Adopting PPP Model in Infrastructure Financing

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Ugochukwu Amasike suggests that public private partnerships offer a more sustainable and efficient mode of financing infrastructure in Nigeria

If there is a consensus right now in Nigeria, it is on the need for investment in infrastructure in order to reduce the cost of doing business in Nigeria and make Nigerian businesses competitive and for Nigeria, the lack of adequate infrastructure serves as one of the most significant obstacles to building, sustaining and distributing wealth and the trajectory of growth and poverty alleviation.

 According to the National Planning Commission’s “National Integrated Infrastructure Master Plan”, Nigeria needs to spend USD 3.0 Trillion over the next 30 years in order to close the infrastructure gap. Similarly a 2011 World Bank publication assessed that Nigeria needs to increase its spending to a total of USD 142 billion, with USD 10.5 billion per annum needed for federal infrastructure and USD 3.7 billion for municipal level assets over the same time frame.

The development of infrastructure in Nigeria has customarily been financed through traditional forms of contract-awards by the government, but in the face of diminished government revenue, the federal government has sought to leverage more on debt-financing; with the government expressing it’s intention to borrow USD 30 billion in order to finance major infrastructure projects across the federation.

The government has assured the Nigerian public that the loan will be strictly applied to infrastructure-financing, however, ‎whilst appreciative of the determination of the government to ensure fiscal discipline, it is pertinent to note that in the advent of any further fall in oil prices, Nigeria would require additional Naira revenue to meet its debt obligations, placing a further strain on the lean resources of the government; worsening economic conditions in the country.‎

As for domestic borrowing, industry experts have suggested the potential of a crowding out, with local financial institutions more favorably disposed towards lending to the public sector than to the private sector, thus depriving SME’s of critical credit facilities and consequently hurting the real economy, increasing unemployment and growing poverty.

In light of these challenges, it has been suggested that “Public Private Partnerships” (PPP) offers a more sustainable and efficient mode of financing infrastructure in Nigeria. PPP’s are essentially contractual arrangements between the government and private companies for the purpose of financing, building, operating and or maintaining of infrastructure projects.

A PPP is implemented through various contractual arrangements and in Nigeria, the most common form is the Build-Operate-Transfer (BOT) arrangement that leverages on the financial strength of the private investor for the execution of a project. In return, the investor is provided with ample ownership rights and duration within which the investor recoups his investment and makes profit, before transferring full ownership rights back to the government.

An excellent example of a completed PPP project is the concession of Onne Oil and Gas Free Trade Zone port facility in Rivers State, where over 169 companies in the oil and gas sector are running operations. The OGFZ Onne, currently accounts for more than 67.7% of all foreign direct investment by OGFZ’s in Nigeria, and at the heart of this success is the massive infrastructure investment into the complex undertaken by the concessionaire company – Integrated Logistics Services (INTELS), which according to industry reports has invested over a Trillion Naira in the upgrade and modernisation of the port.

The advantages of the PPP model for infrastructure-financing are several, a few of these advantages include:

  1.       The accelerated provision of infrastructure.
  1.      Job Creation: the utilisation of PPP occasionally entails a joint venture with large international firms, which usually provides opportunities for local firms in areas such as civil works, facility management, etc.
  1.       Transfer of Technology and Expertise: PPP’s afford the public sector the opportunity to adopt and leverage on the expertise, experience and technology of the private sector.
  1.      Government Savings: PPP arrangements remove the responsibility of funding projects from the Government’s balance sheet, thus saving the money for the country, which can be invested into other critical sectors.

The opportunities and advantages presented by the full adoption and utilisation of PPP for Nigeria are several, all that is required of the government is for it to provide a stable and secure environment for private investors and their investments, by demonstrating its commitment to the rule of law – the flouting of court orders by some agencies of government does little to inspire investor-confidence.

The government should also preserve the independence of the Central Bank to independently determine monetary policy and ensure a friendly tax and regulatory environment. It is hoped that Nigeria’s policy makers will see the need to fully embrace the utilisation of PPP in the financing of infrastructure. Nigeria has all to gain and nothing to lose from the adoption and utilization of Public-Private-Partnerships.

  • Amasike, Lawyer, wrote from Lagos, ugoamasike@yahoo.com