Come together: Public-private partnerships are the preferred solution to address transport needs

Infrastructure deficits are a problem that has become increasingly common in frontier and emerging markets, and addressing the issue through public-private partnership (PPP) investment deals is a common prescription. Indeed, infrastructure drives based on PPPs are increasingly the preferred method for governments looking to minimise the fiscal burden of capital-intensive projects. Although PPPs are regularly touted throughout Africa as a panacea, there are still only a relatively limited number of active projects.

However, Nigeria has had some initial success with the PPP model, and private interest in transportation-infrastructure investment is high. Nigeria’s infrastructure needs are estimated to require N54trn ($340.2bn) in spending by 2020, according to the government. Spread equally over the years until then, the total implies spending roughly 13% of GDP on these projects on an annual basis, based on 2012 GDP estimates, not counting the involvement of private capital for PPP partners.

COMPLEX CONTRACTS: Infrastructure projects are expensive to finance, complex to build, and take years to pay off, and for those reasons PPPs offer an excellent opportunity to share project risk. PPPs also offer significant opportunities for technology and expertise transfer for technically challenging projects.

However, these added degrees of complexity over typical commercial ventures make would-be private partners cautious. In addition, private sector firms know they are typically signing on to PPPs with payback periods often running to 10 years or longer, which subjects them to a certain measure of political risk in the event of a change of government. Indeed, Nigeria has suffered from these types of problems more than once. The current federal administration has cancelled a PPP for a road concession signed in 2008; furthermore an airport concession from 2007 was scrapped.

GROUNDWORK: Despite this, PPPs in Nigeria have been largely successful and the increasing number being rolled out is a testament to the robust level of interest from private investors. The size and scope of the projects vary significantly, helping to attract a range of partners. “The specific model of PPP varies for each project,” said Ayo Gbeleyi, a special adviser and director-general of the Lagos Office of Public-Private Partnerships. “Each model is bespoke and customised for the needs of the project. In some cases, the government will take on the design and build phases, whereas in others the private sector partners assume that role in addition to operation and maintenance.”

RESTRUCTURE: Whatever the structure, PPP models are dependent on Nigeria first restructuring its own agencies, regulatory bodies and public sector providers to create room for private sector operators. This process is under way now and typically means ending monopolies where they exist, and trimming the mandates of government agencies such as the Nigerian Railway Corporation, the National Ports Authority (NPA) and others. Whereas in the past these organisations have had dual roles, as regulators and owner-operators, the goal for the future is to have them retain their regulatory functions while ownership or management of services is given to private partners. Physical assets may be vested with that regulator for the purposes of concessions or management contracts – concessions are envisioned as a key PPP option. This series of steps has already been executed effectively at the nation’s major ports. A 2006 reform removed operational authority from the NPA, and the terminals within the ports were concessioned to private operators. The ports are now widely considered more efficient as a result.

To complete the restructuring of the transportation sector’s regulatory environment, the Bureau of Public Enterprises, which helps articulate strategic policy for the liberalisation, deregulation or privatisation of state agencies, is considering plans to create an umbrella regulator for all modes of transportation, and then a technical regulator for each. Indeed, currently there are more regulators than there are modes of transport, creating overlapping jurisdictions and unclear mandates. These bodies may be merged to improve efficiency.