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 AYULI JEMIDE

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

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

• 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!

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HOW DO CORE PPP PRINCIPLES RELATE TO NIGER DELTA PROJECTS?

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RULE NO. 1 PPP’S are ONLY for VIABLE 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?

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RULE NO. 2 Allocate RISKS to the party best able to handle them

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?

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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?

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RELEVANT LEGAL AND REGULATORY FRAMEWORK FOR INFRASTRUCTURE AND PPP’S

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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.

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Question

WHO CAN CONTRACT IN PPP’S?

NO. 1

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

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.

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Question

WHO CAN CONTRACT IN PPP’S?

NO. 1 LOCAL GOVERNMENTS:

4 th 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?

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Question NO. 2 Exclusive

WHO CAN LEGISLATE? Concurrent

Residual

Federal Roads Maritime Aviation Mines & Minerals Railways Nuclear Energy Electric Power Industrial, Commercial & Agric Dev.

Education Urban planning Transportation State Roads Water Housing Health AYULI JEMIDE

Question NO. 3

WHO OWNS THE ASSETS? ROADS FOR EXAMPLE:

STATE GOVERNMENT 16% FEDERAL GOVERNMENT 17% LOCAL GOVERNMENT 67%

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TALKING POINTS ON INFRASTRUCTURE AND PPP’S IN NIGER DELTA

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Point

PIONEER’S BURDEN

NO. 1

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

Point NO. 2

BANKABILITY

THIS WOULD BE AN ISSUE: 1. Project Finance: Cash flow Lending 2. Infrastructure is not a briefcase project 3. Risk Analysis is high: Project risk, Operational risk, Economic risk, Endangered Asset.

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Point NO. 2

Some Options: Can we cross the Bankability hurdle? - 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).

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Point

RISKS

!!!

NO. 3

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.

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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

TWO USEFUL CASE STUDIES

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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

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 1/10 th of the current production cost • IN SUMMARY - NOT AN INVESTOR’S HAVEN FOR A POWER PROJECT AYULI JEMIDE

DEAL STRUCTURE

WORLD BANK IDA $1OM @ 0.75% Tajikistan GOVT On-lending @ 6% As Part Finance PAMIR ENERGY AKFED -70% ($8m Equity) Tajikistan GOVT 5.2% Margin $5m Grant from Swiss Govt +

POOL OF FUNDS

AYULI JEMIDE IFC – 30% ($3.5m Equity) ($4.5m Debt)

LESSONS

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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

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MORE LESSONS

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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

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IMPERATIVES FOR PPP PROJECTS IN THE NIGER DELTA

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1. Use Low Hanging Fruit

Pioneer with projects that: a) b) c) d) Require minimal Govt. involvement Are quick to achieve Generate employment and capacity building Are service oriented For example: Health care schemes or Education.

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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

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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.

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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

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CONCLUSION •

IT IS NOT ROCKET SCIENCE !!

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• THANK YOU FOR LISTENING

AYULI JEMIDE