Why PPP Is Becoming Attractive In Infrastructure Development

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All over the world there is a growing appetite for Public-Private Partnership (PPP) as a vehicle for the financing of public infrastructure. While developing countries in Africa because of the enormous government responsibilities as well as the huge infrastructure deficit require off budget revenue sources to augment the lean government revenue for infrastructure development and service delivery, developed countries such as America equally require private funds at the least to rebuild deteriorating infrastructure in order to retain her competitive position.

PPP known as Private Finance initiative (PFI) was invented in Australia in the late 1980s but pioneered by John Major Government in the UK in 1992. This initiative eventually spread to other parts of Europe, Australia, Canada, South Africa and various Asian Countries. In recent times PPP has been used to deliver various public infrastructure such as highway construction, mass transport development, airports, seaports, hospitals, schools and utilities of various kinds.

Specifically, M25, one of the busiest motorways in UK, where over 200,000 vehicle ply daily, is presently being expanded  from 3 lanes to 4 lanes in both directions through PPP to enhance  traffic management..

In South Africa, the 80-kilometre mass transit railway system in Gauteng province aimed at relieving traffic congestion in Johannesburg and Pretoria province is one of the successful PPP projects that has delivered public services to the masses.

In general terms PPP is a contract between a public sector institution (government) and a private party in which the private party assumes significant  project risk (financial, technical and operational risk) in the design, financing, building and operation of a project.

Some of the common terms associated with PPPs include Private Finance Initiative (PFI) – UK, Japan and Malaysia; Private Sector Participation (PSP) – Development Banks; Private Participation in Infrastructure (PPI) – World Bank; Private Financed Projects (PFP) – Australia and Public-Private Partnership (P3) – North America. There are also various PPP models that can be  employed in structuring a transaction ranging from equity participation (joint ventures), various leasing options, franchising, concessions, and variants of the Build-Operate-Transfer (BOT) model.

PPP offers a timely and cost effective alternative approach to financing, building, operating and maintaining infrastructure. And beyond the benefit of mobilising private capital for the speedy delivery of public infrastructure, PPP has a considerable number of other benefits which perhaps is why it is becoming a popular tool for infrastructure finance.

Aside from offering policy makers the opportunity to improve the delivery of services and the management of facilities, the thoroughness of the PPP process that ensures realistic debate on project selection as well as the proper identification and allocation of the risk to the appropriate party, enhances the efficient use of resources. It thus minimises waste and tendency for project to fail by allocating risk to the party most suited for it.  This has particularly been proven to be true with the 12.15MW Independent Power Plant built by the Lagos State Government along with Oando Power. The objective of the project is to provide uninterrupted power supply   at the Lagos State Water works in Adiyan/Iju so as to boost the volume of water generated. Since operation this PPP initiative has helped government to save the sum of N49.2 million monthly by switching from diesel generating to gas powered plant. Similarly, it improved citizens’ access to potable water by 42%, bolster service delivery to end users and ultimately enhanced revenue collection from service users.

PPP also encourages competition and transparency through open tender procurement process and thus allows for the selection of best solution to problems. It thus encourages creativity and innovation because unlike the traditional form of procurement which lays emphasis on input, PPP lays more emphasis on output thereby allowing proponents to look for creative solutions.

In the same vein, PPP minimises the tendency of a project’s failure because each party knows it will be prosecuted for non performance if it breaches service agreements. The private party particularly is compelled to deliver service in line with the service level agreed upon because their capital is exposed to performance risk.

It is therefore not a surprise that the Lagos State Government in line with its vision of “making Lagos State Africa’s Model Megacity and Global Economic and financial hub that is safe, secure, functional and productive” has joined other progressive countries of the world by adopting PPP as one of the public sector vehicle for facilitating infrastructure development and service delivery.

This becomes critical though, considering the vantage position of Lagos as the former federal capital of Nigeria and the commercial hub of Nigeria, which has continued to make it attractive to immigrants from both within and outside Nigeria in search of a better life. Lagos houses both the busiest seaports and airports in Nigeria and serves as the headquarters to most corporations and national conglomerates..

Specifically, there are 2000 industrial complexes in Lagos (65% wholly owned by Nigerians), 10,000 commercial ventures (70% of the national figure) and 22 industrial estates spread across the state. The state is also home to the Nigeria Stock Exchange and base to 200 out of the 250 listed firms. Lagos contributes more than 30% of Nigeria’s GDP and 65% of national VAT. It has been estimated that an average of 6,000 people enter Lagos daily, out of which about 50% of this population stay put. Ironically, Lagos is the smallest state in Nigeria, yet it has a population of about 18 million.

In the world today, about 1.3 billion people live in cities and Lagos State is one out of the 19 mega-cities. With a population growth of 6%, Lagos has been projected to emerge as the third largest mega city in the world after Tokyo in Japan and Bombay in India by year 2015 with a population of 24.5 million (UN-Habitat).

While there is a correlation between the level of urbanisation and the level of development because rapid urbanisation attracts large market, it should, however, be noted that a large population if not well harnessed can become a liability rather than an asset. There is no doubting the fact that the Lagos State Government is aware of the compelling need for infrastructure upgrade and renewal to meet the needs of the ever growing population. This much was admitted by Governor Babatunde Fashola in his 2011 budget speech when he acknowledged Public-Private Partnership as one of the instruments to be utilised by the State Government in the delivery of public infrastructure and services.

Public-Private Partnership is not new in Lagos State though.  The State Government has been collaborating with the private sector in various ventures and projects for many years.  Right from the administration of Asiwaju Bola Tinubu the State Government went into partnership with AES Nigeria to build an Independent Power Plant to generate 270MW for Lagos residents. Though the power generated was consumed locally but transmitted to the national grid because of some challenges in the operational framework in the energy sector, however the initiative still added 270MW power to the national grid.

The State Government has also made some major strides in the transportation sector, particularly the Bus Rapid Transit (BRT), the first of its kind in sub-Saharan Africa. The transport system which has about 200,000 daily ridership has helped in reducing travel time by 30% and creating over 5,000 direct and indirect employments.

Presently, work has commenced on one of the Light Rail Transit Systems, the Blue Line which is a 27 kilometer rail line from Okokomaiko to Marina. The Lagos Sate Government is to design and build the rail line infrastructure, while a concessionaire is to operate and maintain the service, including rolling stock.  The project which has presently generated about 2,000 jobs during construction work at the first phase is expected to generate about 50,000 jobs on completion in 2012.

Beyond the Akute Power Plant Project which is an independent power plant to generate 12.15 uninterrupted power supply for the State Water plants at  Adiyan/Iju, work is presently at advance stage to build a 15MW independent Power Plant at Lagos Central Business District to provide uninterrupted power supply for Judicial and Health facilities as well as 30 streets within the district. In the same vein a number of health facilities, particularly pharmacies and mortuaries are managed and operated by the private sector across public hospitals in the state.

The ongoing Eti-Osa-Lekki-Epe Expressway expansion project is another pioneering effort by the State Government in the area of toll concession. The project which won 2008 Transport Deal of the year Award from Africa Investors, aside from expanding the road from two to three lanes has also provided pedestrian bridges and street lights and incidence management services among others. The road when completed will considerably reduce travel time thereby helping road users in making considerable savings on fuel consumption and vehicle maintenance. Also, with the eradication of traffic congestion, people do not only save valuable time to engage in more production activities, but also live a healthier life. In the same vein, the incidence management services, which comes to the aid of road users when their vehicles breakdown, during accidents and other emergency situations, ensures that the safety and security of road users are guaranteed 24 hours.

At the federal level, the Federal Government and Bi-Courtney Aviation Service entered into a Build Operate and Transfer agreement for the construction of the second terminal at the Murtala Mohammed Airport (MMA2). The new airport was opened in 2007. Also, the Federal Ministry of Works has signified its desire to partner with private parties to concession some federal roads such as Lagos-Ibadan Road, Lagos-Benin Road and Abuja-Kano Road. Bi-Courtney Company has already been appointed as the preferred bidder for the development of the Lagos-Ibadan Road.

PPPs are, however, not without their challenges especially in developing countries where it is still relatively new and thus generates a lot of apprehension about its potency and reliability as a viable alternative for the delivery of public infrastructure. Despite this misgiving, PPP still seems a better option for financially strapped public officials to finance infrastructure development other than resorting to tax increase.  This posture for now appears to offer a “win-win” position for both the government and the governed.

•Abiodun Dina, author (Evolving Competitive Public Sector in Nigeria) is a Public Affairs Analyst, Public Service Office, the Secretariat, Alausa, Ikeja, Lagos.