NEGOTIATION OF CONCESSION AGREEMENTS IN NIGERIA (An introduction to key concepts in Public Private Partnerships)


Introduction

Nigeria is a fast-developing country and one in need of infrastructure. With a population of over 200 million people[1] and a total land mass of 910,770 (sq). Km (351,650 sq. miles)[2], the need for vital infrastructure such as motorable roads, a functional railway system and regular power supply cannot be downplayed.  Leveraging on the abundance of human and natural resources in the country for growth requires that the current infrastructure deficit in Nigeria must be addressed.

An infrastructural overhaul would be difficult to achieve solely at the government’s expense. With dwindling revenues from crude oil exports and a move towards a more private sector driven economy, there is a renewed interest in the private sector participation. This is usually achieved through specialized arrangements with the government, which will allow the government to deliver the minimum standard of services or facilities, with the private sector providing skills and core competencies, while donors and investors provide funding and other resources. These arrangements are what are known as Public Private Partnerships (PPPs).

The PPP is a system through which the skills and assets of the public and private sectors collaborate in delivering a service or infrastructure for public benefit through the allocation of risks and responsibilities between both public and private sectors.[3]

Advantages of Public Private Partnerships (PPPs)

There are numerous advantages for a PPP, which include:

  1. Speedy, efficient, and cost-effective delivery of projects.
  2. Optimal risk transfer and risk management.
  3. Upgrade of financing and operation in design, construction, and maintenance of public infrastructure.
  4. Alleviation of capacity constraints and bottlenecks in the system.
  5. Accountability in the delivery of public services.
  6. Innovation and diversity in the provision of public services.
  7. Effective utilization of state assets to the benefit of all users of members of the public.

Objectives of Public Private Partnerships

For private sector participants, the objectives of PPPs will usually be to:

  1. Provide a public service in an efficient reasonably priced manner.
  2. Make a Return on Investment in the course of the business.
  3. Keep the asset maintained and eventually return it to the government at the expiry of the agreed concession period.

For the public sector, the objectives of PPP would be to:

  1. Effectively deliver public goods without utilizing scarce government resources.
  2. Ensure that the private sector participant operates within the scope and framework of the project.
  3. Reclaim ownership of the asset at the expiry of the agreed concession period.

These objectives may be attained through the wide range of PPP models that are permitted within the ambit of the laws in Nigeria, and one of such is concessions.

Relevant Legislation governing PPPs.

The following are some of the relevant laws regulating the operation of PPPs in Nigeria:

  1. a.    Infrastructure Concession Regulatory Commission (ICRC) 2005 Act No. 18

This is the major legislation which regulates the PPP regime in Nigeria especially in relation to infrastructure projects in Nigeria. The act details the PPP process from the initiation of the idea by the Government Ministry, Department or Agency (MDA) through the award process to the final execution of the PPP arrangement. The Act also creates the ICRC which is the agency which monitors compliance with Act as well as ensuring the efficient execution of any concession agreement entered into by the government.

  • Public Procurement Act, 2007 Act No. 14

This legislation regulates the bidding process of the PPP process which in turn is overseen by the Bureau of Public Procurement (BPP) created by the Act. The BPP issues a “Certificate of No Objection” which evidences that the bidding process was open, transparent and compliant with regulations and guidelines as prescribed by the BPP.  

  • Fiscal Responsibility Act, 2007 Act No. 31

This act ensures prudent management of Nigeria’s resources by the Federal Government’s MDAs . With respect to the PPP process in Nigeria, the Act ensures that the Federal Ministry of Finance (FMoF) evaluates and manages fiscal risks that may result from the terms of the concession agreements on the part of the government.

Other pieces of legislation which may govern PPPs include the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act Cap. F34, LFN 2004 which regulates the foreign exchange (Forex) market in Nigeria; Nigerian Investment Promotion Commission Act Cap.N117, LFN 2004 which regulates registering foreign investment in Nigeria as well as the incentives accruable to such foreign investment  and the National Office for Technology Acquisition and Promotion Act Cap. N62, LFN 2004. which sets up the National Office for Technology Acquisition and Promotion (NOTAP) that regulates and monitors on a continuous basis the transfer of foreign technology to Nigeria.

PPPs may be applied to a wide range of sectors such as airport construction, roads, ports, railways and bridges. Because of this, some sector-specific enactments would also govern such PPPs. For example, a Concession for the construction or rehabilitation of roads in Nigeria would be further governed by the Federal Highways Act[4] and the Federal Roads Maintenance Agency Act, 2002.[5] Likewise a Concession for water transportation would be governed by the National Inland Waterways Authority Act.[6]

In addition, as Nigeria is a federalism with the federal and state governments having the ability to regulate themselves on matters within their concurrent jurisdiction, some Nigerian states have enacted laws modeled after the ICRC Act as state laws that govern PPPs operating within such states. Examples of such states include Lagos State which enacted the Public Private Partnership Law 2011 of Lagos State and Ogun State which enacted the Public Private Partnership Law of 2019.

Operation of Concessions in Nigeria

The enabling law for the operation of federal government concessions in Nigeria is the Infrastructure Concession Regulatory Commission (ICRC) (Establishment, etc) Act 2005, which provides that;

“…any Federal Government 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 pre-qualified project proponent in the private sector for the financing, construction, operation or maintenance of any infrastructure that is financially viable or any development facility of the Federal Government in accordance with the provisions of this Act.[7]

Thus, the federal government may enter into a concession in respect of financing, construction, operation or maintenance of any infrastructure or facility

As most of the states with PPP laws modeled their laws after the ICRC Act, most of the matters discussed in this Article would also be relevant to state PPPs and references to “Nigeria”, “government”, “MDA” etc. should be read as applying to PPPs with the federal or state government in Nigeria.

A concession according to Section 36 of the ICRC Act means the contractual arrangement whereby the project proponent or contractor undertakes the construction including financing of any infrastructure, facility and the operation and maintenance thereof and shall include the supply of any equipment and machinery for any infrastructure and the provision of any services.

Awards

Under extant Nigerian laws, PPP concessions are, in most instances awarded through auction or tendering of bids. Section 4 of the ICRC Act stipulates that the bidding process should be through a competitive public bidding.  After it has been decided by the FEC that a particular project should be embarked upon using the PPP model, the MDA must invite prospective concessionaires to a competitive public bid process through advertising such invitation in three national daily newspapers[8]. The concession award is usually awarded to the bidder who, having satisfied the prequalification criteria, submits the most technically and economically comprehensive bid[9].  However, if only one contractor submits a bid or pre-qualifies for a bid, direct negotiation as opposed to competitive bidding would be utilised by the MDA.

Due to the fact that it is a public procurement, the BPP must issue a “Certificate of No Objection” to evidence that the bidding process was fair, transparent and in line with the guidelines as set out by BPP[10].

Conclusion

PPP arrangements have been utilised by many countries around the globe including Nigeria to deliver public services such as seaports, airports, roads, waterways and even digital platforms used by government agencies.

Concession agreements are varied in form deepening on the needs of the grantor, for example, the Concessionaire may be required to design the infrastructure, build and operate it for profit and then transfer ownership back to the grantor after the end of the concession period (i.e Design, Build, Own and Transfer – DBOT) whilst some specify that the concessionaire just build (or rehabilitate), operate and transfer the infrastructure (Build Operate Transfer- BOT) leaving the design phase to the pubic authority grantor.

Nevertheless, despite the variety of PPP arrangements available, there are key central features common to most if not all concession agreements. This would be discussed in the next volume of this series.

Written by Olayemi Anyanechi and Pelumi Ladenegan

The information and opinions in this publication are provided for general information only. They are not intended to constitute legal or other professional advice. If you would like additional information, please contact the author at [email protected]

© All Rights Reserved. Sefton Fross is a leading full-service law firm in Nigeria internationally recognised for its expertise in corporate, commercial and mergers and acquisitions.


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