First of all let me congratulate the Executive arm of the Federal Government of Nigeria for producing this great plan, the Economic Recovery and Growth Plan (ERGP) 2017 – 2020, a plan that if religiously followed, will make Nigeria become a major player in the global economy by virtue of its human and natural resource endowments.
As with all human plans, there is always room for improvement. As an expert in Public Private Partnerships, (PPPs), my comments are on the public private partnerships component of this laudable blue print.
ERGP under the heading “Building a Globally Competitive Economy: Investing in infrastructure” stated as follows, “ The ERGP emphasizes investment in infrastructure, especially in power, roads, rail, ports and broadband networks.
It builds on ongoing projects and identifies new ones to be implemented by 2020 to improve the national infrastructure backbone. Given the huge capital layout required to address the massive infrastructure deficit in the country, the private sector is expected to play a key role in providing critical infrastructure, either directly or in collaboration with the Government under public private partnership (PPP) arrangements”.
Experience worldwide has shown that successful PPP transactions occur in appropriate Legal, Investment, Policy and Operating frameworks.
This is why it is very important that Nigeria gets it right at the Policy level because it is the policy framework that largely determines the other frameworks.
In the ERGP, one of the deliverables is “Review the Infrastructure Concession Regulatory Commission Act to resolve conflicting legislation with the Bureau of Public Enterprises and Bureau of Public Procurement Act and strengthen the Commission’s regulatory mandate to facilitate private investment”.
The ERGP further states under 7.5 “CREATE AN ENABLING POLICY AND REGULATORY ENVIRONMENT – The right policy, legal, and regulatory environment is required to accelerate implementation of existing and new priority strategies.
The Federal Government will work with the National Assembly to ensure the passage of legislation to support the ERGP.
For example, unifying legislation may be required to resolve overlapping and conflicting legislation, e.g., between the Bureau for Public Enterprise Act, the Bureau for Public Procurement Act and the Infrastructure Concession and Regulatory Act, that may inhibit private sector participation in strategic sectors.
The introduction of a unifying legislation that encompasses all others would streamline requirements and make it easier for potential investors to participate”.
While I agree with the decision to resolve overlapping and conflicting legislation, among the Bureau for Public Enterprise Act, the Bureau for Public Procurement Act and the Infrastructure Concession and Regulatory Act, I disagree with the decision that there should be one unifying legislation to achieve the desired effect of streamlining requirements and making it easier for potential investors to participate in PPP projects.
I will explain myself later but let me for now treat three critical success factors seemingly omitted in the PPP component of the ERGP. Although there are many factors necessary for success, these three factors being very important need to be loudly and expressly mentioned.
These three critical success factors are a strong public sector capacity, willingness to pay by the public and having a transparent, competitive and fair procurement process.
Therefore, the ERGP should contain loud and express provisions to build a strong public sector capacity, use strategic communication to effect a favourable disposition of the citizens to PPPs and hence ensure that there is willingness to pay for services, and assure investors and financiers that any PPP procurement process will be transparent, competitive and fair.
Building a strong public sector capacity is crucial to having successful PPP transactions because practitioners in the field are of the consensus that government officials constitute the greatest obstacle to successful PPP transactions in Nigeria.
Firstly, among public officials there is lack of understanding of significant differences between PPP procurement and Traditional Procurement and the impact of these differences in terms of the need to acquire new skills, create new departments and new processes.
Secondly, government officials view a PPP project as a contract and not as an investment which it rightly is. I accept that technically a PPP project is a contract because it has the four cardinal points of a contract .i.e. offer, acceptance, consideration and intention to enter into a binding legal agreement but then a PPP project is actually an investment.
Therefore, it is necessary that government officials should not think in this manner “ AB Nig Ltd has been awarded a concession contract of LX – MX Express Road at a contract sum of N100 Billions. Rather, the government officials should think in this manner “AB Nig Ltd wants to invest N100 Billions in LX – MX Express Road.
This change in attitude is very important if we want to experience huge success with PPP transactions in Nigeria. Portugal pursued its first PPPs in the mid-1990s. Unfortunately, the government PPP unit with its inexperienced staff suffered from lack of experience with PPP projects.
Consequently, Portugal’s early PPPs were subject o constant delays and cost overruns and by 2003, the country’s PPP-related liabilities amounted to 10% of its GDP.
Weak public sector capacity manifested itself in many ways chiefly were that there was insufficient risk transfer to the private sector and avoidable but damaging delays in giving government approvals on essential land and environmental aspects.
The second critical success factor seemingly omitted is the use of strategic communication to highly improve on the public’s willingness to pay. It is common to hear members of the public including highly educated ones saying “we are already paying our taxes and so why are we required to pay for these services again?”
One common reason for failure in PPPs is public resistance. In 1999, the Bolivian government attracted private capital into the running of the water system in Cochabamba by granting a 40-year concession to an international consortium called Aguas del Tunari.
However, in the previous year, precisely in October 1998, groups had gathered in protests, which led to an outbreak of violence. The Bolivian army in the quest to maintain law and order, killed as many as nine persons, injured hundreds and arrested several local leaders.
The citizens’ disapproval continued until the Concessionaire, Aguas del Tunari announced that the consortium was withdrawing from the project.
Though we do not expect a repeat of the Bolivian experience in Nigeria, we may end up having the same result with Bolivia because an avalanche of court cases will scare away investors. According to HRH Lamido Sanusi Lamido III, it is not the presence of rules and regulations per se that makes investors put in their money in a system but the confidence they have in the system.
Every single court case or even an investigation erodes investors’ confidence in a system.
The third omission is the non-loud and non-express provision that government shall ensure that the PPP procurement process shall be fair, competitive and transparent.
Reputable investors simply watch askance any PPP procurement process that is opaque. Having concluded the discussion on these three seemingly omitted critical success factors, let me go back to the wrong decision that there should be one unifying legislation.
Firstly, let us consider the privatization contracts governed by the Bureau for Public Enterprise Act and concession contracts governed by the Infrastructure Concession and Regulatory Act.
In a privatization contract government cedes both the ownership and management (running) of an enterprise to a private organisation. The private organisation becomes the new owners of the assets.
In a PPP contract governmnent cedes the management (running) only of an enterprise to a private organisation over an agreed duration but government retains the ownership of the asset.
At the end of the agreed duration the private organisation hands the assets of the enterprise back to the government. Needless to say, it is obvious that one law should not govern these two kinds of contracts operating under different situations.
Secondly, let us consider traditional procurement contracts governed by the Bureau for Public Procurement Act and concession contracts governed by the Infrastructure Concession and Regulatory Act.
There are many differences between a project by traditional procurement and a project by PPP procurement. Some are these differences are,
- A Conventional Procurement is Input based but a PPP procurement is Output based
- A Conventional Procurement has a single Contract Agreement but a PPP procurement has web of Contract Agreements woven around a main Agreement.
- In a Conventional Procurement technical experts e.g. Engineers, Architects are the most important persons but in a PPP procurement, Economic, financial, legal experts the most important persons.
- A Conventional Procurement has a short term contract duration but a PPP procurement has a long term contract duration.
- In a Conventional Procurement unsolicited proposals are rare but in PPP procurement unsolicited proposals are common.
- In a Conventional Procurement public fund is at risk but in a PPP procurement private fund is at risk.
- Generally in a Conventional Procurement, project is implemented immediately after the Contract Agreement is signed between public & private entities but generally in a PPP procurement project implementation commences after financial closure, i.e. when the private entity has fulfilled all conditions precedent for the first tranche of fund to be released
By mere observation, one can say that a single legislation cannot govern these two widely different processes. At different fora where I had the opportunity to be a resource person, I always advocated that the PPA be amended to exclude PPP projects while the ICRC Act should be amended to live up to its new responsibility of being the sole procurement law that will govern PPP projects. It is obvious that the ICRC Act was hastily cobbled together and this has negatively affected its efficacy in driving the PPP process in Nigeria. Unfortunately, the new PPP Bill before the Senate is equally defective and will provide a weak legal platform for PPP transactions.
The new Bill just as the present ICRC Act equates PPP with concession. No attempt was made to effectively capture the other five fundamental forms of PPP namely, Service Contract, Management Contract, Lease/Affermage/Franchise, Joint Ventures and Partnerships and Licensing/BOO. Rather the new PPP Bill under “its Clause 45. states “concession agreement” includes; BOO, Management Contracts – a provision that will create an enabling environment for future legal battles.
In the light of the above, I respectfully suggest that the ERGP be adjusted to accommodate the observations that I have made in this write up.
CHUKWUMA C. KATCHY PhD,psc FNIM, M.IOD
COMMISSIONER OF POLICE (rtd)