STRATEGIES FOR ATTAINMENT OF VISION 20/2020

BY

O.A. DAIRO
Public-Private Partnership Schemes

ABSTRACT

There is a growing interest to finding ways and methods to formulating and strengthening of
public private partnership schemes in infrastructure development in the country. Entering
private capital into transport infrastructure planning, construction, and maintenance markets
requires that the investors behaviour and motives are understood. Private sector financing of
infrastructure and other larger-scale investments have increasingly taken the form of project
finance.

This paper investigates the characteristics of a feasible framework for formulating and
strengthening of public private partnership initiatives and cites a number of PPP type
projects in Lagos State.

INTRODUCTION (central or sub-national) and a private

entity established for the purpose of
Public Private Partnerships (PPPs) are a
providing an essential service facility to
means of using private finance and skills
the public. The goal of this arrangement is
to deliver capital investment projects
to provide the service or facility more
traditionally provided by the public sector.
efficiently and at a lower cost to the end
These include capital projects such as
user than either entity could provide the
transport infrastructure, hospitals, and
service on its own. The arrangement will
water facilities. Instead of the public sector
try to allocate the risks of the venture
body directly procuring capital assets and
fairly between the private and government
subsequently owning, operating and
entities, based on each entitys ability to
regulating them, PPPs generally involves
manage these risks and to provide rewards
the private sector owning and operating,
to each party based on the risks they have
but the public sector buying the service
assumed
from the contractor for a fixed period of
time. The Public-Private Partnership (PPP)

A Public Private Partnership is an concept which is relatively new has

arrangement between a government entity gradually gained grounds in terms of

190 Nigerian Society of Engineers, YANKARI 2008

implementation and in recent years, the The collaboration between the government
volume and number of projects which are and the private sector in PPPs is especially
implemented under this arrangement have productive in promoting poverty
increased significantly worldwide. This is alleviation and enhancing healthy
not unconnected with the fact that it is now partnership where properly regulated,
an accepted fact that Government at all PPPs allow for flexible risk sharing
levels is unable to exclusively provide all between the public and private sectors.
the infrastructure and amenities needed for Other attractions by the private sector
the well-being of the populace and to include, but not limited to the following:
develop the economy.
Public capital is limited and have

Lagos state has embarked on several major alternative uses

transport infrastructure projects. Such Reluctance of the private sector to

projects take the form of public- private commit private capital to risky projects

partnership. There are several transport Significant efficiency gains from

related developments planned to address private sector involvement in service

the infrastructure deficit and ways of delivery and customer relationship

meeting the transportation demand in the Avoidance of unintended

state. Such includes the Light Rail Transit downsides (community disruptions,

Projects, Water Transportation routes, Bus resettlement, etc)

Rapid Transit projects and Road Tariff affordability and

developments. acceptability
Appropriate risk allocation.
WHAT ATTRACTS THE PRIVATE
Government retains policy and regulatory
SECTOR?
risks and the private sector assumed
The private sector is increasingly attracted commercial risks
to investing in the private sector.
PPP MODELS, TYPES
Sustainable access to socio-economic
services and products can be achieved There are varied models of Public-Private
through PPPs where the private sector is Partnerships and they are useful in
permitted to bring skills and core describing the relationship between the
competencies to bear in its collaboration public and private sector as it relates to the
with the government to deliver these implementation of projects.
services.

191 Nigerian Society of Engineers, YANKARI 2008

 Design-Build (DB) - The private
sector designs and builds infrastructure to
meet public sector performance
specifications, often for a fixed price, so
the risk of cost overruns is transferred to
the private sector.
Operation and Maintenance
Contract (O and M) - A private sector,
under contract, operates a publicly owned
asset for a specified term. Ownership of
the asset remains with the public entity.
Design-Build-Finance-Operate
(DBFO) - The private sector designs,
finances and constructs a new facility
under a long-term lease, and operates the
facility during the term of the lease. The
private partner transfers the new facility to
the public sector at the end of the lease
term.
Build-Own-Operate (BOO) - The
private sector finances, builds, owns and
operates a facility or service in perpetuity.
The public constraints are stated in the
original agreement and through ongoing
regulatory authority.
Build-Own-Operate-Transfer
(BOOT) - A private entity receives a
concession to finance, design, build and
operate a facility (and to charge user fees)
for a specified period, after which
ownership is transferred back to the public
sector.
Buy-Build-Operate (BBO)
Transfer of a public asset to a private or
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quasi-public entity usually under contract
that the assets are to be upgraded and
operated for a specified period of time.
Public control is exercised through the
contract at the time of transfer.
Operation Licence - A private
operator receives a licence or rights to
operate a public service, usually for a
specified term. This is often used in IT
projects.
Finance Only - A private entity,
usually a financial services company,
funds a project directly or uses various
mechanisms such as a long-term lease or
bond issue.
IMPLEMENTATION OF PPPS
Although a PPP is based on overlapping
goals, there are much potential for conflict,
especially where the PPP involves long-
term arrangements between two or more
parties. This is because PPPs can involve a
myriad of complex legal arrangements, the
interpretation or misinterpretation of
which can lead to conflict between the
parties to the agreements.
CHALLENGES TO SUCCESSFUL
IMPLEMENTATION OF PPPS
There are numerous other challenges that
may arise in the course of a PPP,
particularly in a developing economy such
-
as Nigeria's. Some of the challenges that
Nigerian Society of Engineers, YANKARI 2008
may give rise to conflict are enumerated However, in 2003, the Federal
and described by Babalakin (2008) and Government adopted the National
listed below: Economic Empowerment Development
Strategy (NEEDS) which has highlighted
Absence of Policy Framework
our socio-economic developmental
Inadequate Regulatory and Legal
aspirations to be reform of the public
Framework
sector, enabling a robust private sector-led
Inadequate Judicial Processes
economy and the implementation of an
Bureaucracy and Red-Tapism
effective social charter for the purposes of
Corruption
reducing poverty, creating wealth,
Policy Instability
generating employment and re-orientating
Tariffs, Revenue and Cost
national values.
Recovery
Vested Interests A fundamental feature of NEEDS is that it
clearly delineates responsibilities between
Absence of Policy Framework government and the private sector in its
component strategies, plans and targets;
Policy framework plays an essential role in Government would provide the enabling
a PPP enabling regime. A clear well business and regulatory environment while
articulated policy will be found in the form the private sector is to invest in and
of a governmental endorsement which will manage ventures that would stimulate and
typically state the Government's vision of support socio economic development.
PPP development in the country, its NEEDS is therefore a broad based Public
objectives, the principles it sets to promote Private Partnership (PPP) initiative which
including the legal and regulatory regime, all stakeholders in the developmental
institutional framework and possibly process are expected to buy into for
training policy and educational campaign optimal success in implementation.
where necessary.
In 2004, the National Assembly passed the
Inadequate Regulatory and Legal Infrastructure Concession Regulatory
Framework Commission (Establishment Etc) Act into
Law.
Until very recently, there was no
regulatory framework guiding the The Act provides a legal basis for any
operation of PPPs and in Nigeria. Federal Government Ministry, agency,

193 Nigerian Society of Engineers, YANKARI 2008

incorporation or body involved in permits and approvals in order for such
financing, construction, operation or projects to be and remain on schedule.
maintenance of infrastructure to enter into This because the existing administrative
a contract or grant concession to any duly framework is inefficient and ingrained
pre-qualified proponent in the private with complex and often unnecessary
sector for the financing, construction, bureaucratic constraints which occasion
operation or maintenance of any delay.
infrastructure that is financially viable or
Even where the legal framework conforms
any development facility of the Federal
with International standards, there must
Government.
still be a general rule of law climate and
The Act also establishes the Infrastructure institutional framework which will permit
Concession Regulatory Commission projects to be implemented effectively.
which has general supervisory powers over The reasons for that includes the
concessions granted by the Federal inefficient court system and poorly trained
Government and its Agencies to private public officials as well as the parties'
investors. negative attitude towards international
arbitration.
The Act however forbids any Government
Ministry agency or corporation to give any Although both the policy and legal
letter of comfort or undertaking in respect frameworks are essential for the
of any concession agreement made workability of PPPs, it can be argued that
pursuant to the Act without the approval of the policy framework is the starting point
the Federal Executive Council. and more critical of the two.

In addition, the Government's commitment Furthermore, where there is an absence of

and support is required to successfully
complete a PPP project in order to avoid
the adverse consequences of opportunistic
and arbitrary actions by government
agencies.
The Government must also demonstrate a
strong commitment in terms of preventing
delays in implementation and grant of
a legal framework for concessions or
significant restrictions permeate such
existing framework, projects can still be
implemented fairly successfully where
several good precedents exists and an
efficient institutional framework which is
essential for day-to-day implementation
and enforcement is in place.

194 Nigerian Society of Engineers, YANKARI 2008

Inadequate Judicial Processes
The Judicial Process in Nigeria
notoriously slow, and disputes can take
many years before reaching a final
resolution
The lack of specialised knowledge by
Judges and other Adjudicators in respect
of PPPs is also a major obstacle to the
successful execution of projects. One
injunction in the lifetime of a project can
terminate the vision driving the project and
the project itself.
Bureaucracy and Red-Tapism:
Ignorance of PPP processes
The relevant government agencies do not
have the requisite knowledge
experience on PPP projects. PPP is a novel
arrangement in Nigeria. For instance, the
Murtala Mohammed Domestic Airport
Terminal 2 project is the first of its kind in
the Aviation and Construction sectors of
the Nigerian economy.
Resistance and Opposition From Public
Servants
There are often delays, frustration and
overt hostility and resistance from public
servants resulting from a fear of the
usurpation of their functions and loss of
employment.
195
Unnecessary Delay
is There are typical unnecessary delays
occasioned by unnecessary replication of
tasks.
The combination of these factors has
created a dysfunctional system which is a
major challenge to the successful
implementation of PPP in Nigeria and
might deter prospective investors.
Corruption
The prevalence of corruption in Nigeria,
like many other third world countries, is
also a major obstacle to PPP. The
establishment of anti-corruption agencies
like the EFCC and the ICPC have made an
appreciable impact on the level of
and
corruption in the country, evidence of
which can be seen in Nigeria's improving
Corruption rating with Transparency
International.
Policy Instability
Social, economic and political instability
are factors which are inimical to successful
implementation of PPP projects. Nigeria
has been relatively stable since the re-
emergence of Democracy in 1999.
However, a continuing threat to PPP in
Nigeria is policy instability resulting from
changes in government. Over the years,
Nigerian Society of Engineers, YANKARI 2008
the trend of successive governments has providing public services by private
been to reverse policies and decisions of investors and the need to ensure safety and
their predecessors upon assumption of security.
office.
This is undoubtedly one of the greatest
Often times, the same administration starts
potential areas on conflicts in PPPs.
a policy and midway through the
implementation of these policies, reverses Tariffs are usually heavily regulated but
itself causing substantial losses to these must be done in a manner which
investors. allows the investor to make a reasonable
return on investment. This is a veritable
It is imperative that such policy reversals
source of potential dispute in PPP projects.
be reduced to the barest minimum, and
where exigencies demand that such ROLE AND RESPONSIBILITIES OF
reversals be made, there must be a EACH PARTY / ALLOCATION OF
framework in demnifying and RISKS
compensating investors who have
There is a range of authorisations and
committed themselves to such policies.
approvals that are required which fall
Disputes arising from such reversals must outside of the remit of the sponsoring line
also be managed in a manner that is ministry. Some of these can be extremely
expeditious and cost effective, while important such as a willingness of the
ensuring that the project is not interrupted State to provide a guarantee, whereas other
or unduly delayed. can appear more trivial such as granting
of rights of way for a development;
Tariffs, Revenue and Cost Recovery however, all have the potential to stall or
even prevent a PPP transaction from
The Government has an obligation under
taking place. Some examples of the
any PPP, to the public on the one hand and
different approvals are listed below:
to the private investor on the other hand.
The government must balance its Ministry of Finance: approval for
obligation to provide public infrastructure any State commitments which are greater
and services with the imperative need for than the sponsoring ministrys provided
the recovery of the investors costs and budgetary allocation. This can include any
profits and the need to protect citizens additional direct funding or stand-by
from potentially extortionate cost of

196 Nigerian Society of Engineers, YANKARI 2008

credit, or contingent support such as either Developing and implementing
credit or political guarantees. sector priorities, strategies, plans and
Ministry of Planning and budgets;
Development: ensuring that projects are Identifying project opportunities
consistent with any National Plan; and determining priorities in the light of
Ministry of Environment: (or other the above;
relevant ministry); ensuring that land use Sponsoring and promoting the
is agreed; ensuring that the project is opportunity through the project cycle in
environmentally compliant; terms of gaining the required permissions
Ministry of Commerce and for it (eg environmental, land use, import
Industry: ensuring that the business is licenses etc);
properly established Competitive procurement of an
Ministry of Labour / Interior: infrastructure service provider (short-
ensuring that, say, permissions for listing of bidders, preparation of Request
employment of foreign professionals or for Proposal, negotiation with preferred
labour are in place bidder);
Sector Regulator: ensuring that the Allocating own budgetary funds as
proposed approach is consistent with the required;
regulatory regime (to the extent that it Contracting with the infrastructure
exists) service provider;
Contract monitoring to ensure
Where the PPP opportunity is government
compliance; and
originated, a number of key roles and
Revising / renegotiating contracts
responsibilities are commonly observed in
as required.
terms of the line or sector ministry which
has responsibility for sponsoring the Typically most of the above are
opportunity and ultimately signing the undertaken with considerable external
contract with the infrastructure service advisory support: legal, financial and
provider and other key ministries whose technical. The costs of this support can be
authorisations are required for aspects of very high: even for a relatively large
the project. project the advisory costs could often be
5% of total project costs. Sometimes a
Line / sector ministries (eg Power,
proportion of the advisors fees are made
Transport, Telecommunications etc) have
contingent upon successful project signing.
primary responsibility for:

197 Nigerian Society of Engineers, YANKARI 2008

In many instances the responsibility for
sponsoring a PPP is developed to a federal,
state or local government authority. In
each of these the responsibilities are as
listed above.
RISKS ASSOCIATED WITH PPPs
The PPP model does however have a
number of risks. One of the concerns often
cited by investors is the risk of significant
changes in government policy. A solid
legal system to protect their investments
and honour contracts are also essential to
investors. Given Nigeria's somewhat
negative image around the world, Lagos
States job would be to allay these fears
and give proper assurance to investors.
Lagos State is improving areas like
taxation, business registration, justice and
security. We are improving all these areas
to ensure that the general environment for
doing business lives up to the highest level
of expectation internationally. Other areas
we are working on include the granting of
land rights and transfer all to encourage
a large flow of foreign direct investment.
Lagos State is determined to make its PPP
strategy work and foreign investors in all
sectors are likely to turn their radars to the
host of opportunities in this mega-city.
198
LAGOS STATE- A CASE STUDY
Lagos State is Nigeria's most populated
area with around 18 million people. After
years of neglect the mega-city's road
infrastructure is in dire need of an upgrade.
Roads need to be constructed and
upgraded all over the state and investors
are invited to consider the opportunities.
The nature of investment will be in the
form of a public private partnership as
Lagos State has identified this model as
the most effective way of infrastructure
development.
Many Nigerian states have identified
public private partnerships (PPP) as the
most effective way of improving
infrastructure and stimulating economic
growth; but how do these partnerships
work and how can private companies
actually make money from them? This
paper also looks at Lagos State's PPP
strategy.
Years of neglect and high population
growth has left Lagos' infrastructure in
tatters. The present administration has
made it its commitment to improve the
transport network, water supply, waste
management and commercial
infrastructure of Nigeria's commercial
capital. This will however require
substantial financial input which the state
government is unable to fully pay for out
Nigerian Society of Engineers, YANKARI 2008
of its own pockets. It has therefore decided
to adopt a public private partnership model
to address these problems.
The thinking behind Lagos State's PPP
initiative is to involve private companies
to assist the government in fulfilling its
mandate to the people. PPP projects can be
structured in a variety of ways, but in most
cases the financial burden is transferred
from the state to the private sector.
Projects are however structured
a manner which allows the private sector
to realise a reasonable return
investment.
Another advantage of involving the private
sector in infrastructure development is that
government don't always have
necessary technical skills and experience
to execute these projects successfully.
PPPs have been implemented successfully
in countries such as Canada, the United
Kingdom, Australia and the United States
for projects ranging from
construction, bus rapid transport systems
and monorails to health care facilities and
schools.
A vital plank in the policy of the Lagos
State Government is the Public Private
Partnership. Through this initiative, which
is already bearing fruits in many areas of
public service delivery, the investor is
granted very favourable conditions in
199
which to make a return on investment
while the people of Lagos receive a
reliable and efficient service.
It is estimated that Lagos State needs
US$2 billion to expand its water supply,
$715 million to provide an efficient road
network, $185m for new housing stock,
$100m to improve its waste management
system, $100m for a new Bus Rapid
Transit System and millions more to
in rectify power supply problems.
The state's PPP initiative is open to various
on
investment options, ranging from equity
participation, various leasing options, a
Build Operate Transfer (BOT) system and
concessions. Both foreigners and local
the Nigerians are allowed to participate.
BRT CASE STUDY
LAGOS BRT SCHEME MILE 12 TO
CMS
LAMATAs BRT vision is to have a
road modern, comfortable bus public transport
system at reasonable cost to users and yet
profitable to the operators.
The Mile 12-CMS BRT Lite scheme
which was launched in March 2008 uses
quality high capacity buses operating on
exclusive lanes at significantly less travel
time, in conformity with international
service standards.
Nigerian Society of Engineers, YANKARI 2008
This Scheme was modelled after a similar system in Bogota Colombia.

BRT Corridor

The Project Framework took the form of a It is expected that the Badagry Express
PPP approach; with LAMATA as the Way will dramatically ease traffic
Implementing Agency. The project congestion in Lagos. The road will have
Infrastructure cost was fully borne by ten lanes, a light rail corridor, and will
Lagos State government. Sources of this cater for the new Bus Rapid Transport
fund includes: - Commercial Loan backed (BRT) system. It will also have around 7
by ISPO. Also, fund for infrastructure interchanges from Eric Moore all the way
maintenance is obtained from State to Badagry. The Lagos State Government
Treasury (FAC, IGR), and Transport Fund has already finished the design of the
(Advertising Revenue (SKYE BANK), project and is currently looking for
Depot Fees, MVA Contribution). suitable investors.

The private sector, through ECOBANK

The implementing agencies are Ministry of
procured the Rolling Stock and is in
Works and Infrastructure (MOWI) and
charge of Operations.
Lagos Metropolitan Area Transport
OTHER PPP PROJECT PROPOSALS Authority (LAMATA). Both agencies are
IN LAGOS STATE within the Public sector. MOWI is
BADAGRY EXPRESS WAY responsible for the road project; while

200 Nigerian Society of Engineers, YANKARI 2008

LAMATA is handling the rail project; both projects are on same route.
The Infrastructure fund for these projects Lagos' flagship PPP project is the
will be obtained from Lagos State construction of the US$300m Lekki-Epe
government upfront (Bond Issue), and also expressway. It is a partnership between the
investment with PSP Option to Contribute. Lekki Concession Company (LCC) - a
special purpose vehicle and a subsidiary of
It is envisaged that the Private Sector will
Toll Systems Company Limited (TSC) -
handle the maintenance and Operations of
and the state government. It includes the
these projects with funds obtained from
upgrading of the first 49.4 kilometres of
Rental Income, Fare Box, Toll,
the Lekki-Epe road. Phase Two of the
Advertising etc. Also, on Regulatory
project involves the developing of the first
aspect, there would be
20 km of the Coastal Road with an option
Franchise/Concession Fees
to do the southern bypass as well.
LEKKI CORRIDOR ROAD
According to the agreement, LCC will
The Lekki Concession Company is already build, operate and maintain the road for 30
busy with the upgrading of the Lekki-Epe years, after which the asset will be handed
Expressway. The company will manage over to the state government. LCC will
the road for 30 years after which it will be earn a return on its investment through
handed over to the state government. LLC raising toll.
will realise a return on investment by
raising toll.

Lekki Corridor

201 Nigerian Society of Engineers, YANKARI 2008

Benefits of the project to the population of
Lagos State will be traffic decongestion
and a number of services that will be
available on the road such as street
lighting, breakdown assistance,
ambulance service, and a customer call
centre. The expressway will also have
much improved security which should
decrease the occurrences of hijackings.
The project will have spill-over effects
such as employment creation and higher
real estate values in the area.
Prospective investors are already keeping a
keen eye on this project and the successful
execution thereof should spur a wave of
interest into similar ventures in Lagos
State.
EBUTE OJO TO MARINA WATER
TRANSPORTATION PROJECT
Commuter surveys have identified seven
(7) main water routes (ferry lines) for
development.
Of these, one of the priority ferry lines for
an
first phase implementation is the Ebute
Ojo to Marina. PPP assessment conducted
for Water Transportation in Lagos
indicates that ferry operations can best be
carried out by the private sector to ensure
effective and efficient services
The project implementation framework
which will be based on a PPP approach is
still under negotiations. The implementing
agencies, LAMATA/LASWA are in the
public sector.
The Infrastructure provision is from the
state government while the private sector
would procure rolling stock, operate and
maintain the scheme.

Proposed Ferry Approaching Marina

202 Nigerian Society of Engineers, YANKARI 2008

RED LINE LRT PROJECT MARINA Client (LAMATA) under a design/build
TO IJOKO contract and that the actual railway
systems operations would be funded and
A Light Rail/Metro network, the Lagos
managed by the private sector under a
Urban Rail Network (LURN) has been
Concession agreement.
conceived for the city. The proposed
LURN, comprising of seven Light Rail The project, which is at preparatory stage
Mass Transit (LRMT) corridors to be has FG(FMoT), LASG(LAMATA) and
developed and implemented in phases. OGSG as Implementing Agencies on a
BOT basis.
The Red Line (Ijoko Marina LRMT) is to
be redeveloped on the old and only It is envisaged that the ratio of
existing rail corridor owned by the infrastructure funding for this project
Nigerian Railway Corporation (NRC). The would be provided by FG (40%), LASG
corridor ceded to LAMATA based on a (45%) and OGSG (15%) under a Mega
Memorandum of Understanding (MoU) City Funding arrangement.
between the Federal Government (FG) and
the Lagos State Government (LASG). A The private sector would procure the
comprehensive review and update of rolling stocks for the scheme and also be
feasibility studies for the Red Line responsible for operations and
concluded July 2008, reports estimated maintenance.
total passenger traffic of over one million
daily.

The Red Line will be developed and

implemented as a PPP scheme. The
defined basis of the PPP would be that the
infrastructure would be provided by the

203 Nigerian Society of Engineers, YANKARI 2008

 Oshodi with Proposed LRT

CONCLUSION

PPPs remain the most effective means by

which Nigeria can provide the necessary
infrastructure to meet its development
goals.

A lot has been done to encourage PPP in

providing the necessary infrastructure but
a lot is still required to be done.

There are several potential areas of

conflict in PPPs in Nigeria. Effective and
reliable dispute resolution mechanisms are
imperative for the success of any policy
thrust on PPP.

204 Nigerian Society of Engineers, YANKARI 2008