[vc_row type=”vc_default” full_width=”stretch_row_content_no_spaces” css=”.vc_custom_1500547593342{padding-right: 100px !important;}” el_class=”noPaddinRow”][vc_column width=”1/6″ el_class=”noPaddingLeft” offset=”vc_hidden-md vc_hidden-sm vc_hidden-xs”][vc_raw_html]JTNDZGl2JTIwY2xhc3MlM0QlMjJtYWluLXN0cmlwJTIyJTNFJTBBJTNDZGl2JTIwY2xhc3MlM0QlMjJibHVlLXN0cmlwMCUyMiUzRSUzQyUyRmRpdiUzRSUwQSUzQ2RpdiUyMGNsYXNzJTNEJTIyYmx1ZS1zdHJpcDElMjIlM0UlM0MlMkZkaXYlM0UlMEElM0NkaXYlMjBjbGFzcyUzRCUyMmJsdWUtc3RyaXAyJTIyJTNFJTNDJTJGZGl2JTNFJTBBJTNDJTJGZGl2JTNF[/vc_raw_html][/vc_column][vc_column width=”5/6″ el_class=”justifyText” css=”.vc_custom_1530205673473{padding-right: 310px !important;}” offset=”vc_hidden-md vc_hidden-sm vc_hidden-xs”][vc_empty_space height=”50px”][vc_row_inner el_id=”newsletters”][vc_column_inner width=”1/6″][/vc_column_inner][vc_column_inner width=”2/3″][vc_custom_heading text=”Summary of the 5th DETAIL Business Series – Nigeria’s Infrastructure: What’s Next?” font_container=”tag:h1|font_size:22|text_align:justify|color:%236699cc|line_height:1.8″ use_theme_fonts=”yes”][/vc_column_inner][vc_column_inner width=”1/6″][/vc_column_inner][/vc_row_inner][vc_empty_space height=”25px”][vc_column_text]A. OVERVIEW: SETTING THE TONE
On Monday, 16th November, 2015, DETAIL hosted its 5th DETAIL Business Series under the theme “Nigeria’s Infrastructure: What’s Next?” It was a lively expert discussion on Nigeria’s infrastructure investment needs, the limited capital resources available to address such needs and recommended solutions to bridge Nigeria’s infrastructure gap.
The forum commenced with a keynote presentation by Ayuli Jemide, Lead Partner at DETAIL and the leading Infrastructure lawyer in Nigeria, followed by panel discussions with renowned industry experts, namely: Opuiyo Oforiokuma, CEO/MD ARM-Harith Infrastructure Investment Ltd; Wale Shonibare, Deputy Group CEO/MD, United Capital Plc; Olufunke Jones, Head, Power & Energy, Ecobank Nigeria Plc; Hakeem Olopade, Executive Director, Projects, The Infrastructure Bank Plc; and Tonna Ejiofor, Vice President, Project and Structured Finance, FBN Capital Ltd.
In his key note presentation, Ayuli provided a status update of the legal and regulatory framework as well as the financial position for infrastructure projects in Nigeria, emphasizing that the success of PPPs in Nigeria is contingent on the presence of six indices, namely: (1) Laws; (2) Regulator & Regulations; (3) Procurement Process; (4) Enhancements & Sweeteners; (5) Sanctity of Contracts; and 6) Internal Capacity.
Ayuli Jemide, Lead Partner, DETAIL delivers key note presentation
1. Laws
Ayuli noted that in terms of laws, at the federal level, there is the Infrastructure Concession Regulatory Commission (ICRC) Act 2005 which has been established to govern projects involving federal government-owned infrastructure. At the state level, out of the 36 states, 22 have enacted PPP laws and 5 states have pending bills before their State Assembly.
2. Regulator & Regulations
The ICRC Regulations are still pending. None of the states have enacted PPP regulations.
3. Procurement Process
There is the Public Procurement Act 2007. The ICRC Act also provides for public and competitive tender of projects. Each state has its established procurement laws.
4. Enhancements & Sweeteners
Examples of enhancements and sweeteners that have been utilized include the Federal Government Viability Gap Fund (VGF); the World Bank Partial Risk Guarantee; Lagos-Ibadan Expressway Irrevocable Payment Undertaking; and the Lekki Toll Road Federal Support Agreement and Lagos State Concession Term Guarantee.
5. Sanctity of Contract
As regards sanctity of contract, according to the 2016 World Bank Ease of Doing Business Rankings, Nigeria ranks 143 out of 189 economies, which is worse than its 2012 ranking of 138 out of 189 economies. Ayuli was of the view that some events that transpired in the PPP space like cancellation of the Maevis concession by the Federal Airports Authority of Nigeria were generally viewed as arbitrary.
6. Internal Capacity
In terms of internal capacity, there have been positive strides made to establish PPP offices in every Federal Ministry, Department and Agency (MDA) and several states have established PPP offices. It is however doubtful whether at the federal level the PPP offices now have the requisite know-how. Ayuli also posited that a central PPP unit under the Ministry of Finance would be more efficient rather than each MDA having its own PPP unit.
PPP Investment into Nigeria
Ayuli said PPP investment into a country is a good indicator of how well that country is doing on the stated indices above. He presented a slide with collated data from the World Bank which indicated that Nigeria’s PPP investment from 1990 to date has been approximately $53 per capita, which pales in comparison to other African countries such as Ghana which has PPP investments of about $104 per capita or South Africa whose PPP investments is approximately $222 per capita.
Infrastructure Deficit vs Budgetary Allocation for Capital Expenditure
Ayuli presented a slide that captured governments projected income based on figures gathered from the Central Bank of Nigeria’s (CBN) Quarterly Economic Report. He extrapolated and used figures from the first and second quarters of 2015 to arrive at an 8 trillion gross income. After deductions for monies payable to states and recurrent expenditure the net income was 0.9 trillion Naira. This is a far cry from the projected amounts needed for infrastructure development annually. These statistics indicate a significant gap between Nigeria’s infrastructure needs and the limited public funding available, therefore escalating the need for private financing to help bridge the gap. This formed the background for the panel discussion that followed.
B. RECOMMENDATIONS FROM THE PANEL DISCUSSION
A resounding message communicated by panellists during the forum was that the private sector has to be engaged to provide the funding needed to boost Nigeria’s infrastructure development. However, money has choices and government needs to ensure that investors choose Nigeria as a veritable destination.
Panel discussants (left to right): Hakeem Olopade, Executive Director, Projects, The Infrastructure Bank Plc; Wale Shonibare, Deputy Group CEO/MD, United Capital Plc, Olufunke Jones, Head, Power & Energy, Ecobank Nigeria Plc; Tonna Ejiofor, Vice President, Project and Structured Finance, FBN Capital Ltd; and Opuiyo Oforiokuma, CEO/MD ARM-Harith Infrastructure Investment Ltd.
The following key recommendations were proffered by the panellists as possible solutions to bridge the infrastructure gap.
1. Pension Funds as a Key Source of Private Financing
Pension funds are a viable source of funding for infrastructure projects. The only source of long term savings in Nigeria today is the pension fund, which is valued at approximately USD$5 billion. With the majority of the citizens of Nigeria below age 35, there is a significant population that will be in the workforce for 30+ years and contributing to their various pension schemes. Pension funds can be invested in three ways, namely:
* Infrastructure Funds;
* Infrastructure Bonds listed on the Stock Exchange with a minimum
triple B credit rating; and
* Stocks of project companies.
Under the law, pension funds are restricted to investing in instruments that fulfil certain requirements such as listing and investment grades ratings. Therefore, to maximize the use of pension funds, it is essential that there are viable products acceptable under law through which pension funds can invest into infrastructure. It is also important for government to ensure a guarantee mechanism that makes Pension Fund Administrators (PFAs) comfortable to invest in greenfield and brownfield infrastructure projects.
2. Deepen the Capital Market as a Source of Financing
The Nigerian capital market should be utilized as a primary source of financing for infrastructure development, particularly for capital and bond finance. Also, the long term sustainable approach to funding infrastructure is by financing with local currency, which will deepen the capital market, reduce reliance on foreign currency and encourage investing in local currency.
3. Strengthen the Development Bank of Nigeria
The Development Bank of Nigeria (DBN) should be strengthened as a financial institution capable of providing financing for infrastructure development. One of the functions of a development bank is typically to reduce the risk and cost of feasibility studies for private investors. DBN can be structured to issue bonds in local currency at relatively low rates which can be guaranteed by the Federal Government. The borrowed funds can then be channelled into infrastructure projects.
4. Engage Development Finance Institutions
Development finance institutions (DFIs) should be engaged to participate in financing infrastructure development projects in Nigeria. DFIs will generally conceptualise, develop and prepare projects for bankability assurance. The role DFIs typically play is to de-risk a project by bringing in the risk capital. When the project has been de-risked other investors are generally more willingly to invest
5. Improve Tax Collection
The federal and state governments should improve tax collection net from its current 12% of population. This will boost revenue in local currency some of which can be channelled to infrastructure projects
6. Policies to Reduce the Crowd Out by FGN Borrowings
It was noted that if the Federal Government Treasury Bills and Bonds continue to be more attractive investments for PFAs, the debt market for long term infrastructure projects would be crowded out. There should be deliberate government monetary and fiscal policies to reverse this trend
7. Invest in Multiple Small Scale Projects
The growth of infrastructure development does not have to be solely with large-scale projects; rather, attention should be given to the multitude of small to medium scale projects, which can be consolidated. For example, with the Nigerian power sector, rather than focusing on developing large power projects, focus should be given to micro-grid solutions such as off-grid power for rural areas or industrial clusters
8. Easy Access to Government Support for Projects
Government should ensure that the Viability Gap Fund (VGF) set up by the Federal Ministry of Finance is more accessible to project developers and there is a transparent process for accessing this fund. The VGF was set up to try to bridge the gap between the economic viability of projects and commercially unviability by providing finance to the project to bridge the gap between economic and commercial viability.
9. Ensure Projects are Bankable
Projects have to be bankable to attract the requisite private sector funding. Government should be prepared to provide requisite guarantees and sweeteners required to catalyse private sector investment in infrastructure. Investors have to be comfortable with project mechanics that guarantee a reasonable return on investment.
10. Promote a Savings Culture
The Federal Government should initiate policies that incentivize a long term savings culture. A large pool of long term savings provides financial institutions with long term funds to invest in infrastructure projects.
11. Tax Incentives & Waivers
The fiscal authorities should come up with robust tax incentive mechanisms for private investors who are willing to stake their funds in long term infrastructure projects
12. Review of Foreign Exchange Policies
Foreign currency borrowings for infrastructure projects that have earnings in Naira have always come with foreign currency risk. However, beyond this traditional risk, which can be hedged, the recent CBN policies have raised concerns relating to project proponents’ ability to convert and repatriate their income via CBN’s channels. This needs to be addressed urgently
13. Strengthen the PPP Framework
The ICRC Regulations made pursuant to the ICRC Act should be finalized and issued to provide further clarity for PPP projects at the federal level. States should also have comprehensive PPP laws and regulations to regulate PPP projects on state or local government-owned infrastructure.
14. Capacity Building for Financial Institutions
Financial institutions need to deepen their capacity to understand infrastructure projects to engender creativity in funding such projects.
Detail Commercial Solicitors is distinct as Nigeria’s first commercial firm to specialize exclusively in non-courtroom practice. DETAIL has the leading Infrastructure practice in Nigeria in the areas of Public Private Partnerships and Project Finance.[/vc_column_text][/vc_column][/vc_row][vc_row type=”vc_default” full_width=”stretch_row_content_no_spaces” css=”.vc_custom_1500547593342{padding-right: 100px !important;}” el_class=”noPaddinRow”][vc_column el_class=”noPaddingLeft” offset=”vc_hidden-lg vc_hidden-xs”][vc_raw_html]JTNDZGl2JTIwY2xhc3MlM0QlMjJ0YWItbWFpbi1zdHJpcCUyMiUzRSUwQSUzQ2RpdiUyMGNsYXNzJTNEJTIydGFiLWJsdWUtc3RyaXAwJTIyJTNFJTNDJTJGZGl2JTNFJTBBJTNDZGl2JTIwY2xhc3MlM0QlMjJ0YWItYmx1ZS1zdHJpcDElMjIlM0UlM0MlMkZkaXYlM0UlMEElM0NkaXYlMjBjbGFzcyUzRCUyMnRhYi1ibHVlLXN0cmlwMiUyMiUzRSUzQyUyRmRpdiUzRSUwQSUzQyUyRmRpdiUzRQ==[/vc_raw_html][vc_empty_space height=”25px”][vc_row_inner][vc_column_inner width=”1/6″][/vc_column_inner][vc_column_inner width=”2/3″][vc_custom_heading text=”Summary of the 5th DETAIL Business Series – Nigeria’s Infrastructure: What’s Next?” font_container=”tag:h1|font_size:22|text_align:justify|color:%236699cc|line_height:1.8″ use_theme_fonts=”yes”][vc_column_text]A. OVERVIEW: SETTING THE TONE
On Monday, 16th November, 2015, DETAIL hosted its 5th DETAIL Business Series under the theme “Nigeria’s Infrastructure: What’s Next?” It was a lively expert discussion on Nigeria’s infrastructure investment needs, the limited capital resources available to address such needs and recommended solutions to bridge Nigeria’s infrastructure gap.
The forum commenced with a keynote presentation by Ayuli Jemide, Lead Partner at DETAIL and the leading Infrastructure lawyer in Nigeria, followed by panel discussions with renowned industry experts, namely: Opuiyo Oforiokuma, CEO/MD ARM-Harith Infrastructure Investment Ltd; Wale Shonibare, Deputy Group CEO/MD, United Capital Plc; Olufunke Jones, Head, Power & Energy, Ecobank Nigeria Plc; Hakeem Olopade, Executive Director, Projects, The Infrastructure Bank Plc; and Tonna Ejiofor, Vice President, Project and Structured Finance, FBN Capital Ltd.
In his key note presentation, Ayuli provided a status update of the legal and regulatory framework as well as the financial position for infrastructure projects in Nigeria, emphasizing that the success of PPPs in Nigeria is contingent on the presence of six indices, namely: (1) Laws; (2) Regulator & Regulations; (3) Procurement Process; (4) Enhancements & Sweeteners; (5) Sanctity of Contracts; and 6) Internal Capacity.
Ayuli Jemide, Lead Partner, DETAIL delivers key note presentation
1. Laws
Ayuli noted that in terms of laws, at the federal level, there is the Infrastructure Concession Regulatory Commission (ICRC) Act 2005 which has been established to govern projects involving federal government-owned infrastructure. At the state level, out of the 36 states, 22 have enacted PPP laws and 5 states have pending bills before their State Assembly.
2. Regulator & Regulations
The ICRC Regulations are still pending. None of the states have enacted PPP regulations.
3. Procurement Process
There is the Public Procurement Act 2007. The ICRC Act also provides for public and competitive tender of projects. Each state has its established procurement laws.
4. Enhancements & Sweeteners
Examples of enhancements and sweeteners that have been utilized include the Federal Government Viability Gap Fund (VGF); the World Bank Partial Risk Guarantee; Lagos-Ibadan Expressway Irrevocable Payment Undertaking; and the Lekki Toll Road Federal Support Agreement and Lagos State Concession Term Guarantee.
5. Sanctity of Contract
As regards sanctity of contract, according to the 2016 World Bank Ease of Doing Business Rankings, Nigeria ranks 143 out of 189 economies, which is worse than its 2012 ranking of 138 out of 189 economies. Ayuli was of the view that some events that transpired in the PPP space like cancellation of the Maevis concession by the Federal Airports Authority of Nigeria were generally viewed as arbitrary.
6. Internal Capacity
In terms of internal capacity, there have been positive strides made to establish PPP offices in every Federal Ministry, Department and Agency (MDA) and several states have established PPP offices. It is however doubtful whether at the federal level the PPP offices now have the requisite know-how. Ayuli also posited that a central PPP unit under the Ministry of Finance would be more efficient rather than each MDA having its own PPP unit.
PPP Investment into Nigeria
Ayuli said PPP investment into a country is a good indicator of how well that country is doing on the stated indices above. He presented a slide with collated data from the World Bank which indicated that Nigeria’s PPP investment from 1990 to date has been approximately $53 per capita, which pales in comparison to other African countries such as Ghana which has PPP investments of about $104 per capita or South Africa whose PPP investments is approximately $222 per capita.
Infrastructure Deficit vs Budgetary Allocation for Capital Expenditure
Ayuli presented a slide that captured governments projected income based on figures gathered from the Central Bank of Nigeria’s (CBN) Quarterly Economic Report. He extrapolated and used figures from the first and second quarters of 2015 to arrive at an 8 trillion gross income. After deductions for monies payable to states and recurrent expenditure the net income was 0.9 trillion Naira. This is a far cry from the projected amounts needed for infrastructure development annually. These statistics indicate a significant gap between Nigeria’s infrastructure needs and the limited public funding available, therefore escalating the need for private financing to help bridge the gap. This formed the background for the panel discussion that followed.
B. RECOMMENDATIONS FROM THE PANEL DISCUSSION
A resounding message communicated by panellists during the forum was that the private sector has to be engaged to provide the funding needed to boost Nigeria’s infrastructure development. However, money has choices and government needs to ensure that investors choose Nigeria as a veritable destination.
Panel discussants (left to right): Hakeem Olopade, Executive Director, Projects, The Infrastructure Bank Plc; Wale Shonibare, Deputy Group CEO/MD, United Capital Plc, Olufunke Jones, Head, Power & Energy, Ecobank Nigeria Plc; Tonna Ejiofor, Vice President, Project and Structured Finance, FBN Capital Ltd; and Opuiyo Oforiokuma, CEO/MD ARM-Harith Infrastructure Investment Ltd.
The following key recommendations were proffered by the panellists as possible solutions to bridge the infrastructure gap.
1. Pension Funds as a Key Source of Private Financing
Pension funds are a viable source of funding for infrastructure projects. The only source of long term savings in Nigeria today is the pension fund, which is valued at approximately USD$5 billion. With the majority of the citizens of Nigeria below age 35, there is a significant population that will be in the workforce for 30+ years and contributing to their various pension schemes. Pension funds can be invested in three ways, namely:
* Infrastructure Funds;
* Infrastructure Bonds listed on the Stock Exchange with a minimum
triple B credit rating; and
* Stocks of project companies.
Under the law, pension funds are restricted to investing in instruments that fulfil certain requirements such as listing and investment grades ratings. Therefore, to maximize the use of pension funds, it is essential that there are viable products acceptable under law through which pension funds can invest into infrastructure. It is also important for government to ensure a guarantee mechanism that makes Pension Fund Administrators (PFAs) comfortable to invest in greenfield and brownfield infrastructure projects.
2. Deepen the Capital Market as a Source of Financing
The Nigerian capital market should be utilized as a primary source of financing for infrastructure development, particularly for capital and bond finance. Also, the long term sustainable approach to funding infrastructure is by financing with local currency, which will deepen the capital market, reduce reliance on foreign currency and encourage investing in local currency.
3. Strengthen the Development Bank of Nigeria
The Development Bank of Nigeria (DBN) should be strengthened as a financial institution capable of providing financing for infrastructure development. One of the functions of a development bank is typically to reduce the risk and cost of feasibility studies for private investors. DBN can be structured to issue bonds in local currency at relatively low rates which can be guaranteed by the Federal Government. The borrowed funds can then be channelled into infrastructure projects.
4. Engage Development Finance Institutions
Development finance institutions (DFIs) should be engaged to participate in financing infrastructure development projects in Nigeria. DFIs will generally conceptualise, develop and prepare projects for bankability assurance. The role DFIs typically play is to de-risk a project by bringing in the risk capital. When the project has been de-risked other investors are generally more willingly to invest
5. Improve Tax Collection
The federal and state governments should improve tax collection net from its current 12% of population. This will boost revenue in local currency some of which can be channelled to infrastructure projects
6. Policies to Reduce the Crowd Out by FGN Borrowings
It was noted that if the Federal Government Treasury Bills and Bonds continue to be more attractive investments for PFAs, the debt market for long term infrastructure projects would be crowded out. There should be deliberate government monetary and fiscal policies to reverse this trend
7. Invest in Multiple Small Scale Projects
The growth of infrastructure development does not have to be solely with large-scale projects; rather, attention should be given to the multitude of small to medium scale projects, which can be consolidated. For example, with the Nigerian power sector, rather than focusing on developing large power projects, focus should be given to micro-grid solutions such as off-grid power for rural areas or industrial clusters
8. Easy Access to Government Support for Projects
Government should ensure that the Viability Gap Fund (VGF) set up by the Federal Ministry of Finance is more accessible to project developers and there is a transparent process for accessing this fund. The VGF was set up to try to bridge the gap between the economic viability of projects and commercially unviability by providing finance to the project to bridge the gap between economic and commercial viability.
9. Ensure Projects are Bankable
Projects have to be bankable to attract the requisite private sector funding. Government should be prepared to provide requisite guarantees and sweeteners required to catalyse private sector investment in infrastructure. Investors have to be comfortable with project mechanics that guarantee a reasonable return on investment.
10. Promote a Savings Culture
The Federal Government should initiate policies that incentivize a long term savings culture. A large pool of long term savings provides financial institutions with long term funds to invest in infrastructure projects.
11. Tax Incentives & Waivers
The fiscal authorities should come up with robust tax incentive mechanisms for private investors who are willing to stake their funds in long term infrastructure projects
12. Review of Foreign Exchange Policies
Foreign currency borrowings for infrastructure projects that have earnings in Naira have always come with foreign currency risk. However, beyond this traditional risk, which can be hedged, the recent CBN policies have raised concerns relating to project proponents’ ability to convert and repatriate their income via CBN’s channels. This needs to be addressed urgently
13. Strengthen the PPP Framework
The ICRC Regulations made pursuant to the ICRC Act should be finalized and issued to provide further clarity for PPP projects at the federal level. States should also have comprehensive PPP laws and regulations to regulate PPP projects on state or local government-owned infrastructure.
14. Capacity Building for Financial Institutions
Financial institutions need to deepen their capacity to understand infrastructure projects to engender creativity in funding such projects.
Detail Commercial Solicitors is distinct as Nigeria’s first commercial firm to specialize exclusively in non-courtroom practice. DETAIL has the leading Infrastructure practice in Nigeria in the areas of Public Private Partnerships and Project Finance.[/vc_column_text][/vc_column_inner][vc_column_inner width=”1/6″][/vc_column_inner][/vc_row_inner][/vc_column][/vc_row][vc_row type=”vc_default” full_width=”stretch_row_content_no_spaces” css=”.vc_custom_1500547593342{padding-right: 100px !important;}” el_class=”noPaddinRow”][vc_column el_class=”noPaddingLeft” offset=”vc_hidden-lg vc_hidden-md vc_hidden-sm” css=”.vc_custom_1530205927849{padding-right: 75px !important;padding-left: 60px !important;}”][vc_raw_html]JTNDZGl2JTIwY2xhc3MlM0QlMjJtb2ItbWFpbi1zdHJpcCUyMiUzRSUwQSUzQ2RpdiUyMGNsYXNzJTNEJTIybW9iLWJsdWUtc3RyaXAwJTIyJTNFJTNDJTJGZGl2JTNFJTBBJTNDZGl2JTIwY2xhc3MlM0QlMjJtb2ItYmx1ZS1zdHJpcDElMjIlM0UlM0MlMkZkaXYlM0UlMEElM0NkaXYlMjBjbGFzcyUzRCUyMm1vYi1ibHVlLXN0cmlwMiUyMiUzRSUzQyUyRmRpdiUzRSUwQSUzQyUyRmRpdiUzRQ==[/vc_raw_html][vc_empty_space height=”25px”][vc_row_inner][vc_column_inner width=”1/6″][/vc_column_inner][vc_column_inner width=”2/3″][vc_custom_heading text=”Summary of the 5th DETAIL Business Series – Nigeria’s Infrastructure: What’s Next?” font_container=”tag:h1|font_size:22|text_align:justify|color:%236699cc|line_height:1.8″ use_theme_fonts=”yes”][vc_column_text]A. OVERVIEW: SETTING THE TONE
On Monday, 16th November, 2015, DETAIL hosted its 5th DETAIL Business Series under the theme “Nigeria’s Infrastructure: What’s Next?” It was a lively expert discussion on Nigeria’s infrastructure investment needs, the limited capital resources available to address such needs and recommended solutions to bridge Nigeria’s infrastructure gap.
The forum commenced with a keynote presentation by Ayuli Jemide, Lead Partner at DETAIL and the leading Infrastructure lawyer in Nigeria, followed by panel discussions with renowned industry experts, namely: Opuiyo Oforiokuma, CEO/MD ARM-Harith Infrastructure Investment Ltd; Wale Shonibare, Deputy Group CEO/MD, United Capital Plc; Olufunke Jones, Head, Power & Energy, Ecobank Nigeria Plc; Hakeem Olopade, Executive Director, Projects, The Infrastructure Bank Plc; and Tonna Ejiofor, Vice President, Project and Structured Finance, FBN Capital Ltd.
In his key note presentation, Ayuli provided a status update of the legal and regulatory framework as well as the financial position for infrastructure projects in Nigeria, emphasizing that the success of PPPs in Nigeria is contingent on the presence of six indices, namely: (1) Laws; (2) Regulator & Regulations; (3) Procurement Process; (4) Enhancements & Sweeteners; (5) Sanctity of Contracts; and 6) Internal Capacity.
Ayuli Jemide, Lead Partner, DETAIL delivers key note presentation
1. Laws
Ayuli noted that in terms of laws, at the federal level, there is the Infrastructure Concession Regulatory Commission (ICRC) Act 2005 which has been established to govern projects involving federal government-owned infrastructure. At the state level, out of the 36 states, 22 have enacted PPP laws and 5 states have pending bills before their State Assembly.
2. Regulator & Regulations
The ICRC Regulations are still pending. None of the states have enacted PPP regulations.
3. Procurement Process
There is the Public Procurement Act 2007. The ICRC Act also provides for public and competitive tender of projects. Each state has its established procurement laws.
4. Enhancements & Sweeteners
Examples of enhancements and sweeteners that have been utilized include the Federal Government Viability Gap Fund (VGF); the World Bank Partial Risk Guarantee; Lagos-Ibadan Expressway Irrevocable Payment Undertaking; and the Lekki Toll Road Federal Support Agreement and Lagos State Concession Term Guarantee.
5. Sanctity of Contract
As regards sanctity of contract, according to the 2016 World Bank Ease of Doing Business Rankings, Nigeria ranks 143 out of 189 economies, which is worse than its 2012 ranking of 138 out of 189 economies. Ayuli was of the view that some events that transpired in the PPP space like cancellation of the Maevis concession by the Federal Airports Authority of Nigeria were generally viewed as arbitrary.
6. Internal Capacity
In terms of internal capacity, there have been positive strides made to establish PPP offices in every Federal Ministry, Department and Agency (MDA) and several states have established PPP offices. It is however doubtful whether at the federal level the PPP offices now have the requisite know-how. Ayuli also posited that a central PPP unit under the Ministry of Finance would be more efficient rather than each MDA having its own PPP unit.
PPP Investment into Nigeria
Ayuli said PPP investment into a country is a good indicator of how well that country is doing on the stated indices above. He presented a slide with collated data from the World Bank which indicated that Nigeria’s PPP investment from 1990 to date has been approximately $53 per capita, which pales in comparison to other African countries such as Ghana which has PPP investments of about $104 per capita or South Africa whose PPP investments is approximately $222 per capita.
Infrastructure Deficit vs Budgetary Allocation for Capital Expenditure
Ayuli presented a slide that captured governments projected income based on figures gathered from the Central Bank of Nigeria’s (CBN) Quarterly Economic Report. He extrapolated and used figures from the first and second quarters of 2015 to arrive at an 8 trillion gross income. After deductions for monies payable to states and recurrent expenditure the net income was 0.9 trillion Naira. This is a far cry from the projected amounts needed for infrastructure development annually. These statistics indicate a significant gap between Nigeria’s infrastructure needs and the limited public funding available, therefore escalating the need for private financing to help bridge the gap. This formed the background for the panel discussion that followed.
B. RECOMMENDATIONS FROM THE PANEL DISCUSSION
A resounding message communicated by panellists during the forum was that the private sector has to be engaged to provide the funding needed to boost Nigeria’s infrastructure development. However, money has choices and government needs to ensure that investors choose Nigeria as a veritable destination.
Panel discussants (left to right): Hakeem Olopade, Executive Director, Projects, The Infrastructure Bank Plc; Wale Shonibare, Deputy Group CEO/MD, United Capital Plc, Olufunke Jones, Head, Power & Energy, Ecobank Nigeria Plc; Tonna Ejiofor, Vice President, Project and Structured Finance, FBN Capital Ltd; and Opuiyo Oforiokuma, CEO/MD ARM-Harith Infrastructure Investment Ltd.
The following key recommendations were proffered by the panellists as possible solutions to bridge the infrastructure gap.
1. Pension Funds as a Key Source of Private Financing
Pension funds are a viable source of funding for infrastructure projects. The only source of long term savings in Nigeria today is the pension fund, which is valued at approximately USD$5 billion. With the majority of the citizens of Nigeria below age 35, there is a significant population that will be in the workforce for 30+ years and contributing to their various pension schemes. Pension funds can be invested in three ways, namely:
* Infrastructure Funds;
* Infrastructure Bonds listed on the Stock Exchange with a minimum
triple B credit rating; and
* Stocks of project companies.
Under the law, pension funds are restricted to investing in instruments that fulfil certain requirements such as listing and investment grades ratings. Therefore, to maximize the use of pension funds, it is essential that there are viable products acceptable under law through which pension funds can invest into infrastructure. It is also important for government to ensure a guarantee mechanism that makes Pension Fund Administrators (PFAs) comfortable to invest in greenfield and brownfield infrastructure projects.
2. Deepen the Capital Market as a Source of Financing
The Nigerian capital market should be utilized as a primary source of financing for infrastructure development, particularly for capital and bond finance. Also, the long term sustainable approach to funding infrastructure is by financing with local currency, which will deepen the capital market, reduce reliance on foreign currency and encourage investing in local currency.
3. Strengthen the Development Bank of Nigeria
The Development Bank of Nigeria (DBN) should be strengthened as a financial institution capable of providing financing for infrastructure development. One of the functions of a development bank is typically to reduce the risk and cost of feasibility studies for private investors. DBN can be structured to issue bonds in local currency at relatively low rates which can be guaranteed by the Federal Government. The borrowed funds can then be channelled into infrastructure projects.
4. Engage Development Finance Institutions
Development finance institutions (DFIs) should be engaged to participate in financing infrastructure development projects in Nigeria. DFIs will generally conceptualise, develop and prepare projects for bankability assurance. The role DFIs typically play is to de-risk a project by bringing in the risk capital. When the project has been de-risked other investors are generally more willingly to invest
5. Improve Tax Collection
The federal and state governments should improve tax collection net from its current 12% of population. This will boost revenue in local currency some of which can be channelled to infrastructure projects
6. Policies to Reduce the Crowd Out by FGN Borrowings
It was noted that if the Federal Government Treasury Bills and Bonds continue to be more attractive investments for PFAs, the debt market for long term infrastructure projects would be crowded out. There should be deliberate government monetary and fiscal policies to reverse this trend
7. Invest in Multiple Small Scale Projects
The growth of infrastructure development does not have to be solely with large-scale projects; rather, attention should be given to the multitude of small to medium scale projects, which can be consolidated. For example, with the Nigerian power sector, rather than focusing on developing large power projects, focus should be given to micro-grid solutions such as off-grid power for rural areas or industrial clusters
8. Easy Access to Government Support for Projects
Government should ensure that the Viability Gap Fund (VGF) set up by the Federal Ministry of Finance is more accessible to project developers and there is a transparent process for accessing this fund. The VGF was set up to try to bridge the gap between the economic viability of projects and commercially unviability by providing finance to the project to bridge the gap between economic and commercial viability.
9. Ensure Projects are Bankable
Projects have to be bankable to attract the requisite private sector funding. Government should be prepared to provide requisite guarantees and sweeteners required to catalyse private sector investment in infrastructure. Investors have to be comfortable with project mechanics that guarantee a reasonable return on investment.
10. Promote a Savings Culture
The Federal Government should initiate policies that incentivize a long term savings culture. A large pool of long term savings provides financial institutions with long term funds to invest in infrastructure projects.
11. Tax Incentives & Waivers
The fiscal authorities should come up with robust tax incentive mechanisms for private investors who are willing to stake their funds in long term infrastructure projects
12. Review of Foreign Exchange Policies
Foreign currency borrowings for infrastructure projects that have earnings in Naira have always come with foreign currency risk. However, beyond this traditional risk, which can be hedged, the recent CBN policies have raised concerns relating to project proponents’ ability to convert and repatriate their income via CBN’s channels. This needs to be addressed urgently
13. Strengthen the PPP Framework
The ICRC Regulations made pursuant to the ICRC Act should be finalized and issued to provide further clarity for PPP projects at the federal level. States should also have comprehensive PPP laws and regulations to regulate PPP projects on state or local government-owned infrastructure.
14. Capacity Building for Financial Institutions
Financial institutions need to deepen their capacity to understand infrastructure projects to engender creativity in funding such projects.
Detail Commercial Solicitors is distinct as Nigeria’s first commercial firm to specialize exclusively in non-courtroom practice. DETAIL has the leading Infrastructure practice in Nigeria in the areas of Public Private Partnerships and Project Finance.[/vc_column_text][/vc_column_inner][vc_column_inner width=”1/6″][/vc_column_inner][/vc_row_inner][/vc_column][/vc_row]