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NIGERIAN BAR ASSOCIATION (AKURE BRANCH) ANNUAL LAW WEEK The Role Of The Law in National Development 14 th August 2008. Public Private Partnership For Infrastructural Development In Oil Producing States of Nigeria: The Niger Delta Experience. OUTLINE. 1. DEFINITION

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slide1

NIGERIAN BAR ASSOCIATION (AKURE BRANCH)ANNUAL LAW WEEK The Role Of The Law in National Development 14th August 2008

Public Private Partnership

For Infrastructural Development

In Oil Producing States of Nigeria:

The Niger Delta Experience

AYULI JEMIDE

slide2

OUTLINE

1. DEFINITION

2. KEY ELEMENTS OF PPP’S

3. CORE PPP PRINCIPLES & THE NIGER DELTA

4. RELEVANT LEGAL AND REGULATORY FRAMEWORK FOR INFRASTRUCTURE AND PPP’S

5. TALKING POINTS ON PPP/INFRASTRUCTURE PROJECTS IN THE NIGER DELTA

6. TWO USEFUL CASE STUDIES

7. IMPERATIVES FOR PPP’S IN NIGER DELTA

AYULI JEMIDE

definition
DEFINITION

DEFINITION

A Partnership between Government and an appropriately qualified private sector entity /group of entities, for the purpose of financing, designing, constructing and/or operating infrastructure or services that would normally have been provided through traditional, public channels.

AYULI JEMIDE

key elements of public private partnership
Key Elements of Public-Private Partnership
  • A contractual partnership between a government (public) entity and a private company (or a non-profit private body) that provides a public service to citizens.
  • A good PPP should improve a service provided by Government at a reasonable cost to the end user.
  • Typically, the Public Sector is buying a service, and the private sector is investing for Profit.
  • Flexible contracting: Lease, Manage, Build Operate & Transfer, Joint Ventures, Service Contracts. Anything goes!
  • A contractual partnership between a government (public) entity and a private company (or a non-profit private body) that provides a public service to citizens.
  • A good PPP should improve a service provided by Government at a reasonable cost to the end user.
  • Typically, the Public Sector is buying a service, and the private sector is investing for Profit.
  • Flexible contracting: Lease, Manage, Build Operate & Transfer, Joint Ventures, Service Contracts. Anything goes!

AYULI JEMIDE

ppp s are only for viable projects

RULE

NO. 1

PPP’S are ONLY forVIABLE projects
  • Feasibility: a) Is it possible?

b) What will it cost?

  • Viability: a) Will cash flow maintain service levels?

b) Will there be a profit or ROI?

Can we identify viable project types in the Niger Delta?

AYULI JEMIDE

allocate risks to the party best able to handle them
Allocate RISKS to the party best able to handle them

RULE

NO. 2

Usual Parties: Govt, Investor, Financier -Insurance.

Usual Risks: Political, Financial, Operations, etc, and now Security

Which party can best handle the peculiar risks in the Niger Delta? How?

AYULI JEMIDE

ppp must address stakeholder concerns

RULE

NO. 3

PPP must address STAKEHOLDER concerns

NEEDS ANALYSIS:

Do the people need it?

Is the need more pressing then other neglected areas?

AFFORDABILITY TEST:

Can the public afford the User Charges?

Will it be robbing Peter to pay Paul?

Which proposed PPP’s in the Niger Delta will ably address these issues?

AYULI JEMIDE

who can contract in ppp s

Question

NO. 1

WHO CAN CONTRACT IN PPP’S?

1) Those empowered by the Infrastructure Concession Regulatory Commission Act 2005

Section 1

“Any Federal Govt 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 prequalified project proponent in the private sector for the financing, construction, operation or maintenance of any infrastructure……in accordance with the provisions of this Act.

AYULI JEMIDE

who can contract in ppp s1

Question

NO. 1

WHO CAN CONTRACT IN PPP’S?

2) Government Agencies empowered by Law

Examples:

  • Federal Roads Maintenance Agency (Establishment) Act Section 8
  • Niger Delta Development Commission Act – Section 7(1)(b) & 8(e)

AYULI JEMIDE

who can contract in ppp s2

Question

NO. 1

WHO CAN CONTRACT IN PPP’S?

STATE GOVERNMENTS:

Section 5 (2) ( a) (b) of 1999 Constitution:

Vests Executive Powers in Governor: “shall to execute and maintain all Laws made by the House of Assembly and with respect to which the House of Assembly has for the time being power to make laws”. – Everything on the concurrent or residual legislative list?

An enabling Law for PPP enacted by each State is advisable for clarity and investor confidence.

AYULI JEMIDE

who can contract in ppp s3

Question

NO. 1

WHO CAN CONTRACT IN PPP’S?

LOCAL GOVERNMENTS:

4th Schedule to 1999 Constitution lists functions of LG’S to include:

Maintenance of roads, and in conjunction with the State: primary, vocational, and adult education etc

Also Local Govt Laws have similar Executive-power provisions for the LGA Chairman as that of the Governor contained in the Constitution

Are these sufficient for a serious investor?

AYULI JEMIDE

who owns the assets

Question

NO. 3

WHO OWNS THE ASSETS?

ROADS FOR EXAMPLE:

STATE

GOVERNMENT

16%

FEDERAL GOVERNMENT

17%

LOCAL GOVERNMENT

67%

AYULI JEMIDE

pioneer s burden

Point

NO. 1

PIONEER’S BURDEN

Are there successful PPP projects in the Niger Delta?

- Educate and Inform

- Process to encourage credible investors

- Legislation

- PPP Unit with qualified project officers

- Identify, remove, hindrances and obstacles

AYULI JEMIDE

bankability

Point

NO. 2

BANKABILITY

THIS WOULD BE AN ISSUE:

  • Project Finance: Cash flow Lending
  • Infrastructure is not a briefcase project
  • Risk Analysis is high: Project risk, Operational risk, Economic risk, Endangered Asset.

AYULI JEMIDE

can we cross the bankability hurdle

Point

NO. 2

Can we cross the Bankability hurdle?

Some Options:

  • More Govt funding to reduce private sector risk
  • 100% Govt funding with Private Sector as Operators
  • State or Federal Government Bonds
  • Sovereign Guarantees & Indemnities
  • Spread funding into bite size portions
  • Structure collateral rewards i.e shadow tolls, guaranteed income plus @ a minimum IRR (rate of return).

AYULI JEMIDE

risks

Point

NO. 3

RISKS !!!

ALLOCATION OF RISKS WILL BE KEY TO PPP’S IN THE NIGER DELTA

  • Can we allocate risk to Communities?
  • How we allocate risk to a non-stakeholder?
  • High risk demands higher premiums and makes the user charges higher.

AYULI JEMIDE

who takes responsibility

Point

NO. 4

WHO TAKES RESPONSIBILITY?

WOULD FEDERAL, STATE, AND LOCAL GOVTS TAKE RESPONSIBILITY FOR CERTAIN FORCE MAJEURE EVENTS?

E.G. BAIL OUT CLAUSES THAT GIVE INVESTOR A GUARANTEE THAT THEY WILL NEVER LOSE THEIR MONEY

AYULI JEMIDE

lekki road concession
LEKKI ROAD CONCESSION
  • State Govt passed the Lagos State Highway, Roads & Bridges Law to support this transaction.
  • State Government gave adequate Guarantees: Cash Bond, Access to Site, etc
  • Signed Non-Compete Clauses
  • Threw in other projects as sweeteners
  • Set up a Unit to monitor PPP’s
  • Stamp Duties Exemption from FGN
  • NAICOM Exemption for Offshore Reinsurance

AYULI JEMIDE

tajikistan power project
TAJIKISTAN POWER PROJECT

ABOUT TAJIKISTAN

  • Mountain region of Former Soviet Union
  • Civil war just ended
  • Per Capita income was $160 a year
  • 80% of population lived below poverty line
  • People used wood for heating so much that the forests were sparse and respiratory disorders were common
  • 43% of homes had no electricity
  • Homes with electricity were used to paying 1/10th of the current production cost
  • IN SUMMARY - NOT AN INVESTOR’S HAVEN FOR A POWER PROJECT

AYULI JEMIDE

deal structure
DEAL STRUCTURE

On-lending

@ 6%

As Part Finance

PAMIR ENERGY

AKFED -70%

($8m Equity)

IFC – 30%

($3.5m Equity)

($4.5m Debt)

$1OM

@ 0.75%

Tajikistan

GOVT

WORLD BANK IDA

Tajikistan

GOVT

5.2% Margin

POOL

OF

FUNDS

+

$5m

Grant from Swiss Govt

AYULI JEMIDE

lessons
LESSONS
  • 25 year Concession on Electric Utility Assets – It’s an interesting PPP!
  • Must not be a big project - 30,000 customers initially.
  • Employment is a major spin off - 595 employees.
  • Conflict ridden areas should seek funds from right places

AYULI JEMIDE

more lessons
MORE LESSONS
  • Government used its pool of funds to subsidize a “lifeline” Tariff – An ingenious Social Protection Scheme.
  • Donor and Funding Agencies are key factors in high risk PPP projects
  • Think outside the box – This pioneered a new mode of collaboration
  • Cheaper funding arranged by Govt. gave a fair return on investment

AYULI JEMIDE

1 use low hanging fruit
1. Use Low Hanging Fruit

Pioneer with projects that:

  • Require minimal Govt. involvement
  • Are quick to achieve
  • Generate employment and capacity building
  • Are service oriented

For example: Health care schemes or Education.

AYULI JEMIDE

2 start with parties who have vested interest
2. Start With Parties Who Have Vested Interest
  • It is easier to work with the oil companies who already have a vested interest and sunken costs than to find “green” investors.
  • OPCO’S, Govt and NDDC should start a PPP task force immediately to fashion a roadmap

AYULI JEMIDE

3 start with service oriented ppp s
3. Start With Service-Oriented PPP’s
  • PPP’S that affect standard of living should be uppermost.
  • Studies from Post Conflict countries say this is the fastest route to host community buy-in. Service oriented PPP’s are seen for their value NOT as contracts to the oppressors.
  • E.G – Education, Health, Capacity Building.

AYULI JEMIDE

4 network with international agencies
4. Network with International Agencies
  • MDA’S (Multilateral donor and credit agencies are key) World Bank IDA, MIGA etc
  • TO:
  • Give risk guarantees
  • Grants and soft loans
  • Training and capacity building

AYULI JEMIDE

conclusion
CONCLUSION
  • IT IS NOT ROCKET SCIENCE !!

AYULI JEMIDE

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