Nigeria Not Ready for Public-Private Partnerships( PPP)- Environment is Toxic for Investment. — Nigerian Pilot News
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Nigeria Not Ready for Public-Private Partnerships( PPP)- Environment is Toxic for Investment.



Despite the benefits developed and developing countries are gaining from the initiative of Public Private Partnerships(PPP) in the provision of infrastructure for the past two decades, Nigeria is not yet ready to embrace it to attract Private investment in the provision of the highly needed infrastructure projects.
This is largely due to the country’s harsh policies which investor consider toxic and risky for their investment. PPP is a system where government all over the world leverage on the private sector finances and managerial knowhow to provide infrastructure that is the exclusivereserved of government for public usethrough equitable risk sharing process. , while the private investor earn a fair return on their investment over time.
But like any business investment, the decision to invest in a country will depend on the fact that the environment must be conducive with the assurances of the returns, since the funds though long term and relatively cheap are deposits from orphans and widows, retirees,etc whichmust be paid as and when due.
The general World Bank survey’s over the years to gauge the interest of international investors in the power sector in developing countries shows factors responsible for influencing the decision to invest by the private operators. These factors are equally applicable to other infrastructure sectors also.
These are as follows,
Government and Legislative processes:
1. Administrative efficiency- lead time to get necessary approvals and licenses
2. Judicial independence-degree of perceived from government influence.
3. Country ranking in Transparency International Corruption Perception Index.
4. Regulations that clearly define and allow exit for investors in infrastructure.
5. Reliance on competitive bidding process to select project investor or purchaser.
The Economy:
1. Investment grade credit rating for long-term foreign exchange debt.
2. Cost and available tenors to borrow in domestic banking market.
The sectors Current Status:
1.Consumer payment discipline and enforcement.
2. Availability of credit enhancement or guarantee from the government, multilateral agency, or both.
3. Ability to vertically integrate with the other segments of the chain (for example in power sector, upstream generation or downstream distribution, gas supplies, power exports and so on ).
4. legal frame work defining the rights and obligations of private investors.
5. Sector in transition to a competitive market structure.
6. Independence of regulatory institution and processes from arbitrary government interference .
The Political Economy:
1.Tenure and stability of elected officials in political process.
2. Negative perceptions and resistance to private investment among members of civil society (Trade unions, NGOs).
So governments who want to attract private investments must create environment that will meet the above World Bank standard for private investors to invest.
Base on the above, the World Bank has created a global criteria for ease of doing business as a guide for investors willing to invest in a country.
In Nigeria, looking at the World Bank Ease of Doing Business Index it is very clear that the investment environment is toxic to private investors. In the World Bank annual review of ease of doing business report of 2018, Nigeria is ranked as the 45th on the Global scale. The position that is a marked improvement from 169 in 2017 is still below average in the Sub Sahara African Countries. This recorded improvement is mostly in the areas of business registration with the Corporate Affairs Commission (CAC), online applications and constructionpermits. In the same period Nigeria recorded poorly in access to and reliable of electricity, which constitutes the major cost of doing business in Nigeria.
In the same report,Muaritius was ranked 25th position in the ease of doing business in the Sub-Sahara African (according to the World Bank ease of doing business Report of 2018). This is closely followed by Rwanda 41, Kenya 80, Botswana and South Africa 82.
Nigeria’s celebration of 145th position in ranking is of no moment compare to other economies.Nigeria needs to work harder in the midst of the toxic climate which no investor can endure.
The recent bickeringbetween the Minister of Power, Works and Housing Mr. Babatunde Raji Fashola and the Operators of Electricity Distributions companies in Nigeria is a testimony of how toxic the investment environment is for private investors.
As a certified PPP specialist, I consider such bickering over a contractual relationship as toxic. The privatization of Power Sector is considered as the only successful Private Sector engagement in the provision of public infrastructure in the country. Critiques of the privatization faulted the process but at least there was a contractual agreement between government and the private operators. The private operators invested over $1.4bn to acquire the Discos, this money which was 75%/ 25% debt and equity was paid to government before taken over the Discos in 2013 with the understanding that both parties in the partnership will comply with their obligations. Top on the list of the obligations of government was to provide a tariff that will cover the cost of producing power, power as you know is cost intensive.The second obligation is a guaranteed quantity of power to be distributed by the Discos among other things. As at this point in time none of these obligations has been fulfilled by government, almost five years in the privatization of the power sector, leaving the sector in this same situation of pre privatization. This is largely due to the inappropriate polices of government in handling the power sector outside of the agreement with the private operators.
Government has jettisoned the various contractual agreements the private operators signed with BPE (Bureau of Public Enterprises) and politicized the sector to the point of issuing out orders through the regulatory body Nigeria Electricity Regulatory Commission (NERC) which are not feasible for the smooth operations of the Discos at this time in the life of the privatization.
The recent nasty engagements between the Minister of Power Works and Housing and the Discos is another wrong move of interfering in a business that is contractually entered into by BPE and the operators.
This clearly shows that government is not ready to create a safe environment for the operations of the Discos by the private investors. These kind of interference is considered toxic by investors who feel there is no sanctity of contracts in Nigeria, especially changes in policies irrespective of the contractual agreements.
This continuous interference by the Honourable Minister by way of directives to NERC to issue out unpopular regulations is making the regulator a willing tool in fighting private operators. NERC as a regulator is considered to be independent giving consumers, operators and other stakeholders the confidence in the business. But in this situation, they are seen to be acting the script of government at the disadvantage of the operators in the power sector.
This interferences is seen as an attempt to weaken the institutions in the power sector and also the Bureau for Public Enterprises(BPE) who midwifed the privatization of the power sector in Nigeria. This if not checked, will contribute to the loss of confidence in future privatization exercise by BPE. This also contributed to the loss of interest by private investors to invest in Nigeria as is the case with the non response to the sale of Yola Disco and other NIPP Power Plants in the country recently advertised by BPE.
To get private investment attraction in a country is beyond institutions and legislation, it is about government will and adherence to the rule of law that is why, in Nigeria even with the establishment of Infrastructure Concession Regulatory Commission(ICRC) since 2015 to regulate PPP, it is stocked with PPP projects in the pipelines. From the above World Bank gauge and Ease of Doing Business Index and the recent interference by the Minister of Power ,Works and Housing in the power sector clearly shows there is no serious commitment from government in utilizing the benefits of PPP in Nigeria.

Joseph Tsavsar
Certified PPP specialist, Certified Independent Director and Member of Institute of Directors(MIoD).
Senior partner, PPP Projects consults Ltd, Abuja.

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