Economic Confidential, October 30, 2008

FEATURES

Why Nigeria Must Embrace Infrastructure Concession

By: Salisu Suleiman

According to figures from the Federal Road Safety Corps, tens of thousands of Nigerians die every year in road accidents. Every Nigerian who has travelled by road will agree that bad roads constitute a major cause of these accidents. Statistics from international agencies indicate that about 70 percent of cases in our hospitals are attributable to water-borne diseases because of lack of access to portable water. Industrial capacity utilization in Nigeria is down to about 10 percent due to power shortages. Nigeria is one of few countries in the world that has no functional railway system thus passenger traffic, as well as the entire distribution networks of refined petroleum, agricultural produce, manufactured goods etc are totally dependent on the existing roads.  The litany can go on and on.

Some estimates state that the construction of rail network is billed to cost between $8 billion and $17 billion, the road network is scheduled to take about $14 billion; and these are just for a few arterial links. Indeed, government has estimated that Nigeria needs to invest about $510 billion in critical areas such as rail and road network, water and electricity to be considered a leading global player. But with competing demands from education, agriculture, national security, public services and other sectors of the economy, where will these funds come from?

Experts agree that the public and private sectors must collaborate if Nigeria is to achieve its vision of becoming one of the twenty biggest economies in the world by 2020. Apart from this, by 2010, it is estimated that about 70 per cent of the population will be urban-based. This means that the demands for urban infrastructure such as electricity, rail tracks, water, roads, etc will more than double just to cater for the teeming urban population. Apart from miracles of biblical proportions, these targets may be illusory. 

Since government cannot abdicate its responsibilities, alternative sources of funding needed to be explored, thus the concept of infrastructure concession was recommended as the way forward. This culminated in the Infrastructure Concession Regulatory Commission Act of 2005 which is directed at formalizing and regulating private sector participation in federal infrastructure. The ICRC Act stipulates that: “As from the commencement of the Act, any Federal Government Ministry, Agency, Corporation or Body involved in the financing, construction, operation or maintenance of infrastructure, by whatever name called, may enter into a contract with or grant concession to any duly pre-qualified project proponent in the private sector for the financing, construction, operation or maintenance of any infrastructure that is financially viable or any development facility of the Federal Government”.

"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 includes the supply of any equipment and machinery for any infrastructure and the provision of any services. This response of government to the challenge of providing public infrastructure is partially as a result of the New Public Management Approach being promoted in the quest for effective and efficient public service delivery. Public sector management reforms in Africa face a number of challenges that have limited the scope, speed and quality of services rendered. For example, corruption constitutes by far one of the biggest challenges in the public sector. Other challenges include multiple accountability, inadequate resource utilization and institutional capacity.

There is broad agreement that government needs to increase efforts to address these challenges through effective public sector reforms, bearing in mind  what may work and what may not, and be guided by the needs of the situation. While the new public management approach may not be a panacea for the problems of the public sector in Africa, a careful and selective adaptation of some elements to selected sectors may be beneficial. One of these approaches is the idea of engaging the private sector in as many areas as possible without abdicating the role of government

Consequently, the focus for public-private partnership in Nigeria is the creation of new infrastructure such as power generation plants and/or transmission, roads and bridges, water supply, treatment and distribution systems, ports, airports, railways, inland container depots and logistics hubs, gas storage depots and distribution pipelines, solid waste management, educational facilities, urban transport systems, housing and healthcare facilities.

But the Government recognizes that the country faces significant challenges in meeting these investment needs and that the scale of investments from both public and private sources is unprecedented in recent Nigerian history. Currently, it is estimated that over the next few years, Nigeria will need to invest over USD 100 billion in just four key sectors of the economy if it is to meet its annual growth targets and become one of the twenty largest economies in the world by the year 2020. Official estimates are: Power (USD 18-20 billion); Railways (USD 10 billion); Roads (USD 14 billion); Oil & Gas (USD 60 billion).

While the success of the telecoms sector in Nigeria remains an outstanding example, there is need for government to ensure that the new regime of concession has the public interest as major objective. Effective regulation is key to this. Thus, as exciting as the new government policy of infrastructure concession is, the need to exercise caution must be emphasized. Experts have warned that concession should not get to the point where every thing will be 'concessioned' to the extent that the role of the government in providing social amenities is diminished.

While the ICRC proceeds with the necessary concessions, government must not abdicate its responsibility in the provision of basic amenities. Global best practice provides that no critical public service should be 'concessioned' without the provision of alternatives for people who will not want to pay to use the concessioned services. The government must sort out the legal aspect of these projects before entering into the concession agreements and ensure that the agreements have in-built mechanism for stability.

Also, the need for local content is central to the success of infrastructure concession regimes. The ICRC must make local content one of the major focal points by insisting that Nigerian professionals or experts are given prominent roles in the project. For any country to develop, it must build and encourage the capacity of its people and professionals. There is a need to have a corresponding match of indigenous professionals for any contract awarded to their foreign counterparts. The government regulates most of the professional bodies in this country and is thus aware of competencies. Ordinarily, one would expect that when something relating to infrastructure, land or real estate is being discussed, local professional bodies and institutions would be consulted for professional input and participation.

Moreover, legal issues must be clearly spelt out to prevent potential grey areas being exploited by parties involved. The key question many will ask is whether there is a legislative framework for the expected capital inflow for infrastructural development, particularly regarding PPPs?  It is instructive to know that the government has put in place relevant legal backings to ensure the success of this policy. These include the following Acts of the National Assembly: the Privatization and Commercialization Act 1999; the Infrastructure Concession Regulatory Commission (Establishment) Act 2005; the Public Procurement Act 2007 and The Fiscal Responsibility Act 2007.

All these legal and regulatory frameworks are needed to ensure that the interests of Nigerians are protected. Unlike traditional government services which has often left Nigerians short-changed, infrastructure concession require payment for services rendered. There is great need for government to institutionalize Consumer Protection. The ICRC must open channels for the public to report genuine complaints and seek redress. This would help promote public confidence in the organization.

Ultimately, Nigerians must embrace infrastructure concession for the following reasons: investments are prioritized to maximize economic benefits; the costs will not place a burden on future generations and can be funded from economic growth; the benefits of the investment are broadly spread across society and the Nigerian States and will help to reduce poverty; the interests of communities and the users of public services will be paramount; and the quality of the environment will be improved for everyone.

As already determined, infrastructure concession in practice relies principally on the private sector. To ensure that public private partnerships are not abused, the Government's key policy objectives for PPP have been clearly spelt out in the following terms: to accelerate investment in new infrastructure and ensure that existing infrastructure is brought up to a satisfactory standard and capable of providing services that meet the needs and aspirations of the public;

to improve the availability, quality, and efficiency of power, water, transport and other public services to increase economic growth, productivity, competitiveness, and access to markets; to increase the capacity and diversity of the private sector by providing opportunities for international and local investors and contractors in public infrastructure, encouraging efficiency, innovation, and flexibility at minimum cost.

Other objectives include: to ensure that infrastructure projects are planned, prioritized, and managed to maximize economic returns and are delivered in a timely, efficient, and cost effective manner; to utilize state assets efficiently for the benefit of all users of public services; to ensure balanced regional development; to increase access to quality public services for all members of society; to respect the employment rights and opportunities of employees and deal with them openly and fairly; and to enhance the health, safety, and wellbeing of the public. Environmental concerns are also addressed to protect and enhance the natural environment and to minimize greenhouse gas emissions and other pollutants.

In conclusion, it noteworthy that the ICRC Act defines infrastructure to include: ‘‘development projects which, before the commencement of the Act, were financed, constructed, operated or maintained by the Government and which, after the commencement of the Act, may be wholly or partly implemented by the private sector under an agreement pursuant to the Act including power plants, highways, seaports, airports, canals, dams, hydroelectric power projects, water supply, irrigation, telecommunications, railways, interstate transport systems, land reclamation projects, environmental remediation and clean-up projects, industrial estates or township development, housing, government buildings, tourism development projects, trade fair complexes, warehouses, solid wastes management, satellite and ground receiving stations, information technology networks and database infrastructure, education and health facilities, sewerage, drainage, dredging, and other infrastructure and development projects’’.

If, after 48 years of independence, the state of infrastructure in Nigeria is as it is, then Nigerians have no option but to embrace infrastructure concession as the way forward. The signs are that the caliber of people on the ICRC Board will not let the country down.

 Salisu Suleiman is of the Federal Ministry of Information and Communications, Abuja and can be reached at ssuleiman@nigeria.gov.ng