange rates, convertibility of the local currency, the level of tariffs permitted, the level of demand for services and/or termination compensation etc. The 30km Lekki - Epe Expressway is one project that epitomises the points alluded to above. The project is one of the very few PPP projects initiated by governments in Nigeria that eventually achieved financial closure and this is largely due to the fact that both the Federal and Lagos State governments provided guarantee to cover debt accruable from the project to financial institutions who financed the project before the project was able to achieve financial close. Furthermore, Government may be required to assume certain risks that are best suited for the government only. In addition to assuming some of these risks, government may also be required to provide indemnity against bad debts owed by state entities while providing tariff subsidies for consumers. The role of the government also extends to waiving fees, costs and other payments which would normally be paid by the private sector to the government e.g. authorizing tax holidays or a waiver of tax liability, fund shadow tariffs and topping up tariffs to be paid by some or all consumers). For example, with respect to the Murtala Mohammed Airport Terminal 2 (MMA2), the Federal Government granted some waivers to Bi-Courtney Nigeria Limited to enable the company facilitate the development of some other infrastructure around the vicinity of the Airport premises which encouraged the company to commit itself to the investment in the MMA2 project. In more than one way, some of these obligations and requirements form part of what the government would have to do to ensure that it has a successful partnership with the private sector. The degree of government involvement will however vary from project to project. 3.3 WHAT DOES GOVERNMENT GET FROM PPP? The provision of infrastructure is arguably the single most important factor for economic development. Infrastructures are the wheels on which any economy runs and it provides the enabling environment for sustained economic growth and wealth. The primary interest of any government when entering into PPP contracts is the timely delivery of public infrastructure. Infrastructures are the wheels on which any economy runs and it provides the enabling environment for sustained economic growth and wealth. Infrastructures from PPP contracts enable the government to achieve an improvement in the quality and quantity of basic infrastructures such as prisons, hospitals, schools, roads, housing etc. 6

7 To underscore the importance of PPPs to a government infrastructure plan, the first recorded PPP transaction as we know it today was a PPP hospital in the United Kingdom in the 1990s. It was the successful implementation of this project and other PPP projects in the United Kingdom in the early 1990s that led to the enactment of the Private Finance Initiative Act by the UK Government. PPPs have since been used by governments to provide other infrastructures, due to the various benefits governments have derived from PPPs. One of the main responsibilities of a government is to ensure that its citizens continue to enjoy basic infrastructure. As we have noted earlier, the Constitution of the Federal Republic of Nigeria mandates the government to provide necessary social and physical infrastructure. When a government enters into a PPP contract with a private sector entity, one of the immediate benefits for the government is that the infrastructure would have been provided irrespective of any other prevailing factors. For example, the MMA2 Airport and Lekki - Epe Toll road projects have been in use and its services are being enjoyed by end users, despite the challenges that those projects faced and continue to face. Unlike most traditional procurement projects that suffer completion delays, PPP projects are usually delivered to time and in some cases are delivered before the timeframe. They are also delivered within budget and to specification and this form a critical advantage of PPP over projects undertaken by traditional procurement. PPPs are an attractive proposition to the government because the financial engineering of PPP projects allows the government a lot of flexibility in terms of payment mechanism. The nature of the PPP contract would largely determine whether government is an indirect offtaker or a direct offtaker of the service provided. In most instances, where government is a direct offtaker, the amount the government would pay for a project is staggered over a long period of time. For example, if the government intends to build a school that cost N1billion under a traditional procurement model, the government would have to source for the N1billion before the project takes off. Whereas, where government is a direct offtaker under a PPP contract, the payment of the same infrastructure would be staggered over a long period of time (10 30 years) depending on the terms of the offtake contract. Also, where the government is an indirect offtaker of a project, it is actually the end users that will pay for the facility even though the asset is procured on behalf of the government. Government only provides enhancement grants in the form of guarantees and in some cases, subsidies. In both instances, government is not required to make upfront payment to ensure the delivery of an infrastructure asset. This helps to reduce government debt and to free up public capital to procure more infrastructure assets and utilise on other government services while also delivering better value for money compared with that of an equivalent asset delivered through traditional procurement. One of such projects that had been successfully implemented in the UK under the Private Finance Initiative offtaker arrangement is the East London Waste Authority PFI Project. As we have stated earlier, the general assumption and perhaps not unfounded, is that the private sector tend to run better operations than the government. The private sector would deliver better value for money to end users on the services provided by the infrastructure asset. The expertise and experience of the private sector also encourages innovation which results in shorter delivery times achieving best practice in service delivery and improvements in the construction and facility management processes for the project. Traditionally, government s procurements are mostly budgeted from revenues generated by the government. Over the years, revenues generated have proven to be unreliable especially when there is an economic downturn which results in shortage in funding. One of the main benefits of PPP to the government is that the private sector provides the financing to fund the project and this is usually agreed upfront and also a pre-condition before a private sector sponsor is eventually chosen. In other words, only a private-sector partner that possesses the finance to fund the project would be selected by the government to execute a PPP project. 7

8 4.0 NIGERIA S PPP PHILOSOPHY The philosophy to any concept is very important in understanding how the concept would succeed. This chapter will examine the current philosophy that appears to be the case in Nigeria by trying to draw a distinction between a socially minded philosophy and a commercially minded philosophy with respect to PPP. It will try to draw a conclusion on what the current philosophy is and its impact on PPP projects. 4.1 WHAT ARE THE DIFFERENCES BETWEEN COMMERCIALISATION AND TRADITIONAL PPP? The first set of questions to ask is what is Nigeria s PPP philosophy and how has it evolved to this point? The PPP philosophy in Nigeria today can be said to be a commercially-based philosophy rather than a socio-economic based philosophy and this is primarily because PPP projects are seen by the government as another avenue for income or revenue-generation for the government. There are notable differences between Commercialisation and PPP. However, the practice of PPP in Nigeria has hardly projected these differences. Commercialisation, as duly noted above requires the operator of an infrastructure to operate profitably on a commercial basis and be able to raise funds by itself which consequently changes the characterisation of the entity. This change effectively means that such institutions now operate under the market forces and have little or no government involvement. The PPP concept, on the other hand was developed to ensure the effective delivery of infrastructure services by the private sector on behalf of the government. The interest of the government was to ensure that it continues to meet its responsibilities by providing infrastructure and in most cases, social infrastructure services such as Roads, Prisons, Waste Management and Hospitals etc. This accounts for why in most jurisdictions that have practiced PPP successfully like the United Kingdom, Canada, Australia, Japan amongst others, PPP have been utilised for the provision of social infrastructure projects such as schools, hospitals, waste management, prisons etc. The main difference between PPP and Commercialisation is that under PPP, the government is more interested in providing social service whilst under commercialisation; the government is more interested in providing a commercial service. This distinction is important because it affects the way projects are procured and how they are eventually delivered. 4.2 WHAT ARE THE EFFECTS OF COMMERCIALISATION-INDUCED PHILOSOPHY ON THE DEVELOPMENT OF PPP LEGISLATIONS IN NIGERIA? The current philosophy on Public Private Partnership can be said to have been induced from the present legislation on commercialisation and privatisation of public enterprises which allowed certain monopolistic agencies (MDAs) to become commercialised entities. In other words, the government focussed more on generating revenue rather than the provision of the services they are set up to provide. A good example is the defunct National Electricity Power Authority (NEPA) and Nigerian telecommunication Limited (NITEL). The current legislation on PPP was a response to the difficulty experienced in privatising other agencies of government that had direct responsibility in providing these infrastructures. In view of the fact that privatisation involved full divestment of government s interest in the assets that are to be privatised, the question at the time of enactment of the ICRC Act was whether the government could divest its interest completely in corporations like Nigerian ports Authority, Federal Airport Authority of Nigeria etc. 8

9 A closer look at the ICRC Act which is now generally regarded as Act that regulates PPP, did not focus on the core tenets and principles of PPP; rather it only tried to empower public corporations to enter into contracts it could not ordinarily enter into with the private sector. The earlier sectorbased legislations like the Nigerian Railway Corporation Act, Nigerian Ports Authority Act etc, did not specifically empower these corporations to enter into PPP-type contracts. So in other to enable them do that, the Infrastructure Concession Regulatory Commission (ICRC) Act was enacted. This is why the ICRC Act focused on concessions only. The perception PPP projects have, not just within government sectors but also within the financial sector have an implication on how a PPP project achieves financial closure. When a project is viewed as a commercial transaction, the threshold set for it becomes higher and more difficult for the private sector to achieve. However, in ordinary PPP transactions, the role that the government plays is very important in ensuring financial closure of the project because the project is not viewed from a point of view of a government project rather from a commercial view point. When the revenue of a project comes from user fees, the demand risk is usually shifted to the end user through user charges and not the government. This largely accounts for the disinterest or refusal of government to give guarantees and financial support to PPP projects because the government holds the opinion that these projects are profit oriented and that the business plan would have adequately taken care of the cash flow required for the project. On the other hand, PPPs evolved primarily to provide the extra cash needed by governments to increase the infrastructural services and invariably economic development for its citizens. In Nigeria like many other countries, Governments have a constitutional duty to provide socioeconomic infrastructure and PPPs have now become one of the avenues for the governments to do so. PPPs are an alternative to the traditional method of procuring large and complex public infrastructure projects by government because they offer benefits such as cost effectiveness, delay controls, optimization of risk and resources, innovation etc from the private-sector, and divest from the government the risks associated with procuring such infrastructure. As stated above, the commercially-based philosophy of governments in Nigeria can be traced to the era of commercialization in the 1990s. During this period, governments began to generate revenue from operation of key infrastructure assets that were hitherto subsidized. This invariably meant government viewed the provision of these services as commercial rather than socioeconomic. This distorted the way infrastructure was viewed by the government especially the ones that have socio-economic impact such as Hospitals, Roads, Schools, Housing etc and with a resultant effect, the quality of financial support that the government gave to projects diminished. To underscore this point, the two main PPP projects that have received public attention, which are the Lekki-Epe Highway and the Lagos- Ibadan Highway readily come to mind. In these two instances, the Lekki-Epe Highway project received both the Federal and the Lagos State Government s support in the form of sovereign guarantee and it achieved financial close while the Lagos/Ibadan Highway which is widely regarded as the main artery into Lagos, being the commercial capital of Nigeria and which ordinarily is seen as a more lucrative route did not receive any type of guarantee or support from the government and invariably did not achieve financial close. This invariably means that the financial support in the form of sovereign guarantees and indemnity given by the government is critical to the financial close of any project at these formative years of PPP in order to give debt providers the required level of confidence to fund a PPP project, notwithstanding if a concession agreement has been signed. Where a government is committed to a project and provides the necessary support required for the successful implementation of the project, the chances of that project achieving financial closure is high because the reputation and the credit worthiness of the government is involved and the government will only stake its reputation on projects that would have direct impact on the socioeconomic wellbeing of its people. 9

10 To further highlight this current philosophy, the types of PPP transactions that are being developed in Nigeria today are inclined towards enabling the government profit from the provision of these infrastructure. It is quite rare to find PPP projects for hospitals, schools, prisons and social housing projects etc, as most of the projects are usually within the classification of what can be termed commercial infrastructure. The inability of the Nigerian PPP market to grow at the expected rate can therefore be attributed to the failure of its PPP projects to achieve financial closure. This failure can be linked directly to how these projects are developed by the government. The reason for the inadequacies at the projectdevelopment stage of the PPP projects can be attributed to the commercialization mindset that has been adopted by the government at all levels. This mindset has given rise to the belief that for a project to be classified as a PPP project in Nigeria, it has to be commercially viable which has invariably affected the perception of the private-sector investors. Indeed, the number of unsolicited proposals by private-sector investors that are financially viable which are received by (Ministries, Departments, Agencies) MDAs far outweighs the number of PPP projects that are developed by the government. The enticement that comes with these unsolicited proposals usually becomes a source of distraction from proper project development and this leads to poorly developed projects in many instances and in some instances, no project development at all. The general presumption in government circles is that if the private sector is interested in a project or transaction, the private sector is in it to make profit and it has carried out the business case that would enable it to attract funding for the project. This presumption is however rebuttable by the number of projects that has eventually achieved financial close in Nigeria. 5.0 WAY FORWARD PPPs have been successful in many parts of the world largely because governments had effectively leveraged on the finance, innovation, manpower and organization of the private sector. The primary interest of the private sector participants or the project sponsors from a financial perspective is to make returns on their investment and also to do it with the least risk exposure. On the other hand, the primary interest of any government in particular Nigeria, which has a huge deficit in terms of infrastructure service and a constitutional mandate to provide social and economic infrastructure for its people, is or ought to be the effective delivery of infrastructure. If the philosophy behind adopting PPP by the Nigerian government is the provision of infrastructure that is direly needed in order to improve the lives and prosperity of its people, then the government ought to redefine its philosophy and strategy to focus on the actual delivery as opposed to speculative delivery of infrastructure. The government can achieve this by firstly reviewing/reenacting the PPP laws to incorporate the core tenets and fundamentals of PPP into these laws which would invariably realign Nigeria s legislative framework for PPP. These fundamentals of PPP have been adequately enshrined in the United Nations Commission on International Trade Law (UNCITRAL) model legislation for privately financed projects and should serve as a guide in the promulgation of these laws. The UNCITRAL model legislation has been recognized by the governments that are members of UNCITRAL (Nigeria being one of such countries) even though not binding on them, and it acts as a guide in the formulation of PPP laws for its members. It also serves as a model-legislation guide for member-nations and the international community to assist in creating a legislative framework favourable to PPP projects. This model legislation has been used as the guide by countries such as France, Japan, Canada, Turkey, Brazil, Hungary and a host of other countries to enact their own PPP laws and ensure that the core principles of PPP are applied in the implementation of PPP projects in those countries. As much as credence will be given to the Nigerian political leadership for their support to the development of PPP in Nigeria, there is the need to review and amend the ICRC Act where necessary, including the National policy on PPP and other state PPP legislations. 10

11 For example, Section 1 (1) of the ICRC Act which provides for the financial viability of a PPP project should be amended to focus on the effective delivery of infrastructure in line with the UNCITRAL model legislation for privately financed projects and globally accepted PPP principles. When a government adopts the actual-delivery philosophy as espoused in the UNCITRAL model legislation, there will be no reluctance in offering support, guarantee, offtake or any instrument that the private sector will require to enter into a long, complex, contractual relationship with the public sector which characterizes most PPP transactions that eventually reach financial close. Also, a lot more work would be done or encouraged to be done in terms of project development which is crucial to the eventual delivery of social and economic infrastructure through PPPs. For example, most of the PPP projects in developed countries such as France, Canada, Japan etc are largely focused on social infrastructure such as schools, hospitals, public buildings, and prisons etc. These have had a multiplier effect on the economy of the country which is what any government would seek to promote. Furthermore, the government should reconsider its position on providing financial support and guarantee to private sector investors for social and economic infrastructure projects or in the alternative, the government should take a leading role in being the offtaker of these projects as opposed to passing it off to the end users. Government should also incorporate financial support it intends to offer in the private sector investors involved in PPP projects into the legislations and policies on PPP, which may not necessarily be in terms of funding for the project, but also in form of guarantees, indemnities and other financial instruments. In addition, the distinction between PPPs and other contractual relationships such as Joint-Venture should be distinguished statutorily to avoid confusion. A good example of this can be seen in the housing sector. Whilst government can enter into a Joint-Venture with a private-sector participant for a commercial housing transaction, it should also enter into a PPP arrangement with a private sector investor for social housing. The only difference is the type of support it gives and the intention on its part to generating revenue from those transactions. In a commercial transaction for instance, government provides the land while the other party to the Joint Venture provides the capital, builds the houses and the profit realized from the project is divided according to an agreed ratio for the government to increase its revenue generation exercise. In this sort of arrangement, the interest of government is to generate revenue from the relationship with the private sector. In a social housing model however, the government provides the land which social landlords that is, private sector investor build on and let/lease the houses at reasonable mortgage rates on owneroccupier basis. In the two instances even though they are both housing projects, they are still different and serves different purposes and should therefore not be confused. Whilst government can enter into both transactions, the commercial housing model should not be classified as a PPP housing project. This distinction should be expressly provided for in the reviewed/re-enacted PPP legislations. The concept of universal test or a similar concept should also be included in the reviewed/reenacted PPP legislation in a manner that will enable a project that would ordinarily go through traditional procurement to be firstly benchmarked against a PPP option in order to determine whether it would provide better value for money as a PPP project or a traditionally procured project. In effect, what this will do amongst other things is to bring more core government type procurement such as schools, hospitals, social housing, prisons, roads, water and waste collection and disposal etc into the Nigerian PPP market. Finally, in order to re-orientate the government and the private sector on the core principles that regulate PPP transactions, it is desirable and if not necessary that the ICRC Act be reviewed and re-enacted by the National Assembly or in the alternative, a new PPP legislation be enacted which would essentially focus its attention on the traditional context of PPPs. This approach was adopted by the French government when it enacted a new PPP law in 2008 which incorporated the fundamental PPP principles espoused in the UNCITRAL model legislation for privately financed projects in the new legislation after the already existing 2006 Law was seen to be inadequate in addressing the legislative lacuna that existed in the implementation of PPP in the country. This will not only ensure that government and the private sector understands the true meaning of PPP but it 11

12 will also ensure that more projects that are executed as PPP projects achieve financial closure and become operational PPPs. CONCLUSION The need to actively adopt PPP models for effective infrastructure delivery in Nigeria cannot be overstated. Since the intention by the government to ensure the delivery of infrastructure using PPP has been recognized, what remains to be done is to adjust the current mindset with the view of achieving the desired result. In order to do this, the philosophy upon which PPP stands in Nigeria needs to change. It has to change from the old commercial-oriented approach to a more pragmatic socio-economic approach. At the end of the day, what Nigeria needs is a boisterous and robust PPP market that would satisfy the appetite of the private sector on one hand and on the other hand increase infrastructure development that would meet the demand of the people upon whom governments are built. 12