UNIVERSITY INFRASTRUCTURE &

SERVICES:

Concession Options, Considerations and Methodologies

by

ENGR. MANSUR AHMEDDIRECTOR GENERAL/CEO, INFRASTRUCTURE CONCESSION REGULATORY

COMMISSION

AGENDA

• Introduction

• University Infrastructure and Services

• Challenges of Higher Education in Nigeria

• Funding of University Infrastructure and Services

• The PPP Typology

• Structure of PPP Projects

• The PPP Project Financing Process

• Nigeria’s PPP Framework

• Conclusion

INTRODUCTIONA BRIEF BACKGROUND

• Before independence, less than 25 percent of all professional service posts were held by Nigerians, and most trade and industry was foreign-owned.

• This was due largely to the limited access, limited academic freedom and limited higher educational curriculum policies pursued by the then colonial government.

• At independence, the urgent challenge of higher education in Nigeria were:

– to produce high level professionals to replace the expatriates in the administration of the country, and

– to train skilled manpower to be in charge of the emerging industrial sector, where activity was picking up as a result of the “import substitution” development strategy of the newly independent state.

INTRODUCTIONTHRUST OF HIGHER EDUCATION-PAST 50 YEARS

• It would appear that the thrust of higher education effort in Nigeria for the past 50 years has remained largely unchanged.

– First, the legacies of colonialism had lingered and in some instances directed the thrust of higher education policy.

– Second, the state of the national economy, which is characterized by severe under-achievement in virtually all sectors of the economy.

– This state of economic gloom is compounded by a very volatile and unstable polity.

– Fourth, is the massive migration of talents (brain drain) due to frustration and low social expectation.

• Incidentally, these challenges work in concert with other traditional problems of higher education in Nigeria discussed below to precipitate the severe crises in higher education in the country.

CHALLENGES OF HIGHER EDUCATION TRADITIONAL CHALLENGES

• Education is recognized as fundamental to the construction of a knowledge economy and society, and a key to modernization and development.

• The ability of Nigeria’s academic institutions to provide education, research, and service is severely handicapped by some traditional problems.

• These are but a few of the problems that have laid the higher education sector prostrate include those of finance and funding, the growth of private higher education institutions, academic freedom, quality and excellence, governance and autonomy, and management challenges.

• Others are gender equality, research and publishing and the problems of scholarly communication, language issues, and the migration of talent or brain drain.

• Time and space would not permit me to exhaustively discuss these challenges, so I will concentrate on the problem of funding for the Universities in this discussion.

CHALLENGES OF HIGHER EDUCATION THE CHALLENGE OF FINANCE

• Severe financial crisis appears to be the bane of higher educational systems at the beginning of the twenty-first century.

– The pressures of expansion have added large numbers of students to most Nigerian academic institutions and systems.

– Economic problems facing Nigeria make it difficult, if not impossible, to provide increased funding for higher education.

– Inability of students to afford the tuition rates necessary for fiscal stability of the universities.

– Reluctance by public authorities to impose tuition fees due to political or other pressures.

– Poor prioritization of available financial resources, such as:

• The tradition of providing free;

• Highly subsidized accommodations and food to students;

• Maintenance of large and cumbersome non-academic personnel and infrastructure.

CHALLENGES OF HIGHER EDUCATIONIMPOSED BY GLOBALIZATION-21ST CENTURY TRENDS

• Rapid developments and integration in computing technology, digital telecommunication and transportation over the past two decades have resulted in the globalization of trade, finance and investment.

• Such other global tendencies as liberalization of trade, privatization of public institutions, deregulation of economies, economic integration and the development of common markets, have all worked in concert with globalization (global economy driven by technology) to provide the platform on which the new world economic order is founded.

• In particular, the growth of the Internet has permanently changed the face of education, security, trade, commerce, finance and investment, and forced a paradigm shift from the established modes of conducting business.

• These global tendencies, acting in concert with rapid and sustained technological changes in computing, communication and transportation, permanently changed the face of education and business around the world, Nigeria inclusive.

CHALLENGES OF HIGHER EDUCATION IMPOSED BY GLOBALIZATION-IMPLICATIONS-1

• The impact of these global tendencies have been profound, and have forced a rethink on how we view education, the inherent challenges and what the universities must do if they must remain on top of the situation.

– First, the world is turning into a global, knowledge-based society, where ubiquitous and ever-opening access to information creates a need for skilled workers who can transform information to meaningful, new knowledge.

– The phenomenal growth of the internet has been the primary vector of this change. Technology has made it possible to hold jobs in locations quite remote from the employer. E.g. the toll-free answering services for most companies and institutions in the USA and UK have been outsourced to companies in India.

– Second, an innovation-based society is emerging. Invention and innovation are no longer the exclusive preserve of universities and research centres. Successful members of society create innovative- and contextually-relevant applications for new knowledge. Bill Gates created the personal computing revolution and the technology called Microsoft from his mother’s garage, and as a college dropout.

CHALLENGES OF HIGHER EDUCATION IMPOSED BY GLOBALIZATION-IMPLICATIONS-2

– Third, knowledge and innovation-based jobs are moving to countries like India and China. Western companies have already learned that it makes sense to move industrial jobs offshore. Today, many companies are beginning to move their creativity and research and development jobs to markets with lower labour costs.

– Fourth, personal success in the innovation society will require novelty at the individual level. Standardization and centralization at the workplace are giving way to individualization and decentralization. Employees are now viewed and rewarded for their creative inputs as individuals, not for the roles they could play as automatons in a structure and hierarchical organization.

– Fifth, technology has changed human relations. Advances in technology allow people to interact in new ways that were previously obscured by geographical, economic or social boundaries. Technology allows people to acquire higher education online and hold jobs without ever visiting the physical location of the university or employer.

CHALLENGES OF HIGHER EDUCATION IMPOSED BY GLOBALIZATION-IMPLICATIONS-3

– Sixth, jobs that exist today will not necessarily exist when today’s students finish school. Industrial boundaries are increasingly getting blurred. Jobs that existed before students were born may not exist when they finish school.

– Seventh, advances in sanitation, nutrition and medicine have extended life expectancy in many countries. We are thus saddled with an increasing ratio of an unproductive ageing population.

– The phenomenon of globalization compels students and schools to compete on a global scale.

– Due to advances in technology, change, in itself is accelerating at a pace never before witnessed in the annals of human history. The doubling time of information is now under one year, the boundaries between sectors and industries are becoming blurred and in a constant state of flux.

FUNDING OF INFRASTRUCTURE

A WORKING DEFINITION

• Infrastructure refers to those physical structures that facilitate the production of goods and services, without themselves being part of the production process.

• Often referred to as the ‘stock of capital goods’, they include highways, airports, harbors, utility production and distributive systems, water and sewer systems, communication networks and energy networks.

• In a university environment, infrastructure will include but not limited to lecture halls/theaters, student hostels, roads, staff quarters, information technology, utility production and distributive systems, water and sewer systems, and the like.

FUNDING OF INFRASTRUCTURENATURE OF INFRASTRUCTURE

• Infrastructure projects are lumpy, meaning that they are large, immobile, space specific and long lasting, often with life span measured in decades and centuries, and construction often running into years.

• The implication for financing is that:– First, infrastructure finance tends to have maturities of

between 5 years to 40 years. – Second, the initial financial outlay tends to be quite

large. – Third, as large amounts of money are typically

invested for long periods, it is not surprising that the underlying risks are also quite high.

– Last, real return on investment usually fixed and as low as near zero, although still positive.

FUNDING OF INFRASTRUCTURE TRADITIONAL BUDGETARY OPTION

• Traditionally, government has been the sole financier of infrastructure projects in the Universities and has often taken responsibility for implementation, operations and maintenance as well.

• Budgetary financing are often:• Volatile and rarely meet crucial infrastructure expenditure

requirements in a timely and adequate manner

• Exerts constant pressure on fiscal budget due to competing demands

• Funding generally inadequate

• Receives a larger brunt of fiscal retrenchment in times of financial crises

• Rapidly declining financial resources

• Greater the potential for mismanagement and unwholesome practices

• Leads to lower quantum and quality of infrastructure.

FUNDING OF INFRASTRUCTURE CHALLENGES FOR UNIVERSITIES

• With rapidly dwindling financial resources arising in part from rapid population growth, rural-urban migration rapid urbanization, and the global economic crises, the challenges faced by Universities in building efficient infrastructure that delivers such the level of education for sustained economic growth would include:

– Adequate and sustainable funding for infrastructure development

– Accelerated infrastructure and service provision

– Faster implementation of projects

– Reduced whole life cost of projects

– Better and sustainable incentive for service delivery

• Clearly, the traditional budgetary allocation for infrastructure development has proved wholly inadequate in meeting the infrastructure needs of the country.

• There is therefore a dire need for alternative options

FUNDING OF INFRASTRUCTURE FUNDING OPTIONS AVAILABLE -1

• Commercialization of Research: Income sources include commercialization of research, income from international students, philanthropy and fund raising. 

• Commercialization of Non-Research Activities: Non-research commercial activities include education provision such as short course offerings, professional development courses and tailored corporate education.

• Universities are also increasingly involved in the development and delivery of customized postgraduate education and training programmes for individual enterprises or professional associations. With the evolution of online learning, workplace project based learning and coaching and mentoring as tools for professional development, universities will need to become more adaptive to compete effectively with a growing range of other providers. 

FUNDING OF INFRASTRUCTURE FUNDING OPTIONS AVAILABLE-2

• Diversification of modes of access to university education: The phenomenon of globalization compels students and schools to compete on a global scale – through e-learning.

• Availability of Venture Capital: Investors are increasingly keen on backing cutting edge technology developed by universities.

• Academic - Industry Partnership: Most universities in Europe and North America now have commercial exploitation departments, exploiting their wealth of intellectual property and are bringing in entrepreneurs to help.

• Public Private Partnerships: Governments and institutions are increasingly partnering with the private sector for the finance, design, build, operation and maintenance of infrastructure, and delivery of associated services as one means of meeting the need for modern, efficient infrastructure.

FUNDING OF INFRASTRUCTURE THE PPP IMPERATIVE-1

• The private sector has a large pool of resources from which they can seek funding, which governments may not have access to, or the capacity to access, both locally and in international financial markets.

• Faced with many competing demands and dwindling resources, governments are increasingly focusing on fostering competitive environments to attract citizens and businesses particularly as they relate to issues such as infrastructure and the delivery of services.

• Partnerships between the public sector and private companies (PPP) for the finance, design, build, maintenance of infrastructure and delivery of associated services are means of meeting the need for modern, efficient infrastructure and for reliable cost effective delivery of public services.

FUNDING OF INFRASTRUCTURE

THE PPP IMPERATIVE-2– These partnerships fill the resource gap in infrastructure delivery

and operation;

– They engender acceleration of infrastructure provision;

– They also Promote faster implementation of projects, and reduced whole life costs of project;

– They offers better risk allocation between public and private sectors, offers better and sustainable incentive to perform;

– And engender accountability in fund utilization;

– They improve the overall quality of service;

– They often leads to the generation of additional revenue and overall value for money for the entire economy.

• Globally, governments have come to recognize that the collaboration between public and private sectors is crucial to securing dependable and sustainable funding for infrastructure and reducing the pressure on fiscal budgets.

FUNDING OF INFRASTRUCTURE

WHAT ARE PUBLIC PRIVATE PARTNERSHIPS

• “The design, build, finance and operation, by the private sector, of assets and services that the government has traditionally procured and provided to the community and which have previously been funded by taxpayers. In return, the private sector generates revenue either from the levying of tariffs on users or the receipt of periodic service payments from the government over the life of the PPP agreement”

KPMG.

• It is therefore a co-operative venture for the provision of infrastructure or services, built on the expertise of each partner that best meets clearly defined public needs, through the most appropriate allocation of resources, risks, and rewards. The public sector maintains ownership, oversight and quality assessment role, while the private sector is more closely involved in the actual delivery of the service or project.

FUNDING OF INFRASTRUCTURE

PUBLIC PRIVATE PARTNERSHIP TYPOLOGY• All partnerships have a unique risk/reward allocation.

• PPP can be categorized based on the extent of public and private sector involvement and the degree of risk allocation between the two.

• Public-private partnerships can take many forms including:

• Service Contract (O&M);• Design/Build/Operate;• Concession/Lease;• Finance, Design Build and Operate; • Own and Operate;• Asset Sale/ Transfer;• Other combinations.

STRUCTURE OF PPP PROJECT

Public Sector Authority

SPV’s Consultant

Facilities Management Operator

Debt Provider

Construction Contractor

Construction Investor

Consortium(Special Purpose Vehicle)

Facilities Management Investor

Third Party Equity Investor

Public Agency Consultant

PPP Contract

Construction Agreement

Advice

Facility Management

Contract

Equity Finance

Advice

Debt Finance

Public Sector

Private Sector

Operation Finance

THE PPP PROCESS-1

The following cycle typifies public private partnership arrangement for infrastructure procurement.

Preliminary Stage

•Transport Policy•Institutional framework•Legal Framework

Project Identification

Implementation

Procurement

Project Appraisal

Design & Agreement

THE PPP PROCESS-2

PPP FINANCING SOURCES

• Commercial Banks • Private Equity and Debt Funds• Pension Funds• Nigerian Mutual Funds• Foreign/Domestic Contractor Finance• Sovereign Wealth Funds, etc.• Insurance Companies• Equity and Bond Market Issues

NIGERIA’S PPP FRAMEWORKLEGAL AND REGULATORY FRAMEWORK

• Provided by the ICRC Act 2005: – Establishment of the Infrastructure Concession Regulatory

Commission. (Sec 14. 1)

– MDAs may enter into a contract with or grant concession to any duly pre-qualified private sector proponent for the financing, construction, operation, and maintenance of any infrastructure that is financially viable or any development facility of the Federal Government. (Section 1.1).

– Functions and powers of the Commission (Section 19)

• Provides general policy guidelines, rules and regulations.

• Take custody of every concession agreement.

• Ensure efficient execution of any concession agreement or contract entered by the Federal Government.

NIGERIA’S PPP FRAMEWORK NATIONAL POLICY ON PPP

Government Commitment Policy Objectives

– Economic – Social– Environmental

Enabling institutional environment– Guidelines for the PPP– Coordination and planning– Capacity building– Effective communication– Roles and responsibilities– Market development– Collaboration with states and other stakeholders

NIGERIA’S PPP FRAMEWORKROLE OF ICRC-1

• The roles envisaged by the policy and enabling laws for the ICRC are those of:

• The PPP Resource Center;

• Contract Compliance Monitoring; and

• Policy Formulation.

NIGERIA’S PPP FRAMEWORKROLE OF ICRC-2

• Contract monitoring unit

– Take custody of agreements– Monitor implementation– Oversight of existing

concessions as necessary

• Board will oversee both functions

– Recommend policies to FEC– Propose legislative changes– Advise FEC on project

approval– Annual report and accounts

• PPP Resource Centre*– Disseminate guidance, best

practice

– Communicate plans / policies to private sector

– Coordinate PPP activity across Federation

• Standardise where possible

• Manage flow of projects to market

– Centre of technical expertise for MDAs/States

• procurement/negotiation, contract/banking law, land/planning, financial intermediation

– Overcome internal barriers eg tax law

– Maintain project database

* The PPP Resource Centre will assist Universities, through the Federal Ministry of Education provide support from Project Ideation, Identification, Appraisal, Design, to Procurement and Implementation

NIGERIA’S PPP FRAMEWORKICRC KEY ACTIVITIES

• Streamline and standardize the process involving PPPs.

• Draft policies, guidelines and procedures to ensure that PPP transactions are carried out in an eminently controlled manner by all MDAs are being developed and will be circulated to the MDAs for review and comments. Once finalized, ICRC will ensure all MDAs comply with these procedures before approval is given;

• Review of all projects identified by the MDAs and their structure before presentation to the FEC for approval;

• Review of contract documents before they are signed;

• Coordinate PPP activities across the country and manage the timing and flow of projects to the market;

• Provide technical expertise to MDAs and state governments in their procurement transactions, and provide support during negotiations, contract drafting, and financial mediation;

• Ensure that adequate capacity for entering, and carrying out PPP projects on the basis of best practices exists both in the MDAs and the Commission itself;

• Review and monitor the tendering process;

• Harmonize the PPP process with other agencies such as the Ministry of Finance, National Planning Commission, Budget Office, and the like;

• Take custody of every concession agreement, maintain a project register and ensure that they are implemented in accordance with the law.

CONCLUSION-1

Traditionally, government has been the sole financier of infrastructure projects through budgetary allocations and has often taken responsibility for implementation, operations and maintenance as well.

Low investment, improper planning, poor maintenance and corruption conduce with dwindling government’s resources to dismal and rapidly deteriorating infrastructure base.

Funding of infrastructure through budgetary allocation is volatile, rarely meet crucial infrastructure expenditure requirements in a timely and adequate manner, receives a larger brunt of fiscal retrenchment in times of financial crises, and has a greater potential for corruption.

CONCLUSION-2

PPP arrangements, on the other hand, have engendered acceleration of infrastructure provision, a faster implementation of projects, reduced whole life costs of project, offers better risk allocation between public and private sectors, better and sustainable incentive to perform, engender accountability in fund utilization, and improve the overall quality of service.

They are, however, complex.

The infrastructure market in Nigeria is vast, underdeveloped and unexploited. It covers such sectors as roads and highways, light railways, ports, waterways, airports, dams, bridges and tunnels. Others are electricity power, oil and gas pipelines, water and sanitation, telecommunication and indeed the entire spectrum of infrastructure services. These present opportunities for the discerning investor.

CONCLUSION-3

As the world awaits global economic recovery and the restoration of global credit, the legal, regulatory and institutional framework, together with policy and macro economic environment for PPP to thrive in Nigeria, is been put in place.

The ICRC Act is in place and the relevant institutions have already been inaugurated.

The National Policy on PPP has been approved by the FEC and the guidelines and procedures to ensure that PPP transactions are carried out in an eminently controlled manner by all are being developed with the robust engagement of all stakeholders.

Universities can take advantage of the support of ICRC’s Resource Centre to accelerate their own infrastructure development.

THANK YOU