Examining Public Private Partnership In Nigeria; Potentials And Challenges

Examining Public Private Partnership In Nigeria; Potentials And Challenges

Abstract

The transformation process of infrastructure development in most countries is often characterized by full government ownership of entities engaged in the provision of services such as water, telecommunications, power, and transportation. Most of these services have cost structures which inherently make them naturally monopolies, the provision of these services has usually been subjected to inefficiencies. These services are usually viewed as entitlements necessary for survival, governments have intervened in their markets from time to time, subjecting these services to moderate, to severe price distortions, with such conditions persisting for long periods of time. Unfortunately, postponing compensating adjustments in the pricing or rationing of these services to avoid political and popular upheaval has usually come at the expense of state-run utilities and firms. Eventually, the financial strains these conditions create in public utilities turn into full-blown and growing fiscal time bombs. When uncompetitive conditions are allowed to persist for long periods of time, the cost to the present and future generations of potentially bailing out the ailing firms constitutes a significant overhang on the national government, which may eventually have to be passed onto taxpayers anyway, and may even undermine efforts at genuine sectorial reforms.

Countries wishing to avoid the increasing fiscal strain of continued public sector provision of infrastructure services are increasingly turning to several modes of privatization, in order to pass on the challenges of infrastructure services provision to parties in better positions to assume the risks involved. Aside, from the desire to cut actual and potential fiscal costs encouraging private sector participation in infrastructure development has been driven in other countries by rapid economic growth, sometimes outpacing the government’s capability to provide services exclusively and efficiently. Bureaucratic system and inefficient structures are increasingly being phased out in favor of private operation, ownership or which is perceived to be more efficient. There is a widespread move towards a shift to Public Private Partnership, this is driven by successful private participations in housing, telecommunications, agriculture, transportation and waste management services where Private provisions have increased access and led to quality services. Beginning with the privatization program me in Nigeria in the 1980s and momentum gained since 1999 when the present democratic phase commenced, the trend is to allow Private sector to provide infrastructure. This move is not peculiar to the Federal Government alone but other tiers of Government as well. Most State and Local Government have established Public Private Partnership units in their area of jurisdiction. One of the most recent Public Private Partnership in Nigeria is in the power sector that was recently partially privatized by the federal government in which the Transmission arm is still under the government control while the Generation and Distribution arms have been privatized by the Goodluck Ebele Jonathan administration.

Table of Contents

• Title Page
• Authorization
• Certification
• Dedication
• Acknowledgements
• Table of Contents
• List of Abbreviations
• List of Tables
• List of Figures
• Abstract

Chapter One:

Introduction

• 1.1 Introduction
• 1.2 Background to the Study
• 1.3 Statement of the Problem
• 1.4 Research Questions
• 1.5 Objectives of the Study
• 1.6 Scope of the Study
• 1.7 Significance of the Study
• 1.8 Justification of Study
• 1.9 Limitation of the Study
• 1.10 Hypothesis of the Study
• 1.11 Definitions of Terms
• References

Chapter Two:

Literature Review

• 2.1 Introduction
• 2.2 Nature of Public Private Partnership
• 2.2.1 Basic Elements of Public Private Partnership
• 2.2.2 Characteristics of Public Private Partnership
• 2.2.3 Essential Features of Public Private Partnership
• 2.2.4 Approaches to Public Private Partnership
• 2.2.5 The role of Participant in Public Private Partnership
• 2.3 Types of Public Private Partnership
• 2.4 Structures and Framework of Public Private Partnership
• 2.5 Research Framework
• 2.6 Private Partnership as a tool for Infrastructural and Economic Development
• 2.7 Public Private Partnership and Project Financing
• 2.8 Importance of Public Private Partnership
• 2.9 Opportunities/Benefits of Public Private Partnership
• 2.10 Problems of Public Private Partnership in Nigeria
• References

Chapter Three:

Research Methodology

• 3.1 Introduction
• 3.2 Research Design
• 3.3 Study Area
• 3.4 Study Population
• 3.5 Research Instruments
• 3.6 Sources of Data Collection
• 3.6.1 Primary Sources
• 3.6.2 Secondary Sources
• 3.7 Data Analysis

Chapter Four:

Data Analysis, Presentation and Discussions

• 4.1 Presentation
• 4.2 Data Analysis
• 4.2.1 Problems/Challenges of Public Private Partnership
• References

Chapter Five:

Summary, Conclusion and Recommendations

• 5.1 Summary
• 5.2 Conclusion
• 5.3 Recommendations
• References
• Appendix

List of Abbreviations

• ADR: Alternative Dispute Resolution
• BTO: Build Transfer Operate
• BBO: Buy Build Operate
• BOT: Build Operate Transfer
• BOO: Build Own and Operate
• BOT: Build Operate and Transfer
• BOOT: Build Own Operate Transfer
• BDO: Build Develop Operate
• DB: Design Build
• DBM: Design Build Maintain
• DBO: Design Build Operate
• DBFO: Design Building Finance Operate
• EUL: Enhanced Use Leasing
• FAAN: Federal Airport Authority of Nigeria
• FDI: Foreign Direct Investments
• ICRC: Infrastructure Concession Regulatory Commission
• LDO: Lease Develop Operate
• MBO: Management Buyout
• MMA II: Muritala Muhammed Airport Phase 2
• NGO: Non-Governmental Organizations
• O&M: Operation and Maintenance
• OECD: Organization for Economic Cooperation and Development
• PPP: Public Private Partnership
• PFI: Private Finance Initiatives
• PPA: Power Purchase Agreements
• SPV: Special Purpose Vehicle

Chapter One

General Introduction

1.1 Introduction

Public Private Partnership is a contractual arrangement which is formed between public and private sector partners which involve the private sector in the development, financing, ownership, and or operation of a public facility or service. In such a partnership, public and private resources are pooled and responsibilities divided so that the partner’s efforts are complementary. The private sector partner usually makes a substantial cash or equity investment in the project and the public sector gains access to new revenue or service delivery capacity, and this arrangement between the public and private sector differ from service contracting.

Public Private Partnerships relate to perceptions and practices affecting public private sector relationships in ensuring national/global health, development and well-being of the society, and the conceptual aspects of such relationships, including the role of the key players in collaborating to make these partnerships successful or otherwise.

Though no single, universally accepted definition for public private partnerships, Public Private Partnership are often termed to mean different things to different people, which can make assessing and comparing international experience in such partnerships difficult. In general, Public Private Partnership refers to form of cooperation between public authorities and the private sector to finance, construct, renovate, manage, operate or maintain an infrastructure or service. At their core, all Public Private Partnership involve some form of risk sharing between the public and private sector to provide the infrastructure or service. The allocation of sizable and, at times significant, elements of risk to the private partner is essential in distinguishing a Public Private Partnership from the more traditional public sector model of public service delivery. There are two basic forms of Public Private Partnership: contractual and institutional. Although institutional Public Private Partnership have been quite successful in some circumstances, particularly in countries with well-developed institutional and regulatory capacities, contractual Public Private Partnership are significantly more common, especially in developing economies.

Although there is no universal consensus about the definition of public private partnerships, the following elements typically characterize a Public Private Partnership: The infrastructure or service is funded, in whole or in part, by the private partner. Risks are distributed between the public partner and private partner and are allocated to the party best positioned to manage each individual risk. Public Private Partnership are complex structures, involving multiple parties and relatively high transaction costs. Public Private Partnership is a procurement tool where the focus is payment for the successful delivery of services (the performance risk is transferred to the private partner).

Public Private Partnership is an output-/performance-based arrangement as opposed to the traditional input-based model of public service delivery where the focus is payment for the successful delivery of services. Public Private Partnership typically involve bundled services (i.e., design, construction, maintenance and operation) to increase synergies and discourage low-capital/high operating-cost proposals. In general, Public Private Partnership offer a new and dynamic approach to managing risk in the delivery of infrastructure and services. Although Public Private Partnership is considered a new concept that has gained prominence in the last 20 years, Public Private Partnership have actually been around for hundreds of years, wherever the private sector has been involved in the delivery of traditional public services (i.e., water, roads, rail and electricity).

In Public Private Partnership arrangements, the private partner is typically compensated through either: User-based payments (i.e., toll roads, airport or port charges) Availability payments from the public authority [i.e., Private Finance Initiatives, Power Purchase Agreements (PPA), Water Purchase Agreements (WPA)] A combination of the above in user-based payment structures, the government or public authority often needs to provide some financial support to the project to mitigate specific risks, such as demand risk, or to ensure that full cost recovery is compatible with affordability criteria and the public’s ability to pay. Government support mechanisms can take many forms, such as contributions, investments, guarantees and subsidies, but they should be carefully designed and implemented to allow for optimal risk allocation between the public and private sectors. When government supports are present, the objective is to increase private capital mobilization per unit of public sector contribution. Availability payments are at the heart of one form of Public Private Partnership, the Private Finance Initiatives model. This system provides capital assets for the provision of public services. Developed in the U.K., this model is used for a large number of infrastructure projects and gives the private sector strong incentives to deliver infrastructure and services on time and within budget. Private Finance Initiative’s simultaneously allow governments and public authorities to spread the cost of public infrastructure projects over several decades. This creates greater budget certainty, while also liberating scarce public resources for other social priorities.

Government Support Mechanisms hosting governments can provide financial support to or reduce the financial risk of a project in many ways. Common forms of government support mechanisms include Cash subsidy. The government or public authority agrees to provide a cash subsidy to a project. It can be a total lump sum or a fixed amount on a per unit basis, and payments can be made either in installments or all at once. Payment guarantee: The government agrees to fulfill the obligations of a purchaser (typically a publicly owned enterprise) with respect to the private entity in the case of non-performance by the purchaser. The most common example of this is when a government guarantees the fixed payment of an off-take agreement (e.g., Power Purchase Agreements or Water Purchase Agreements) between a private entity and the publicly owned enterprise.

Debt guarantee:

The government secures a private entity’s borrowings by guaranteeing repayment to creditors in case of default.

Revenue guarantee:

The government sets a minimum variable income for the private partner typically this income is from customer user fees. This form of guarantee is most common in roads with minimum traffic or revenue set by a government.

1.2 Background to the Study

The evolutionary process of infrastructure development in most developing countries is often characterized by full Government ownership of entities engaged in the provision of services such as water, electricity, telecommunications, power, and transport. Most of these services have cost structures which inherently make them naturally monopolies, the provision of these services has usually been subjected to inefficiencies. These services are usually viewed as entitlements necessary for survival, governments have intervened in their markets from time to time, subjecting these services to moderate, to severe price distortions, with such conditions persisting for long periods of time. Unfortunately, postponing compensating adjustments in the pricing or rationing of these services to avoid political and popular upheaval has usually come at the expense of state-run utilities and firms. Eventually, the financial strains these conditions create in public utilities turn into full-blown and growing fiscal time bombs. When uncompetitive conditions are allowed to persist for long periods of time, the cost to the present and future generations of potentially bailing out the ailing firms constitutes a significant overhang on the national government, which may eventually have to be passed onto taxpayers anyway, and may even undermine efforts at genuine sectorial reforms.

Countries wishing to avoid the increasing fiscal strain of continued Public sector provision of infrastructure services are increasingly turning to several modes of privatization, in order to pass on the challenges of infrastructure services provision to parties in better positions to assume the risks involved. Aside, from the desire to cut actual and potential fiscal costs encouraging private sector participation in infrastructure development has been driven in other countries by rapid economic growth, sometimes outpacing the Government’s capability to provide services exclusively and efficiently. Bureaucratic system and inefficient structures are increasingly being phased out in favor of private operation, ownership or which is perceived to be more efficient. There is a widespread move towards a shift to Public Private Partnership this is driven by successful private participations in Telecommunications, Banking and Waste Management Services where private provisions have increased access and led to quality services. Beginning with the privatization program me in Nigeria in the 1980s and momentum gained since 1999 when the present democratic phase commenced, the trend is to allow private sector to provide infrastructure. This move is not peculiar to the federal government alone but other tiers of government as well. Most state and local government have established Public Private Partnership units in their area of jurisdiction.

Nigeria’s policy on Public Private Partnership is to the effect that it will develop regulatory and monitoring institutions so that the private sector can play a greater role in the provision of infrastructure, whilst ministries and other public authorities will focus on planning and structuring projects. The private sector will be contracted to manage some public services, and to design, build, finance and operate some infrastructure. It is the government’s expectation that private participation in infrastructure development through Public Private Partnership will enhance efficiency, broaden access, and improve the quality of public services. This policy statement sets out the steps that the government will take to ensure that private investment is used, where appropriate to address the infrastructure deficit and improve public services in a sustainable way; and it will ensure that the transfer of responsibility to the private sector follows best international practice and is achieved through open competition [Foundation for Public Private Partnership Nigeria March 2013].

1.3 Statement of the Problem

The constant increase in the need for public services and infrastructural facilities in Nigeria and several other countries has given rise to more collaboration between the public and private sector, this has led to a substantial increase in Public Private Relationship.

In Nigeria, we have witness a lot of projects and infrastructural facilities that has been initiated and paused or abandoned by the public sector. In recent times, the delay in the construction of the Lagos-Ibadan Expressway, Kuto-Bagana Bridge, Lekki-Epe, Kuto-Bagana in Nasarawa and Kogi States, Maevis concession projects in all International Airports in Nigeria, the railway system project across the country that was awarded and abandoned by the Obasanjo administration, the second Niger Bridge between Onitsha and Asaba and River Niger Bridge in Nupeko, Niger State has been some of the projects that the public sector has been facing problems in completing, this is primarily due to the reason being that the public sector does not having sufficient or absolute financial and other necessary resources and technical know-how to complete the projects and to conveniently provide and cater for the total needs (public goods and services) of the citizens of their country alone.

1.4 Research Questions

1. What is the prospect of Public Private Partnership in Nigeria?
2. What is the challenges being faced in Public Private Partnership in Nigeria?
3. What is the existing development projects procured through Public Private Partnership?
4. Will Public Private Partnership solve infrastructural challenges in Nigeria?

1.5 Objectives of the Study

The average Nigerian is suspicious of Public Private Partnership and is usually of the belief that it is a means of transferring power or control of the nation among a favored few, they refuse to see and appreciate the burden encountered by the private sector and public in ensuring the availability of a lasting and well-functioning infrastructure which can better and faster be achieved through Public Private Partnership. It is therefore expected that the result of this study is to enlighten and or educate those persons ignorant of what Public Private Partnership is actually about and its mode of operation.

1.6 Scope of the Study

Public private partnership can be said to be a recent development which must be tread on so softly. Public Private Partnership being a recent development is thus a delicate area of study, so this research will carefully examine widely the gains and benefits of Public Private Partnership.

The center of concentration being the effects Public Private Partnership will have in a particular locality i.e. its advantages and disadvantages where it is being practiced and also how it helps in the provision of needed and necessary infrastructure.

1.7 Significance of the Study

The importance of any research is tied to proffer solutions to the various problems that face mankind in the environment or society. This study helps to enlighten the citizens and economic planners on implication of Public Private Partnership towards the development of the country as a whole.

The research is also useful for Government officials and Private Organizations to determine their performance in accordance with the contractual arrangement between the two parties.

It will also help the researchers and the upcoming researchers to gain knowledge of the activities of Public Private Partnership and the Nigerian Experience.

1.8 Justification of the Study

Infrastructure development is one of the bases of assessing the achievements of democratic leaders and it is the foundation of good democratic governance. Agitation for infrastructural development in developing nation is higher in democratic government than in military dictatorship or compared to developed countries. This is because the resources for provision of infrastructure are always scarce. Ethnic-interest agitation and lobbying are common things in democratic governance in developing countries.

The Infrastructural report of Nigeria just like any third world country is nothing to write home about. The housing situation is in a sorry state both quantitatively and qualitatively (Agbola, 1998). Most infrastructures are now decayed and need repair, rehabilitation, refurbishment or replacement. Government is the system that plans, organizes, controls and supervises the people who are resident in an area in other for all to have conducive-environment for living and a sense of belonging. Governments have the power to put in place all measures that it deem fit will make an environment beneficial for living for everybody.

Traditionally, the public sector has tended to engage the private sector merely to construct facilities or supply equipment. The public agencies will then own and operate the facilities or equipment or engage separate maintenance and operations companies to operate the facilities and equipment to deliver the services to the public. Public Private Partnership is born based on the fact that government provision of goods and services should not only lay emphasis on finance but on the quality of goods and services. “Managerially, modernization emphasizes a shift from a focus on inputs to a concern with outcomes – providing services is no longer a sufficient justification for state intervention, it must create added public value (Stoker, 1999, pp. 243–244). There is a more open-minded approach to service procurement, and no presumption that in-house provision is always the best option (Hood and McGarvey, 2002). With this, Direct Labour has been viewed to have shortcomings in infrastructure provision.

With Public Private Partnership as an alternative form of financing infrastructure project, the public sector will focus on the provision of infrastructure developments at the most cost-effective basis, rather than directly owning and operating infrastructures. There are many possible Public Private Partnership models, including joint-ventures, strategic partnerships to make better uses of government assets, Lease and Operate, Design-Build-Operate and Design-Build-Finance-Operate (Hood and McGarvey, 2002).

1.9 Limitation of the Study

The study mainly covered just one of the 36 (Thirty Six) states in the federation which wasuse to explain and is expected to be a representation of the 36 states in Nigeria. Another limiting factor is the time limit available to the researcher within which the research must be completed. There is also the effect of the prevailing economic situation which does not spare the researcher.

The researcher ability of the researcher to complete the research is also limited by insufficient record and data.

1.10 Research Hypothesis

The following are the research hypothesis of the study, they are:

1. Public Private Partnership do not influence the level of infrastructural development in Nigeria.
2. Public Private Partnership and collaboration is not an effective way of enhancing the ability of the government to provide public utilities and services.
3. Public Private Partnership is not a source of gaining the use expect advantage and financial resources to provide infrastructural facilities in Nigeria.

1.11 Definition of Terms

i. Public private partnership:

This has been defined as arrangements between governments and private sector entities for the purpose of providing public infrastructure, community facilities and related services. Such partnerships are characterized by the sharing of investment, risk, responsibility and reward between the partners.

ii. Build, Own, Operate [BOO]:

The developer is responsible for design, funding, construction, operation, and maintenance of the facility during the concession period, with no provision for transfer of ownership to the Government [Darrin Grimsey and Mervvn K. Lewis2004a]. iii. Build, Own, Operate, Transfer [BOOT]: An arrangement whereby a facility is designed, financed, operated, and maintained by a concession company. Ownership rest with point ownership and operating rights are transferred to the Government [normally without charge][Darrin Grimsey and Mervvn K. Lewis2004a].

iv. Build, Operate, Transfer [BOT]:

An agreement where a facility is designed, financed, operated, and maintained by the concessionaries for the period of concession. Legal ownership of the facility may or may not rest with the concession [Darrin Grimsey and Mervvn K. Lewis2004a].

v. Infrastructure/Utilities:

This is defined as the large-scale public systems, services, and facilities of a country or region that are necessary for economic activity including power and water supplies, public transportation, telecommunications, roads, and schools.

vi. Development:

A process of improving by expanding, enlarging or refining. A process in which something passes by degrees to a different advance stage.

vii. Public:

This is use to concern people in general consideration as a whole. It can also be use to describe something funded or provided by the government rather than the private sector.

viii. Nigeria:

A republic in West Africa on the Gulf of Guinea; gained independence from Britain in October 1st, 1960; most populous African country with 36 States and 774 Local Governments.
ix. PPP: Public Private Partnership.

x. PFI:

Private Financial Initiative.

xi. SPV:

Special Project Vehicle.

Chapter Five

Summary, Conclusion and Recommendations

5.1 Summary

Generally, this research work was designed to analyse Public Private Partnership and Local Government: The Nigerian experience with special reference to three Local Governments in Osun State. In most developing countries a purposeful Government realizes its essence by providing basic amenities such as water, telecommunications, power, and transport, education, housing, health facilities etc. for the survival of the people. The provision of these services has usually been subjected to inefficiencies. However, various modes of Privatization has been adopted by countries who which to avoid the challenges of facilities service.

Public Private Partnership can help create a more competitive and diverse supplier market, can help to improve the efficiency of public services, and can thereby reduce costs in public service delivery. It will harness the resources of both public and private sectors to secure the best outcomes and better value for money for the Nigerian citizen. Government will focus on its core public service role and give the private sector a greater operational role who may work together with other participants. It was obvious, in the research work that inefficiencies of Public Private Partnership were due to participatory work and commissioning process that are time consuming and also problem of finance and political interference which may occur from commercial or legal environment.

Finally, various types of Public Private Partnerships were identified and discussed. The two major types of Public Private Partnership in the three Local Governments were the work was carried out was Build Operate Transfer and Joint Ventures. Public Private Partnership is seen in these Local Governments area as a means to enhance the provision of social services or facilities.

The result of the data collected and the analysis shows that, the Private Sector Participation in the three sectors [Housing, Transportation and Agriculture] at the Local Government Areas, depict that the level of awareness of Public Private Partnership is still negligible despite Government effort to get the Private Sector involved in the provision of infrastructure.

5.2 Conclusion

Public Private Partnership (PPP) cannot be viewed as the absolute solution to our long quest for infrastructure provision in Local Government areas in Nigeria. Thus, it can only remain an alternative means of developing the required infrastructural facilities as housing, transport, health. Having opened the market to private developers to fill the gap that cannot be met by the public sector through the establishment of the Infrastructure Concession Regulatory Commission (ICRC), the coast can be said to clear for the private sector to cash in on these developments. However, much still needs to be done as the experience on Public Private Partnership in development of projects has not been all that encouraging. This is not to say that the adoption of Public Private Partnership arrangements is a negative development, but the poor performance of these projects has been as a result of short experience in Public Private Partnership arrangements and the lack of a risk management culture and delay in implementation of project as the stake Involved for the public authority may be high. More so, the populace are ill-informed about Public Private Partnership expect for those in academic field, Public Private Partnership can be taught in some discipline such as Local Government studies.

5.3 Recommendations

Based on the conclusion drawn above, the following recommendations are hereby proposed: This work has analysed the activities of Public Private Partnership in Local Government areas. The researcher suggested the following;

1. Political will is fundamental to a successful partnership. Public Private Partnership represents a significant change as opposed to traditional public procurement; government should build political support before introducing a Public Private Partnership programme.
2. A Government looking to implement Public Private Partnership programme must not only invest political capital, create the right investment environment, develop appropriate policies and focus on value. It must also ensure that the programme is a success measured in terms of the number of projects delivered and the outcomes that result. For example housing is economic goods that must be paid for but government can make it more affordable by arranging subsidy on the building materials and basic infrastructural services, but this can only come as fiscal policy. It takes a government with sense of purpose and vision to be for its citizenry in this regard.
3. The Government should also create Public awareness about Public Private Partnership. The populace must be well informed about their programme and activities with the private sector. Public opinion should be properly managed.
4. Moreover, public officers should be trained to have good understanding of Public Private Partnership concepts as most of the time their experience as a monitoring officers are needed for the smooth execution of the partnering contracts.
5. The capital market should be developed and deepen and powerfully empowered such that it will suit the necessities and requirements of the public private partnership projects and also, political, regulatory and economic stability should be ensured.

The United Nation [2000] emphasized the following;

1. An appropriate legislative framework must be enacted.
2. Government needs to take a leading role
3. Public trust has to be established
4. Public acceptance is required at the local political level
5. Experienced practitioners are needed
6. Financing needs to be meet

Other possible solution includes;

1. Contracts which take into consideration in equal measure, the objectives of private investors and government, and agreements which enhance mutual benefits must be continuously investigated and implemented.
2. Depending on the sector, some Public Private Partnership models are more appropriate than others in achieving its deliverables and in mitigating and sharing risk amongst participants. The right Public Private Partnership models must be identified and adapted where required, for the right project.
3. Public Private Partnership arrangements should be designed and adapted to the specific characteristics of the assets at stake, and tailored to the competence and abilities of the participants involved. [www.wikipedia .org/PublicPrivatePartnership].

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