Examining Public Private Partnership In Nigeria: Potentials And Challenges

EXAMINING PUBLIC PRIVATE PARTNERSHIP IN NIGERIA: POTENTIALS AND CHALLENGES

ABSTRACT

Public Private Partnership has been said to be a long term agreement between a government agency and a private partner for the delivery of goods or services with both party sharing in the risks and rewards inherent in the delivery of the goods or service which include financial risks and responsibilities.
Public Private Partnership is an answer to the high demand for infrastructure which is at an all time high which is not being currently met by traditional contracting methods. Private companies in conjunction with the Public sector or one of its branches have therefore introduced this solution which provide a more integrated financial design construction, maintenance and operational solution to infrastructure projects.
This long essay shall therefore examine in its chapter one introduction of Public Private Partnership in Nigeria, aims and objectives of the study, scope of study, methodology, definition and literature review, this chapter will be the basis for other chapters.
Chapter two will highlight the origin of public private partnership, it will also look at the importance and nature of public private partnership i.e. the meaning and significance of PPP. This chapter will include the types of PPP and how they operate
Chapter three will deal with the advantages of PPP, how it improves and helps in the growth of infrastructure, the opportunities which are opened by PPP, this chapter will be examining the benefits of PPP and why PPP is a better choice. Chapter four will appraise the problems which can be encountered during PPP operation e.g. problem of fund, cultural problems e.t.c.
Chapter five will deal with the conclusion, summary and recommend some needed law reforms that will ensure the achievement of Public Private Partnership objectives in Nigeria.

TABLE OF CONTENTS

ABSTRACT

TABLE OF CONTENTS

TABLE OF STATUTES

LIST OF ABBREVIATIONS

CHAPTER ONE

GENERAL INTRODUCTION

1.0.0: INTRODUCTION

1.1.0: BACKGROUND OF THE STUDY

1.2.0: OBJECTIVES OF STUDY

1.3.0: FOCUS OF STUDY

1.4.0: SCOPE OF STUDY

1.5.0: METHODOLOGY

1.6.0: LITERATURE REVIEW

1.7.0: DEFINITION OF TERMS

1.8.0: CONCLUSION

CHAPTER TWO

HISTORICAL BACKGROUND OF PUBLIC PRIVATE PARTNERSHIP IN NIGERIA

2.0.0: INTRODUCTION

2.1.0: IMPORTANCE OF PUBLIC PRIVATE PARTNERSHIP

2.2.0: NATURE OF PUBLIC PRIVATE PARTNERSHIP

2.3.0: TYPES OF PUBLIC PRIVATE PARTNERSHIP

2.3.0.1: BUILD OPERATE TRANSFER (BOT) OR BUILD TRANSFER OPERATE    (BTO)

2.3.1.1: BUILD OWN OPERATE (BOO)

2.3.1.2: BUY-BUILD OPERATE (BBO)

2.3.1.3: CONTRACT SERVICES OPERATIONS AND MAINTENANCE

2.3.1.4: OPERATIONS, MAINTENANCE, & MANAGEMENT

2.3.1.5: DESIGN-BUILD (DB)

2.3.1.6: DESIGN-BUILD-MAINTAIN (DBM)

2.3.1.7: DESIGN-BUILD-OPERATE (DBO)

2.3.1.8: DEVELOPER FINANCE

2.3.1.9: ENHANCED USE LEASING (EUL)

2.3.2.0: LEASE/DEVELOP/OPERATE (LDO) OR BUILD/DEVELOP/OPERATE (BDO)

2.3.2.1: LEASE/PURCHASE

2.3.2.2: SALE/LEASEBACK

2.3.2.3: TAX-EXEMPT LEASE

2.3.2.4: TURNKEY

2.4.0: CONCLUSION

CHAPTER THREE

ADVANTAGES OF PUBLIC PRIVATE PARTNERSHIP

3.0.0: INTRODUCTION

3.1.0: THE NEED FOR PUBLIC PRIVATE PARTNERSHIP AS A CATALYST FOR ECONOMIC DEVELOPMENT

3.2.0: DEVELOPMENT OF INFRASTRUCTURE

3.3.0: OPPORTUNITIES/BENEFITS OF PUBLIC PRIVATE PARTNERSHIP

3.4.0: CONCLUSION

CHAPTER FOUR

PROBLEMS/CHALLENGES OF PUBLIC PRIVATE PARTNERSHIP

4.0.0: INTRODUCTION

4.1.0: PROBLEMS AND CHALLENGES

4.2.0: REGULATORY ISSUES

4.3.0: LEGAL ISSUES

4.4.0: FUNDING ISSUES

4.5.0: POLITICAL ISSUES

4.6.0: CULTURAL ISSUES

4.7.0: CONCLUSION

CHAPTER FIVE

GENERAL CONCLUSION

5.0.0: CONCLUSION

5.1.0: RECOMMENDATION

BIBLIOGRAPHY

ARTICLES ON THE INTERNET

PAPERS PRESENTED AT CONFERENCES, WORKSHOPS AND SEMINARS

DICTIONARY

CHAPTER ONE                                               

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, KutoBagana 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-BuildOperate 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. ii. Public Private Partnership and collaboration is not an effective way of enhancing the ability of the government to provide public utilities and services.

iii. Public Private Partnership is not a source of gaining the use expect advantage and financial resources to provide infrastructural facilities in Nigeria.

1.11 DEFINATION OF TERMS

1. 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.
2. 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] .
3. 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] .
4. 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.
5. Development: A process of improving by expanding, enlarging or refining. A process in which something passes by degrees to a different advance stage.

• 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.
• Nigeria: A republic in West Africa on the Gulf of Guinea; gained independence from Britain in October 1^st, 1960; most populous African country with 36 States and 774 Local

Governments.

1. PPP: Public Private Partnership.
2. PFI: Private Financial Initiative. xi. SPV: Special Project Vehicle.

 

REFERENCES

• B. O. Babalakin: (2002) Public Private Partnership: Instrastructure Development as a vehicle for Economic Development (beings a paper presented at the 2^nd Mustapha Akanbi Public Lecture organized by the faculty of Law, University of Ilorin pg.6)
• Public Private Partnership <wikipedia.org/publicprivatepartnership> Accessed on 8 December 2014.
• Public Private Partnership: A guide for Local Government prepared by the British

Colombia Ministry of Municipal Affairs, May 1999.

• S. Pant, Chief Controller of Accounts: Ministries of Urban Development: Urban employment & poverty Alleviation, Government of India Relevance of public private partnership in public construction” being a paper presented at the International

conference in New Delhi; 150years of the CPWD.

        –             Grimsey, D. and M. K. Lewis (2002): ‘Accounting for Public Private Partnership’

Accounting for Public Private Partnership’: Accounting Forum, 26(3), 245-70.

• Grimsey, D. and M. K. Lewis (2004): ‘The Governance of Contractual Relationships in Public Private Partnership’: Journal of Corporate Citizenship, Issue 15, autumn, 91109.
• Grimsey, D and M. K. Lewis (Eds) (2004): The Economics of Public Private

Partnerships, Cheltenham, Edward Elgar (forthcoming).

• Agbola T. (1998): The Housing of Nigeria: A review of policy development and Implementation. Research Report No.14.
• Hood, J. and McGarvey, N. (2002): Managing the Risks of Public Private Partnership in Scottish Local governments. Journal of Policy Studies, Volume 32, Number 1.
• Oyedele O.A. (2012): The Challenges of Infrastructures Development in Democratic

Governance. Being Paper presented at the FIG Working Week 2012. Knowing to Manage the Territory, protect the environment, Evaluate the Cultural Heritage – Rome,

Italy, 6-10 May 2012.

• WordWeb Android International Dictionary.

 

 

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