Nigeria Infrastructure Series – Public Private Partnerships

By Kede Aihie

Nigeria (Africa’s largest economy) has spent over $30 billion on the power sector, since 1999, yet produces less than 4,000 megawatts of electricity for a population of 193 million. South Africa (2nd largest economy in Africa) produces over 40,000 megawatts for a population fewer than 50 million people.
The narrative and optics of rationing, constant power cuts in the nation’s capital (FCT Abuja) and indeed across the country, is shameful. Nigeria’s infrastructure deficits are huge and will require billions of dollars to have them fixed. As at 2012, about $4 billion was required annually as investment in Nigeria’s power sector, to reach 40,000 megawatts target by 2020. In 2014, government embarked on ambitious privation exercise, with power generation companies and distribution companies going to the private sector.
The bottom line is that huge funding is required for further investments and government does not have the funds, talk less of going it alone. For significant progress to be made there must be collaboration on Public Private Partnerships (PPPs), well thought out policies and technical competence.
Public Private Partnerships
The benefits of going the PPP’s route with infrastructure-financing are several, accelerated provision of infrastructure, deliver cost effective and efficient delivery to citizens, ought to be about service delivery, attractive destination for FDI, job creation, JVs providing opportunities for local firms in transfer of technology, opportunity to adopt and leverage on the expertise, government savings can be reallocated and ploughed into education, health, security and agriculture, technology, R and D etc.
I recently attended a two day public hearing on various maritime transportation bills, with Maritime Advocacy Foundation (MAF) at Nigeria’s House of Representatives. Two reform Bills stood out (the Ports and Harbour Bill, and National Transport Commission Bill). When these bills are eventually passed into law, the technical and economic regulatory framework will create confidence for PPPs infrastructure funding by local and international investors.
The Nigerian Senate is at odds with the with Minister of Transport over railway infrastructure development in eastern (Southeast axis) corridor of Nigeria, with allegations that certain routes in the Southeast have been left out from previous plans therefore raising issues of implementation of policies.
African Finance Corporation 2017 report, highlight some infrastructure challenges in Africa, ranging from limited public sector capabilities in developing strategic foresight and planning, shortage of technical skills, to lack of political will. Some school of thought would include sanctity of contract, disobedience of court orders by some government agencies and graft.
According to Nigeria’s Infrastructure Concession and Regulatory Commission (ICRC, established in 2005) it is in partnership with the World Bank to develop disclosure framework on Public Private Partnerships contracts in Nigeria. Chidi Izuwah, Executive Director, Support Services (ICRC), says “ICRC must lend support to the corruption fight of the government by making public some salient information on PPP contracts executed by MDAs on behalf of the federal government.”
There is a huge disconnect between federal and state governments regarding infrastructure development, with states hopelessly lacking in this venture. Sub national states like Edo State are beginning to develop policies on infrastructure, hold Public Private Partnership workshops for government officials. Lagos State government has been successful in taking the PPP route; the Bus Rapid transit (BRT) system has had tremendous effect on the transportation system by reducing commuting time by at least 30 percent.
Edo and Lagos states have also embarked on PPPs to power street lights and government offices, they are also enhancing individual capabilities with training, and working on building institutional capabilities in specialised PPP units. They now need to establish a solid legal frame work and guarantee its enforcement and stability, through their Houses of Assembly.
Infrastructure financing
Looking at the analytics on infrastructure financing, India and Rwanda are taking PPP route and pushing back on out dated reliance on sole government funding. What stands out from their positions, whether it’s Narendra Modi (who did it for Gujarat State (India) before becoming PM or Paul Kagame for Rwanda, is that they put their nations above self in their quest for infrastructural development, they have also provided enabling environment for investors. India is innovating with its Toll-operate-Toll (TOT) model: government builds and operate toll roads to prove their viability before passing them through to the private sector.
Many of America’s roads and bridges don’t have tolls or any source of revenue; some argue that direct funding is required. Trump’s public-private concept is the exact opposite of what Democratic Senate minority leader, Chuck Schumer, is seeking. Schumer wants to spend $1 trillion in Federal funds, his Republican majority leader, McConnell, says Schumer plan is too expensive. Trump during the campaign called for $550 billion in federal funding and advocated that most of the spending be ploughed into partnership between government and private firms.
According to Fortune magazine, a position paper written for Trump’s campaign, proposed granting tax breaks equal to 87% for up to $187billion in equity that companies invest infrastructure projects. The ‘idea is that those public private partnerships would leverage that equity into one trillion in new infrastructure spending and that payroll taxes on newly created jobs and contractors’ profits would cover the full costs’ (Fortune). A compromise bill sponsored by Rep Delaney gets around the spending issue by tapping the proceeds from reparation of foreign profits. House Republicans and Trump tax plans mandate U.S. firms to bring back all of their approximately $2.5 trillion in profits stashed overseas.
Moving forward
Industry watchers suggest government should support creation of instruments that will enable projects to tap pension funds, debt markets (bonds and project bonds), capital markets etc. Prior to the oil glut, Nigerian banks funded power privatisation to the tune of $2billion. According to former Governor Peter Obi “there is a strong correlation between the development of an economy and its capital market’’. He also noted that government’s budget deficit gap and critical infrastructure development can be financed through the instrumentality of the capital market.

The federal government has launched the Economic Recovery Growth Plan (ERGP); which it says ‘focusing on implementation is at the core of the delivery strategy of the plan over the next four years and that more than ever before, there is a strong political determination, commitment and will at the highest level’
Infrastructure renewal in power, railways, transportation, roads will create jobs for millions and revitalise the Nigerian economy.

Author: nmmin

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