NIGERIA’S PPP POLICY & REGULATORY FRAMEWORK for INFRASTRUCTURE DEVELOPMENT

1. NIGERIA’S PPP POLICY & REGULATORY FRAMEWORK forINFRASTRUCTURE DEVELOPMENT by ENGR. MANSUR AHMED DIRECTOR GENERAL, INFRASTRUCTURE CONCESSION REGULATORY COMMISSION

2. AGENDA • State of Nigeria’s Infrastructure • Infrastructure Financing Options • Appetite for PPP in the Nigerian Financial Market • National Pipeline of PPP Projects • The Challenges: • Regulatory and Institutional Environment • Capacity for Project development, negotiation and management • Competition/Transparency and Value for Money • Role of ICRC and other MDAs • Conclusion and Way Forward

3. STATE OF NIGERIA’S INFRASTRUCTUREKEY FEATURES • Obsolete • Non-existent in some sectors • Dilapidated and operated as monopolies • Inadequate and limited access • Weak or non-existent legal, institutional and regulatory framework • Limited private sector participation • Rapid and unplanned urbanization • Poor maintenance culture • Limited and inadequate investment • Inappropriate funding structure • Poor planning

4. STATE OF NIGERIA’S INFRASTRUCTURENIGERIA’S INFRASTRUCTURE DEFICIT • Nigeria has huge Infrastructure deficit. $12b to $15b:required annually for the next 5 to 6 years • FGN’s annual Capital Budget can only cover a fraction. • There is also a severe limitation in Capacity for project development, management, operations and maintenance. • Therefore, resort to Private Sector inevitable if we are to attain Vision 2020 aspirations.

5. STATE OF NIGERIA’S INFRASTRUCTURERELATED INFRASTRUCTURE NEEDS • *Ministry of Finance estimates. This figures are not exhaustive: KPMG draws estimates that 1% growth in GDP requires investment of 1% of GDP in infrastructure; over the next 6 years to achieve 13% growth, cumulative investment in infrastructure is in the region of USD 140bn – 150bn • Over the next 8 years Nigeria needs to invest in:

6. INFRASTRUCTURE FINANCING OPTIONSTRADITIONAL BUDGETARY ALLOCATION • 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

7. INFRASTRUCTURE FINANCING OPTIONSTHE PPP OPTION Provides: • Dependable and sustainable funding • Accelerated infrastructure provision • Faster implementation of projects • Reduced whole life of projects • Better and sustainable incentive for service delivery

8. 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

9. PPP FINANCING SOURCESSTATUS OF THE NIGERIAN FINANCIAL MARKET In the short term (1-12 months) • Preliminary analysis reveal declining liquidity for banks, pension funds and private equity groups • About 10 of 24 banks face balance sheet problems likely to impair ability to intervene in infrastructure market • Very high 90days Nibor rates indicate serious illiquidity in all banks • Recent investments in infrastructure is characterized by short tenor and high risk • Bond issuance is hampered by high transaction costs In the medium term (1-12 months) • Forecast depends of the severity of global crises and nature of domestic response • Once the crises is over, the backlog of already approved projects will slowdown the approval and financing of new projects.

10. APPETITE FOR PPP IN THE NIGERIAN FINANCIAL MARKET-TENOR • Long-term appetite by commercial banks is likely to depend on the strength of the bank; • The presence of equity take out mechanism will determine the long-term interest of private equity investors; • Pension fund may have appetite for the short-term but this is limited to treasury bills, government papers and notes; • For IFIs, appetite for equity is likely for the medium terms and debt for the long term; • Donor grants are more likely to be used to leverage commercial equity and debt.

11. APPETITE FOR PPP IN THE NIGERIAN FINANCIAL MARKET-PROJECT SIZE • Long project size is likely to require syndication by the large banks; • Medium project size is likely to require syndication by the not too large banks; • Pension fund may have appetite for the short-term but this is limited to treasury bills, government papers and notes; • For insurance companies, regulatory limitations may constrain interest in equity and debt participation. • Only an small number of IFIs will have appetite for large projects.

12. NATIONAL PIPELINE OF PPP PROJECT • FEDERAL PPP PROJECT PIPELINE • Transport • Railways • Roads • Inland Waterways • Seaports • Airports • Other Sectors • Power • Gas • STATE LEVEL PPP PROJECT PIPELINE

13. NATIONAL PIPELINE OF PPP PROJECTRAILWAYS • Work Done/Work in Progress • Nigeria rail network is about 4500 km. • Draft Bill to deregulate and introduce private sector participation waiting accent. • Rehabilitation and modernization of rail network is ongoing. • Rehab estimates for track/bridges (US$ 639m – FGN responsibility). • Locomotives, wagons and facilities (US$ 60m – concessionaire responsibility) • Introduction of concessionaires to commercially operate the Central Rail in place. • Concessionaires to own locomotives, rolling stock and passenger cabins for their operations • Project Pipeline • East-West rail-line • Rail-to-Port likely to commence • Apapa Terminal to Tin Can Island. • Ajaokuta to Aladja Jetty • Onne port to Eastern line • Concessionaires will be responsible for: • Rolling Stock operation and maintn. • Rail network operations and maintn. • Freight rail services • Possible passenger rail services • Rail extension to ports • Tender process to be relaunched • EOI to be received within 15 weeks • Bids to be received 4 months later (within 2009)

14. NATIONAL PIPELINE OF PPP PROJECTROADS-1

15. NATIONAL PIPELINE OF PPP PROJECTROADS-2 • Work Done/Work in Progress • Nigeria road network is about 200,000 km and carries 95% of passengers and goods. • Draft Bill to deregulate, and introduce private sector participation, tariff for usage, fund for road maintenance, and Federal Roads Authority is awaiting accent. • PPP initiatives include: • Construction of major bridges on toll/BOT basis • PPP on major highways on DBMOT basis • Output and performance based (OPBC) basis • Performance Based Maintenance Management • Concessionaires to be introduced to maintain and operate sections of federal highways. • Project Pipeline • FGN already invited EOIs for. • Lagos-Badagry-Seme border expressway • Abuja-Kaduna dual carriageway • Kaduna-Kano dual carriageway • Benin-Sagamu dual carriageway • Banin-Asaba dual carriageway • Aba-Port Harcourt • Two toll bridges have been developed for concession: • Guto-Bagana bridge (Operational) • Second Niger Bridge at Onitsha

16. NATIONAL PIPELINE OF PPP PROJECTINLAND WATERWAYS • Work Done/Work in Progress • Nigeria has about 3000 km of inland navigable waterways. • Draft Inland Waterways Bill is ready and waiting enactment. • Draft Bill for sectoral independent regulator is also ready and waiting enactment. • Planned dredging of the lower Niger (US$ 370m) • Concessionaires to be introduced to maintain and operate inland waterways. • Private operators to provide own vessels and maintenance jetties. • Project Pipeline • Bidding out of 6 inland waterway concessions. • Planned development of the following river stations. • Construction of Lokoja River Port • Rehabilitation of Onitsha River Port • Oguta Lake Port • Degema Inland Port • Okrika River port • Idah River Port • Baro River Port • Yenegua Jetty & Terminal Facilities • Owerinta Jetty • Ndoni Jetty

17. NATIONAL PIPELINE OF PPP PROJECTSEAPORTS • Work Done/Work in Progress • Draft Port and Harbor Bill ready. • Draft Bill to for independent regulator ready. • 26 Port Terminals (8 ports) concessioned and concessionaires had commence operation. • Concessionaires to provide superstructure and cargo handling equipment. • Concessionaires to undertake upgrade and modernization of quay apron and staking areas. • Concessionaires to develop Container terminals and RoRo ports through BOT arrangement. • Project Pipeline • New maritime and port investment opportunities: • Greenfield port development at Lagos, Port Harcourt and Warri • Inland container deports/terminals at Maiduguri and Onitsha on BOOT basis • Free Trade Zone development at Lekki, Lagos and Calabar • Deep Sea Port (NEPZA/Olokola LNG)

18. NATIONAL PIPELINE OF PPP PROJECTAIRPORTS • Work Done/Work in Progress • Nigeria has 22 airports of which four operate international flights. • The 4 international airports, namely Lagos, Port Harcourt, Abuja and Kano, account for 96% of international flights. • Reform strategy is to introduce private sector participation through PPP initiatives. • The new Civil Aviation Act, which encourages private sector participation, is in place. • Plans are under way to conclude the concession of Abuja Airport. Contract include construction of hotel, car park, shopping mall and bonded warehouse (US$50m). • MMA2 Domestic Terminal built by Bi-Courtney (US$ 170m) on DBOT basis has been operational since 2007 • Project Pipeline • Concession of the following airports: • Port Harcourt international airport • International Terminal Building (BOT) • Enugu Airport • Runway expansion and surfacing • Installation of Cat-3 lighting system • International terminal Building (BOT) • Mallam Aminu Kano International Airport • Expansion/ Modernization of International Terminal Building • Improvement on power generation and supply • General Aviation Terminal (GAT) at MMA, Lagos. • Lagos MMA • Construction of new Terminal Building (BOT) • Airport-CBD rail service • Independent power generation/supply • Modern cargo handling facility • Abuja • Construction of new Terminal Building (BOT) • Airport-CBD rail service

19. NATIONAL PIPELINE OF PPP PROJECTOTHER SECTORS • Power: • NERC has issued licenses for 20 IPPs • Many state governments are considering developing own IPPs • 36 MW captive IPP for NPA/Tin Can Island Port • 4 MW captive IPP for Lagos State University Teaching Hospital • Gas • National gas pipeline between Calabar and Kaduna (US$ 2.5bn) • Gas pipeline concession for Lekki ($150m). • The following State Owned Enterprises are open to private sector participation in either through core investor sale or concession: • Nigerian Gas Company • Kaduna Refinery and Petrochemical Company • Port Harcourt Refinery Company Limited • Twelve (12) Oil Service Companies • Liquefied Petroleum Gas Plants

20. NATIONAL PIPELINE OF PPP PROJECTSTATE LEVEL PPP PROJECT PIPELINE • Lagos State • Lagos Light Rail Transit (US$3.4bn) • Lagos state to provide rail/station • Private sector to operate for 25yrs • Lagos BRT • 4th Mainland Bridge • Lekki Free Zone (6.5 bn model city) • Lagos-Badagary Expressway • Inland Waterways • Solid Waste Management • Water Supply • BOT for WTP/bulk supply at Adiyan • BOT for WTP/bulk supply at Odu-Mola • 12.5MW gas turbine IPP • Federal Capital Territory • Abuja Light Rail Transit • Urban District Development (Only 12 developed of 74) • Highways • Airport Expressway • Outer Northern Expressway • Abuja Boulevards, Downtown Mall, Mass housing project, City University, etc. • Kano/Kaduna States • Integrated PPP projects in IPP, rail, new city, etc. • Ogun State • Deep water port in close proximity with the Lekki Free Zone.

21. THE CHALLENGESREGULATORY AND INSTITUTIONAL ENVIRONMENT Multiplicity of legislations and institutions with conflicting and overlapping functions, procedures and processes. Empowerment of public authorities to enter into agreements for the implementation of privately financed infrastructure projects and delegate their statutory functions to private companies through appropriate legislation; Absence of regulation and licensing regime for public service operators to ensure operations is transparent, timely, and effective; Lack of PPP expertise at all levels; Multiplicity of procurement procedures; Existence of distortions created by existing tax, banking, company, or any other laws that would bias the investment decisions of public authorities and commercial decisions of PPP investors, contractors, or operators; Procedure for dealing with legacy projects. Development and regulation of Nigeria's financial and capital markets to provide for transparency, stability and liquidity for investors in PPP

22. THE CHALLENGESINSTITUTIONAL CAPACITY FOR PROJECT DEV. ETC • PPP processes and attendant issues are quite complex and requires expertise quite a number of disciplines • Institutional capacity for project ideation, development, implementation and management is yet to be developed or fully developed at ICRC, MDAs and states. • Lack of capacity of public authorities: • to carry out economic appraisal of projects. • undertake development of a long-term investment strategy which will provide a planning tool for the development of infrastructure, whether financed from public funds or through PPP contracts; • to evaluate any contingent liabilities and risks that arise from PPP contracts, and associated agreements such as Power Purchase Agreements, and any sub-sovereign or other guarantees, partial risk insurance, subsidies, or exchange rate volatility;

23. THE CHALLENGESKEY PPP PRINCIPLES • Risk allocation • Risks will be allocated to the party best able to manage them. • Competition • The benefits of private sector participation in infrastructure are increased by ensuring that business activities are subject to competition and appropriate commercial pressures, dismantling unnecessary barriers to entry, and implementing and enforcing adequate competition laws. • Capacity to deliver • Authorities responsible for privately operated infrastructure must have the capacity to manage the commercial processes involved and to partner on equal basis with their private sector counterparts. • Value for Money The project appraisal will take account not only of cost but also risks and service quality • Public interest Adequate and prior consultation with end-users and other stakeholders of an infrastructure project should be the standard. • Output requirements The concept of “verifiable service standards” to be used as basis for output or performance based specifications. • Transparency The programme needs to have fiscal discipline and high standards of public and corporate governance to enhance its credibility, as transparency and probity can reduce concerns over corruption.

24. 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.

25. NIGERIA’S PPP FRAMEWORKNATIONAL 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

26. NIGERIA’S PPP FRAMEWORKROLE OF ICRC • 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.

27. NIGERIA’S PPP FRAMEWORKROLE OF ICRC • 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 e.g. tax law • Maintain project database

28. NIGERIA’S PPP FRAMEWORKROLE OF ICRC • 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 • 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

29. NIGERIA’S PPP FRAMEWORKICRC KEY ACTIVITIES • 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. 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;

30. ROLE OF OTHER MDAs-1 Under this arrangement, the MDAs will be responsible for: • The Project Identification - will determine the desired gains of PPP, possible obstacles and constraints, cost of services, cost/benefit analysis and advise on suitability. • Obtain FEC’s approval; • The Project Appraisal involving selection of PPP type and defining the PPP structure for each project. The Needs Assessment, Risk Allocation, PPP Components, Budgets and Expectations of PPP are defined under this activity. • The Project Design and Agreement - Integrate PPP into design of the project, determine procurement procedure selection and design, funders requirements, undertake financial and social appraisal and draw up the agreements of MDAs and funders.

31. ROLE OF OTHER MDAs-2 • The Procurement - involve open and transparent tendering, evaluation of Request for Proposals (RFPs), negotiation and contract signing. • Project Implementation - involving Construction, Operation, Monitoring, Contract Management, and Evaluation. Once a concession agreement is signed between a private sector group and the MDA, the ICRC will ensure that both parties comply with the terms of that agreement from the time the agreement is signed to the time when the facility is transferred back to the ministry.

32. 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. • The result is a huge deficit that requires between US$12b to US $15b annually for the next 5 to 6 years. • 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.

33. 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. • In Nigeria, the potential sources of infrastructure finance include Commercial Banks, Private Equity and Debt Funds, Pension Funds, Nigerian Mutual Funds, and Foreign/Domestic Contractor Finance others are Sovereign Wealth Funds, etc., Insurance Companies and Equity and Bond Market Issues. • Capacity and appetite by financial institutions in Nigeria for infrastructure finance transaction in the near term appears limited as there are indication of serious illiquidity in the commercial banks and declining liquidity for pension funds and private equity groups. Bond issuance is hampered by high transaction costs.

34. CONCLUSION-3 • The infrastructure market in Nigeria is vast, underdeveloped and unexploited. The national PPP project pipeline cover 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. • 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 stakeholder.

35. THANK YOU