Critical review of the legal and institutional framework on public private partnership (ppp) in...

Critical Review of the Legal and Institutional Framework on Public-

Private Partnership (PPP) in Nigeria

ByMr Augustine Alegeh, SAN, FCIArb (UK)

President, Nigerian Bar Association

Being a Presentation at the 2015 National Engineering Conference: Akure: Nov 2015 2

O u t l i n e

IntroductionConcept of InfrastructureThe Importance of InfrastructureConstitutional ProvisionsReview of Legal and Institutional FrameworkConcluding Remarks


Introduction

Ideas efficacious at some times and in some human surroundings are not so at other times and

elsewhere

William James The Varieties of Religious Experience, Harvard University, March 1902.


….. Introduction

In the past, it was thought that it was the sole responsibility of governments worldwide to provide infrastructure.

Many reasons accounted for this. Essentially it was thought that the capital outlay for the

provision of infrastructure was high for the private sector to bear and that public utilities (infrastructure) were public goods.

Today, we are witnessing a worldwide revolution in the provision of infrastructure.


…..Introduction

This is essentially because of paradigm shift – movement from the provision of infrastructure by government to the private sector and the governments only creating an effective regulatory environment.

In other words, movement from government as a provider to government as a regulator.

Infrastructure services are critical inputs in the provisions of goods and services and significantly affect the productivity, cost and competitiveness of the economy.

Policy decisions regarding their provision and sector development have ramifications throughout the economy.


….. Introduction

Governments worldwide have been involved in one form of privatization or the other – restructuring and reforming of a particular sector of the economy on the one hand and the restructuring and reforming of the economy as a whole.

The debate has been what should public sector do and what should the private sector do.

Some other time, the debate is what kind of partnership between the two is ideal.

Public-Private-Partnership (PPP) means several things to several people including governments.

Indeed the boundaries between the public and private sectors are the most important political issues of our time.


….. Introduction

There is hardly a discourse today on the provision of infrastructure without reference to deregulation or their provision by the private sector.

It is safe to assert that the primary responsibility to provide infrastructure rests on the public sector and that more than 70% of the responsibility still rests on the public sector.

Consequently, the public entities must continue to make budgetary allocation for the provision of infrastructure.

In this presentation, we shall critically review the legal and institutional framework on Public-Private-Partnership (PPP) in Nigeria.


Concept of Infrastructure

‘Infrastructure’ means ‘the underlying framework of a system especially public services and facilities (such as highways, schools, bridges, sewers and water systems) needed to support commerce as well as economic and residential development – Black’s Law Dictionary

‘Infrastructure’ as the ‘inner structure, structure of the component parts: a system of communications and services as backing for military, commercial, etc, operations’ – Chambers English Dictionary

Other references to ‘infrastructure’ includes ‘public utilities’ and ‘public goods’ (see s36 ICRC Act)


…..Concept of Infrastructure

A public good (or collective good) is a good that is non-rivalled and non-excludable - the consumption of the good by one individual does not reduce availability of the good for consumption by others, and that no one can be effectively excluded from using the good

In some contexts, therefore, ‘infrastructure’, ‘public utilities’ and ‘public goods’ can be used interchangeably.

It is in the area of the procurement of public services or utilities that the concept is more pronounced.


….Concept of Infrastructure

In terms of infrastructure delivery, it is now recognised that there are four categories:

Hard economic infrastructure Soft economic infrastructure Hard social infrastructure Soft social infrastructure The main argument about infrastructure, public

utility, public good is who should provide it – government or the individual or a private entity.


The Importance of Infrastructure

On 27 August, 2014, the then Minister of National Planning, Dr A O Sulaiman presented the NIIMP to the Federal Executive Council (FEC).

In the NIIMP it is envisaged that over USD 3.0 trillion (an average of USD33.2 billion annually) will be required over the next 30 years to build and maintain infrastructure for Nigeria.

The share of the public sector is estimated to be 52% while the private sector accounts for the remaining 48%.


….. Importance of Infrastructure

Expected benefits of developing a Infrastructure Master Plan include:

Job Creation Efficient Allocation of Resources Enabling Environment for Investors Enhanced Economic Growth Positive Externalities Prioritized Projects and Programmes


Constitutional Provisions

Nigeria is a federation with 36 states and Abuja. Nigeria also has 774 Local Governments and Area

Councils. With a federal constitution, legislative powers are

divided. The provision of infrastructure is a matter for all

levels of governments in Nigeria.


Review of Legal and Institutional Framework

The review will focus on: Public Enterprises (Privatization and Commercialization) Act,

2004 Infrastructure Concession Regulatory Commission Act, 2005 Public Procurement Act, 2007 Fiscal Responsibility Act, 2007 Utilities Charges Commission Act, 2004 National Integrated Infrastructure Master Plan Sectoral Laws – NRC Act, FHA, FERMA Act, etc Reform Bills – Ports, Roads, Transport, Competition, etc Infrastructure Bank


Review – Public Enterprises (Privatization and Commercialization) Act, 1999

The 1999 Act (now 2004) repealed the Bureau of Public Enterprises (BPE) Act 1993.

The BPE Act repealed the Privatization and Commercialization Act of 1988.

The 1988 Act created the Technical Committee on Privatization and Commercialization

The 1993 created the Bureau of Public Enterprises The 1999 Act created the National Council on Privatization

and Commercialization and the Bureau of Public Enterprises


Review – Public Enterprises, etc

Section 2 of the 1999 Act provides for modes of privatization while section 6 provides for commercialization – in either case, partial or full

What is privatization and commercialization? What is concession, management contract, leases, etc? Does NCP/BPE have powers to carry out PPP or

concession? In the 1999 Act references are made to sale of shares, sale

of assets, enterprises and public enterprises. Do they mean the same thing as a PPP transaction?


Review – ICRC Act

Section 1(1) of the ICRC Act provides thus: As from the commencement of this 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 financing, construction, operation or maintenance of any infrastructure that is financially viable or any development facility of the Federal Government in accordance with the provisions of this Act.


Review – ICRC Act

Created ICRC – powers and functions? Does that include economic or technical regulation? ICRC – a facilitator or regulator? The existing sectoral legislations in ports, railways, airways and

highways do not expressly provide for PPP However, in combination with the provisions of the ICRC Act, these

sectors can now validly enter into PPP and the parties will be protected.

The ICRC, in exercise of its powers to make regulations, has published a National Policy on PPP.


Review – Public Procurement Act

Act came into force on 4 June, 2007 Act created National Council on Public Procurement and Bureau of

Public Procurement Act was passed essentially to regulate the procurement of works,

goods and services. Does a PPP transaction fall within the mandate of the Council or

Bureau? Major weakness – no Council since 2007 So who approved the thresholds and Certificates of ‘no objection’ Some states like Rivers have PPP laws


Review – Fiscal Responsibility Act

Came into force on 30 July, 2007 The Long Title to the FRA states that it is Act to provide for prudent

management of the Nation’s resources, ensure long-term macro-economic stability of the national economy, secure greater accountability and transparency in fiscal operations within a medium term fiscal policy framework and the establishment of the Fiscal Responsibility Commission to ensure the promotion and enforcement of the nation’s economic objectives; and for related matters.

Act created the Fiscal Responsibility Commission An offence to procure staff and goods without budgetary allocation Though the Act has elevated section 16 of the CFRN, major weakness is that it

has created offences without punishment – s 36(12) of the CFRN


Review – Utilities Charges Commission Act

When this law was first passed on 30 December, 1992, all public utilities (infrastructure) in Nigeria were owned and managed by government.

According to the Second Schedule to this enactment, public utilities are: (a) National Electric Power Authority (NEPA); (b) Nigerian Telecommunication Ltd. (NITEL); (c) Nigerian National Petroleum Corporation (NNPC); (d) Nigeria Airways (Domestic Operations); (e) Nigerian Railway Corporation; (f) Ferry Services Organisations; (g) Nigerian Ports Authority; (h) Road Transportation Organisations; (i) Nigerian Postal Services (NIPOST);


Review – Sectoral Laws

These include: Nigerian Railway Corporation Act, Cap N129, LFN 2004; Nigeria Ports Authority Act, Cap N126, LFN, 2004 Federal Highways Act, Cap F13, LFN, 2004; Nigerian Electric Power Authority Act (now repealed by the

Electric Power Sector Reform Act, 2005), Federal Roads Maintenance Act, Cap F38, LFN, 2004; National Inland Waterways Act, Cap N47, LFN, 2004; Nigerian Civil Aviation Authority Act, 2006 Nigerian Postal Service Act, N127, LFN, 2004


Review - Reform Bills

Since 2002, the NCP/BPE has been working on the following reform bills: Federal Competition and Consumer Protection Bill The Ports & Harbours Bill The Petroleum Industry Bill The Nigerian Railway Authority Bill The National Postal Commission Bill The National Transport Commission Bill The Road Sector Reform Bill Inland Waterways Authority


Review - National Integrated Infrastructure Master Plan

In March 2015, the National Planning Commission published the NIIMP. In His Foreword to the NIIMP the former President, Dr Goodluck Ebele

Jonathan, GCFR, stated, inter alia as follows:

With our rapidly growing population and urbanization, the demand for infrastructural facilities is outpacing supply. This state of affairs necessitated the development of the National Integrated Infrastructure Master Plan (NIIMP), which is a policy document for accelerated infrastructure development. The NIIMP as a strategic document, would also guide infrastructure development, add value to the national economy and enhance public-private sector participation in infrastructural development.


Review - NIIMP

In his Preface to the NIIMP, the former Honourable Minister/Deputy Chairman, National Planning Commission, Dr Abubakar O Suleiman, stated, inter alia, thus:

The NIIMP therefore, is set to liberate the economy from the shackles of debilitating infrastructure bottleneck, and place it on a solid growth path. It provides the framework what will guide interventions, investments, as well as budgetary allocations to the sector in the next 30 years.

The NIIMP has taken stock of the existing infrastructure, and future stock requirements, including total resource requirements, across key sectors of the economy and has identified critical enablers for the promotion of private sector investment. It invariably, presents a strong platform for public and private sector constructive engagement and donor support for boosting infrastructural development and empowering Nigerians.


Review - NIIMP

The NIIMP was linked to Nigeria’s Vision 20:2020 and the Transformation Agenda of the last civilian government.

In the NIIMP it is envisaged that over USD 3.0 trillion (an average of USD33.2 billion annually) will be required over the next 30 years to build and maintain infrastructure for Nigeria.

The share of the public sector is estimated to be 52% while the private sector accounts for the remaining 48%.

It was expected that states will develop their own State Integrated Infrastructure Master Plans (SIIMPS).


Review – Infrastructure Bank

One major challenge in the provision of infrastructure is finance. There are various ways of financing PPP transactions – equity, commercial

loans, subordinated debt (mezzanine capital), institutional investors, capital market funding, financial by international financial institutions. Financing can be with or without recourse.

To ease access to finance, the Federal Government converted the former Urban Development Bank of Nigeria Plc into Infrastructure Bank Plc.

The Infrastructure Bank Plc is Nigeria's dedicated infrastructure bank providing financial solutions to support key long term infrastructure projects, including transportation infrastructure, municipal common services, mass housing and district development, solid waste management and water provision, and power and renewable energy projects.


Review – Infrastructure Bank

The Infrastructure Bank Plc has a unique ownership structure.

It is majority owned by the private sector but also has the Federal Government, State Governments and Local Governments as well as the Nigeria Labour Congress as shareholders.

The Bank is thus a government sponsored but private sector led development finance institution.


C o n c l u d i n g R e m a r k s

PPPs are forms of contractual relationships. Thus they can be entered into if the basic elements

of a valid and binding contract are present. However, to protect, investors, there is the need for

a proper legal and regulatory framework. One major challenge in Nigeria is the absence of a

proper technical and economic regulators for some key economic sectors – consider the ports reform and the Ports and Harbour Bill.


……. Remarks

With privatization, commercialization and PPP transactions, Nigeria is moving from public monopoly to private monopoly and yet there is no Competition Law in place.

Unless the reform bills are passed, there will be no technical and economic regulators for these key sectors that are responsible for infrastructure delivery.

Even where we have regulators – NERC, NCC, etc, are they truly independent – structurally, financially, organisationally? What of PIB?

The ICRC, within its legal limitations, has done very well in providing guidelines on the PPP Process.

Will NIIMP be sustained by this administration? Will the Infrastructure Bank play its critical role?


……. Remarks

There is a lot of misconceptions of what PPP is (or is not) by government functionaries and private investors

The transition of government as provider to government as regulator is also misunderstood.

It has aptly been stated that around the world, governments perform three main functions: they tax, they spend, and they regulate.

And of these three functions, regulation is the least understood. Nigeria falls in this category. Thank you for your attention.

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