INFRASTRUCTURE CONCESSION IN NIGERIA: CHALLENGES AND OPPORTUNITIES By Uche Ohia
(A Paper Presented at the 5th NATIONAL DIASPORA CONFERENCE, 2011 Diaspora Day Held at the Congress Hall, Transcorp Hilton Hotel, Abuja, 25-27 July, 2011)
- PROTOCOL
Mr. Chairman, Your Excellencies, Distinguished Ladies and Gentlemen.
- PREAMBLE
It is a great privilege and honour for me to be part of this historic intellectual harvest and I would like to thank Ms Lola Visser-Mabogunje of NIDOE, for inviting me. Hopefully, my contribution and our collective efforts will provide new insights to enhance the transformation of our dear country.
C. INTRODUCTION
The topic of this paper, INFRASTRUCTURE CONCESSION IN NIGERIA: CHALLENGES AND OPPORTUNITIES, is one that should ordinarily elicit interest. All over the world, the demand for infrastructure is outstripping supply and new strategies are being devised to address the deficit.
In Nigeria, the situation is pathetic. Decades of poor maintenance, underinvestment and outright roguery have left the country with an outrageous infrastructure deficit. Indeed, if there is one fundamental impediment standing between our economic growth or, more specifically, the realization of the Transformation Agenda, of our President, it is the excruciating shortage of infrastructure.
The abysmal infrastructure deficit in Nigeria is, basically, a direct consequence of leadership failure – successive regimes failed to take proactive action to march the boom in our population growth over the years with corresponding development in infrastructure and allied services. Current estimates of Nigeria’s infrastructure deficits put the figure in excess of $200b (over N30trillion).
Given this scenario and given the constraints on the public budget of financing the ever growing infrastructure needs and in keeping with the practice in other nations with similar predicaments, the government has sought to shift part of the burden of new infrastructure development and investment to the private sector ss part of Public Private Partnerships (PPP or P3) policy. The philosophy behind this policy is to meet the challenge of developing and maintaining critical infrastructure by attracting massive private sector led investments beyond the means available to government.
E. INFRASTRUCTURE CONCESSION IN NIGERIA
Background
Modern P3 is held to have begun in Britain in 1992 when the Conservative government of John Major introduced the Private Finance Initiative (PFI) which became the first systematic programme aimed at encouraging public–private partnerships. This innovative programme focussed on reducing the Public Sector Borrowing Requirement. The Labour government of Tony Blair, elected in 1997, persisted with the PFI but sought to shift the emphasis to the achievement of “value for money,” mainly through an appropriate allocation of risk.
Since then, PPPs have been used to develop large electric power projects, transportation Infrastructure networks including roads, railways, transit systems, seaports and airports. They have also been used in the water, wastewater and gas sectors, as well as for asset-based projects in health care, education, borstal facilities and defence. Examples of such projects abound in the United Kingdom, Australia, Ireland, the province of British Colombia, Canada, India, USA and countries of Latin America and Caribbean (LAC).
Concessions – Definition
A concession, simply put, is a government grant for specific privileges. As defined in the ICRC Act 2005, infrastructure concession means
“a contractual arrangement whereby the project proponent or contractor undertakes the construction, including financing of any infrastructure facility and the operation and maintenance thereof and shall include the supply of any equipment and machinery for any infrastructure and the provision of any services”
Basically, infrastructure concession allows participation of the private sector in financing the construction, development, operation and maintenance of public infrastructure, development project or network for a stated period. The concession process allows private investors and operators to inject much needed capital into upgrading and maintaining infrastructure. In some types of infrastructure concessions, the cost of using the service is borne exclusively by the users of the service. In other types (notably the private finance initiative), capital investment is made by the private sector on the strength of a contract with government to provide agreed services and the cost of providing the service is borne wholly or in part by the government.
In practice, a private sector consortium forms a special company called a “special purpose vehicle” (SPV) to develop, build, maintain and operate the asset for the contracted period. In cases where the government has invested in the project, it is typically (but not always) allotted an equity share in the SPV.
Legal Framework
The legal framework for the operation of infrastructure concessions in Nigeria is principally the Infrastructure Concession Regulatory Commission (Establishment, etc) Act 2005 and the Public Procurement Act 2007. These laws set out the requirements for competition and private sector participation in all public procurement as well as specifies requisite approvals for all PPP contracts.
Infrastructure Concession Regulatory Commission (ICRC)
ICRC drives and regulates infrastructure concessions in Nigeria. The Commission was set up in 2008. Engr. Mansur Ahmed, serves as pioneer D-G of the ICRC. The ICRC Board consists of one member from each of Nigeria’s six geopolitical zones. By the provisions of the ICRC Act, ex – officio members that also serve on the Board include the Secretary to the Government of the Federation, the Attorney General of the Federation, the Minister of Finance, the Governor of the Central Bank and the D-G of ICRC.
Powers of the ICRC
Essentially, the ICRC is empowered to
- Provide general policy guidelines, rules and regulations for the operation of P3 projects in Nigeria.
- Take custody of every concession agreement entered into by the Federal Government and any of it’s agencies
- Ensure efficient execution of concession contracts
- Ensure strict compliance both with the Act and with the terms of the concession contract.
Scope of Concessions
Under the ICRC Act 2005, the scope of opportunities for investment in infrastructure in Nigeria exist in virtually every sector of the economy:
- power plants
- highways
- seaports
- airports
- canals
- dams
- hydroelectric power projects
- water supply
- irrigation
- telecommunications
- railways
- land reclamation
- environmental remediation and clean up projects
- inter state transport systems
- industrial estates or township development
- housing
- government buildings
- tourism development
- trade fair complexes
- warehouses
- solid waste management
- satellite and ground receiving stations
- ICT networks and database infrastructure
- Education facilities
- Health facilities
- sewerage
- Drainage
- Dredging
- and other infrastructure and development projects as may be approved, from time to time, by the Federal Executive Council
Types of Concession
There are several types of contractual obligations that may be entered under infrastructure concession contracts. These include:
- Build, Operate and Transfer (BOT)
- Build, Operate and Own (BOO)
- Build, Transfer and Operate (BTO)
- Build, Own, Operate and Transfer (BOOT)
- Design, Build, Finance, Transfer (DBFT)
- Design, Build, Finance, Manage (DBFM)
- Etc
Some of these are pure concessions (concessions stricto sensu) while others are hybrids. The key difference between various concession arrangements lies in the nature and extent of the risk they transfer from the public agency to the private concessionaire.
Dispute Resolution
The settlement of disputes is an important element in infrastructure concession contracts. The confidence of private parties (concessionaire, financiers and contractors) is boosted and they are encouraged to participate in concession projects when they know that disputes arising at any point in the transaction would be resolved fairly and efficiently.
Opponents and Sceptics of Concessions
Of course, not everyone accepts concession as the panacea for resolving infrastructure deficiencies. Some sceptics think that the burden of providing infrastructure rests squarely with the government which husbands public resources and, consequently, that the role of any private interest should be marginal.
Generally, most objections simply reflect a sincere desire to protect the public interest and get the most value for taxpayers. However, some of the concerns often raised by sceptics seem to be driven by a misunderstanding of PPPs, or, in many cases by fallacious reasoning based on defective data or information.
Notable PPP Transactions in Nigeria
- Murtala Mohammed Airport (MMA2) Airport Concession BOT contract agreement between the Federal Airports Authority of Nigeria (FAAN) and Bi-Courtney Limited (BCL)
- 1st Toll Road PPP in Nigeria signed in 2006 – 30 year concession between Lagos State (LSG) and Lekki Concession Company (LCC)
- DBOT Toll Road agreement between the Federal Ministry of Works and Bi-Courtney Consortium, signed in 2009
Others in progress or in the pipeline would include:
Federal Capital Territory
- FCT Light Rail Project LOT 2 (OBC).
- Kuje Water Works – supply and reticulation (OBC)
Federal Ministry of Works
- Shagamu to Benin and Benin to Asaba highway rehabilitation and upgrade
- Abuja to Kaduna and Kaduna to Kano highway rehabilitation and upgrade
Federal Ministry of Transport
- National Inland Waterways (NIWA)
- Kirikiri Lighter Terminals 1 and 2 concession, and
- The Nigerian Railway Corporation (NRC)
- Concession I: Western Railway: Lagos to Kaduna to Kaura-Namoda and Nguru,
- Concession II: Eastern Railway: Port Harcourt to Kafanchan and the Northern line to Maiduguri;
- INFRASTRUCTURE CONCESSION IN NIGERIA
– CHALLENGES AND OPPORTUNITIES
A. THE CHALLENGES
Infrastructure concession in Nigeria is fraught with challenges. Some of these are systemic being products of the socio-political environment. Others arise from lapses in the legal framework and operational environment. A few instances will suffice:
- Lack of Basic Infrastructure
The statistical realities of the investment environment are unnerving. A few examples will suffice:
- Out of Nigeria’s 198,000 kms of roads, less than 20% are paved and over 65% are in bad condition compared to South Africa’s total of 362,099 km with 73,506 km paved (2002) and the rest in good motorable condition. The cumulative investment of the Federal government in the road sub-sector since independence is mind boggling. Yet the net asset value of Nigerian roads has continued to decline embarrassingly.
- Out of 40,000 mw (megawatts) of electricity required to power the nation, less than 10% (ie less 4,000 mw) is being currently generated. In consequence, many urban based Nigerians are forced to live with epileptic power supply even when they are prepared to pay more for the service. Even that is a luxury: most of the 65% or so of Nigerians who are rural dwellers live from day to day with no electricity at all! Our economy is virtually powered by generators. The estimated cost of running innumerable generators of various makes and sizes polluting the atmosphere across the nation is put at over $15b PA.
- Nigeria’s telecommunication system with a teledensity of 65% or 91 million subscribers virtually subsists on mobile phones. Nigeria is probably the only country in the world where business is carried out, not with land phones that attract lower tariffs, but mobile phones that incur maximum user charges!
- The Nigeria Railway Corporation (NRC) which was established in 1955 exists in name only. The 3,798 km Nigerian rail network comprising of 3,505 km obsolete narrow gauge rails and 293 km standard gauge carries less than 1% of freight traffic compared with a global average of 46%!
- With a population in excess of 150m, not up to one dozen of Nigeria’s 54 airports are functioning as standard airports properly so called compared to South Africa which has 146 fully functional airports with paved runways to service it’s 45m population or Libya that has 137 airports serving a population of 7m!
But a discerning investor would also see that each infrastructural lacuna is also an investment opportunity waiting to be harnessed.
- Corruption
Corruption is a major problem in Nigeria. As a respected elder statesman once lamented, it is not just that officials are corrupt but corruption has almost become official. However, much has been made of the issue of corruption. Corruption is not exclusive to Nigeria. Many monumental corruption cases making headlines around the world today do not involve Nigerians. Two agencies (EFCC and ICPC) are also combating corruption in Nigeria full time. Thankfully, many Nigerians in the public and private sectors exhibit high ethical standards in their personal and professional interactions.
- Bureaucratic Inefficiency
Another challenge inherent in our investment environment is bureaucratic bottlenecks. Contrary to the media claims of Corporate Affairs Commission (CAC) and the Nigerian Investment Promotion Council (NIPC), processing of business documentation in Nigeria still progresses at snail speed. Conducting a business name availability search, for instance, is expected to take a few minutes. But I have been trying to do one for almost one week at CAC and I am yet to get any result.
Similarly, anyone trying to obtain basic information (such as say a tourist guide or an investment guide) from a ministry or agency that ought to have such material in stock may find himself or herself being directed back and forth from one ministry or agency to the other in an endless ding dong mostly because some people are unable to know what they ought or to do what they should.
- Multiple Taxation
A curious tax regime, internal revenue generation competition, and the multiplicity of Ministries, Departments and Agencies (MNAs) in Nigeria often result in multiple taxes which take a heavy toll on business and investment.
- Political Instability
Political instability was more prevalent in the period before 1999. This raises the risk of administrative expropriation by successive governments. It also often results in fear of the ability of government to honour it’s contractual obligations or counterpart funding obligations. This discourages private investors. Fortunately, the polity is more stable today.
- Economic Instability
Economic instability which is the cumulative effect of political instability, inflation and/or policy inconsistencies for which our country is known also raises the red flag in the minds of serious investors and constitutes a bad advertisement for prospective investment in a capital intensive area like infrastructure.
- Insecurity
Insecurity remains a major challenge. Nigeria is a huge country with a turbulent political history. Although the country has enjoyed relative stability since 1999, religious intolerance, intense competition for political power, Niger Delta militancy, kidnapping for ransom, road safety issues and, more recently, terrorist-style bombings have led to substantial unease among the citizens and consternation among prospective investors. However, contrary to popular opinion, Nigeria is certainly no more dangerous than most African countries and substantially safer than many.
- Negative Perceptions and Stereotyping
Nigeria and Nigerians are often victims of negative perceptions and stereotyping by foreigners. Every country has within its population the good, the bad and the ugly. Unfortunately, bad eggs in Nigerian communities at home and abroad create an image problem for the nation which is foisted on the silent majority of law abiding citizens who, as a consequence, are exposed to harassment and hostility..
Nigerians are also guilty of self condemnation. We easily say negative things about our country in self-righteous indignation. In many online forums, Nigerians write revolting things about Nigeria without caring about who reads it. This trend is unknown among the citizens of any other nation who are circumspect about what they write or say about their country no matter the circumstance. Really, should we be highlighting our strengths or our weaknesses?
- Lack of Access to Financing
Nigerian banks are in the main not investor friendly. Interest rates are high and even to access loans with the high rates involves excruciating processes and hard to meet conditions.
- Lack of Investment Awareness and information
There is lack of international awareness of investment opportunities in Nigeria. The ICRC Act 2005 only allows the Commission to publish the list of projects eligible for infrastructure concession contracts “in the Federal Gazzette and three national newspapers having wide circulation in Nigeria and such other means of circulation”. Invariably, the international media on which most prospective foreign concessionaires depend for information are ignored.
- Crime
Nigeria has a record of violent criminal activity and poor crime detection for which it is classified as unsafe by foreigners. However, the crime rate in Nigeria relative to the population is not higher than the global average. The crime rate in Nigeria may in fact not be as high as the crime rate in South Africa but Nigeria receives more negative publicity. The vast majority of visitors to Nigeria have a safe and crime free experience.
- Budgetary Inconsistencies
Federal Budgets often do not reflect the most critical points of need. Of the N4.4 billion appropriated for 2011, 54% would be expended running the government, 24% on infrastructure and development projects under the capital programme, while 9% and 11% respectively was allotted to debt service and statutory transfers respectively.
There are many challenges alright which is not unusual in any emerging economy but there are opportunities too even within these challenges.
B. THE OPPORTUNITIES
A close look at Nigeria’s fact-file shows a bouquet of opportunities which supports Nigeria’ position as a viable investment destination:
Nigeria Fact File
- Nigeria is vast with 36 states and an active population of over 150m growing at 3.5% per annum which means that one out of every six Africans is a Nigerian!
- Nigeria offers an abundance of skilled and unskilled labour (50m strong labour force) at an economic cost as well as in production costs which are among the lowest in Africa.
- With it’s large population, Nigeria offers an incredible market and is the gateway to ECOWAS – an additional 250m people in 16 countries of West and Central Africa
- · Nigeria is one the 6 Fastest Growing Economies in Africa which are among the 10 Fastest Growing Economies in the world
- Nigeria is predicted to have the highest GDP growth in the world over the next 40 years
- Nigeria’s GDP as at 2008 was $141.7b and GDP per capita income now stands at $2,500
- Exchange rate has stabilized around N150/$1
- Investors are guaranteed attractive incentives and tax reliefs both in Nigeria and the rest of West Africa
- Nigeria enjoys robust trade relations with most countries with annual trade turnover in millions of dollars
- Several multinational companies operate in Nigeria – Unilever, Diageo, Waitrose, GSK, Vodaphone, Coca Cola, Glanbia, Guinness, PW, Shell, Virgin, HSBC, Standard Chartered Bank, KFC, etc
- Nigeria has substantial foreign reserves of over $45b (May 2009)
- Strong and Fast Growing Financial Sector with global branch networks – thanks to early capitalization and consolidation of the banking sector and an investor has easy access to working capital and other credit facilities.
- Abundant Resources (mineral, agricultural and human)
- Diversity of the economy
– oil and natural gas
– abundant solid mineral resources (tin, iron ore, coal, limestone, niobium, lead, zinc)
– telecoms
– energy
– tourism
– infrastructure
– arable land
- Enormous oil and gas reserves and high production capacity – Nigeria is the 13th largest producer of petroleum in the world with the 10th largest reserves and Oil price is $118 per barrel ($75 budget benchmark)
- Concerted anti-corruption drive powered by EFCC and ICPC. Nigeria recently secured the global standard for transparency in oil, gas, and mining which is an affirmation that MNCs publish what they pay and government publishes what it receives – a vital step in making the oil, gas and mining sectors accountable and transparent
- Reform in critical sectors: Energy, Transport, Financial, Civil Service, and Judiciary
- Diversification in agriculture (cocoa, carrot, groundnuts, palm oil, yams, etc)
- Nigeria has invested heavily in key priority sectors – critical infrastructure (power, aviation, works, transport, petroleum resources, etc), food security (focusing on agriculture and water resources) and the development of the Niger Delta
- Nigeria offers stable political environment – the building blocks of democratic culture have been put in place: rule of law, independent judiciary, open and accountable government, active civil society, free and unfettered press, free, fair and credible electoral process such as was witnessed in the 2011 General Elections conducted by the Prof. Attahiru Jega led INEC.
Clearly, Nigeria is a land of opportunities – an attractive investment haven with great potentials and one of the highest rates of return on investment in the world. These unique selling points (USP) of Nigeria present a cornucopia of marketing tips for a concerted investment drive. And of course, the global economic recession makes it inevitable that investors and business leaders must look elsewhere for new markets and fresh investment opportunities.
H. THE ROLE FOR NIGERIANS IN DIASPORA
Diasporans remain the most portent force in the promotion of trade and investment. Diasporans are also a strong mechanism for economic stimulation, job creation and empowerment in their home countries. Chinese, Indian and Mexican Diasporans have proved this point beyond doubt. World Bank estimates of remittances by Nigerians in Diaspora in 2009 amounted to $18.2 billion. Beyond fiscal contributions, Diasporans also have invaluable knowledge and expertise which they have acquired. By their exposure and locations, Diasporans also have access to invaluable contacts and new markets which makes them natural middlemen in the structuring of business alignments.
The need of the moment is for a new era of constructive engagement between Nigerians in Diaspora and the Government. This can be achieved through collaboration with the appropriate agencies involved in investment promotion and regulation – principally, the Ministry of Trade and Investment, Nigeria Investment Promotion Council (NIPC), the Infrastructure Concession Regulatory Commission (ICRC), etc.
Diasporans should initiate a scheme to identify and build a database of investors and investment consortia in their countries of residence. This will create a critical global pool of prospective foreign investors who could be invited to partake in economic missions to Nigeria or to investment fairs.
Diasporans should spearhead (in collaboration Nigerian embassies abroad and appropriate Ministries and Agencies in Nigeria) the organisation BIG investment Expos and Infrastructure Concession-specific fairs in major global economic hubs to promote Nigeria as an investment haven as it relates to infrastructure development.
Generally, there are no restrictions on foreign nationals or foreign entities doing business in Nigeria. However, in consonance with local laws, they must incorporate a local vehicle before commencing business. Since prospective foreign investors will necessarily need to find the right partners in Nigeria, you should assist them to achieve that goal in order to ensure that they do not fall into the wrong hands which could further dent the image of the country and, by so doing, corrode your credibility and hard earned integrity.
Shine your eyes!
I. RECOMMENDATIONS AND CONCLUSION
Recommendations
More steps which should be taken to ensure the success of the vision of national transformation via accelerated infrastructure development include:
- Devising an Infrastructure Concession Master plan
- Profiling approved concession projects to make them readily available and accessible to prospective concessionaires
- Reviewing the ICRC (Establishment, etc) Act 2005
- to expand the powers of the Commission and, in particular, to empower ICRC to impose necessary sanctions and
- to providing for unsolicited proposals from prospective concessionaires in areas covered by the ICRC Act.
Conclusion
The Nigerian moment has arrived, the Nigerian dream is within our grasp. As the real ambassadors of this country, Nigerians in Diaspora who have experienced the best infrastructural facilities, who have been nurtured on global best practices and steeped in the best traditions of the rule of law are best placed to lead the new drive to transform Nigeria. The challenges are before you. So are the opportunities.
Thank you for listening.
















