It has been estimated that Lagos State will require a conservative sum of about $50 billion in five years to bridge the infrastructure gap in the state. Critical areas identified include Roads and drainages ($20bn), Power ($10bn), Intermodal Transportation ($9.3bn), Information and Communication Technology (ICT) ($5bn), Provision of Portable water ($3bn) and Environment (N2.7bn).
Whereas, the State budget for year 2020 is N1.168Tn ($3.2bn). As ambitious as this may, it will take the State about 18 years to realise the goals in the aforementioned sectors if it is able to realise the proposed budget estimate, for the period.
It is however surprising, that despite the huge infrastructural gap in Lagos State, Nigeria and Africa at large, and the demand for infrastructure by service users, the participation of the private sector in infrastructure development has not been encouraging. This definitely is not as a result of of low demand for infrastructure, or affordability by service users. The ability and willingness of Lagosians and Nigerian at large to pay for quality services has been demonstrated with the rapid growth of the telecommunications sector. Also, Nigerians including Lagosians have embraced private alternative to electricity by providing individual generators and private alternative to pipe-borne water by digging private bore holes, which invariably cost more than the services provided by government. The Eti-Osa Lekki Epe Toll Road, as well as the Lekki-Ikoyi Link Bridge, has also demonstrated and proven the ability and willingness of the public to pay for quality services.
What in my view has therefore been responsible for low private sector investment in infrastructure in the state and the country at large, is the inability of the public sector to mobilise private sector resources and expertise for infrastructure development. What transform PPP projects from a mere concept on government’s wish list to a viable and bankable project is the ability of government to provide adequate information and data on pipeline projects, to enable prospective private investors take informed decisions.
Consequently, there is the need for Lagos State to take the lead, by establishing an Infrastructure Development Fund to support prospective investors, with risk capital, to conduct feasibility studies and all the required due diligence that will guide against likely pitfall and provide an outline business case that will make pipeline projects bankable.
Typically, the cost of project preparation is put at between 2-3% of the total cost of project, for projects costing more than $100 Million. As such investors are likely to take more interest in a project with an outline business case than one where they have little information and will have to utilise their limited resources in conducting due diligence on a project they are not sure is viable.
Similarly, it is not likely for the public sector to have all the required expertise or experience across all sectors. For instance Lagos State has never operated any rail system, airport or sea port but presently has pipeline projects in this sectors and may require legal, technical, financial and environmental expertise, amongst others, which may not be available in-house. PPP model is also an emerging financial framework in Nigeria, as such, the public sector will still require a lot of hand-holding until it becomes entrenched. In this way, the public sector will not only benefit from seeds fund to conduct viability studies, but also benefit from the human resources and expertise of the private sector.
With this, beside prospective investors, government can also access the funds to engage project advisers to conduct feasibility/viability studies in government’s areas of interest and engender the development of project-specific procurement. The advisers will thus assists government in carrying out the technical, legal, financial and environmental due diligence where necessary, before proceeding to the funding market. While advisers would be engaged where there are identified skill gaps, the objective and leadership of the project still remains with government.
Government can put a seed money into the funds with support from organised private sector and donors. The board of trustees can the drawn from financial institutions, Nigeria Infrastructure Advisory Facility(NIAF), Public-Private Infrastructure Advisory facility (PPIAF) managed by the World Bank, representatives from other developmental partners, as well as representative from the public sector. When an organisation that draws from the funds eventually commences the project, the drawn fund is ploughed back, to enable others benefit.
If government develops most of its projects before taking it to the market, it will reduce the chances of project failure and also discourage unsolicited proposals. However, in cases where, unsolicited proposals are found to fit into the strategic plan of government and also offers innovative ideas, such proposal may be subjected to an open competitive bid, to engender transparency, competitiveness and ensure government get value for money. In this case, the original proponent may be given the privilege to have the right to match a better offer. However, in the event that the original proponent does not emerge as the preferred bidder, the Infrastructure Fund, comes as a ready source to compensate the originator of the proposal, as the cost of project development, while the preferred bidder refunds the infrastructure fund for the project development expenses earlier paid to project originator.
It is also noteworthy to mention that the due diligence that would have been carried out by the Board of Trustees in examining project’s long term risk and suitability, would promote the efficient use of resources. In the same vein, it will ensure that the private sector is better engaged by government, while embarking on infrastructural projects.
Either government or the private sector can take leadership on this initiative. What is important is that both parties work together for the collective good of the public and at the end of the day, it is a win-win for both government and the private sector.
Dina, an administrator and a PPP communications expert, is the author of the book Evolving Competitive Public Service in Nigeria.