INVESTIGATION INTO THE OPTIMUM CONDITIONS FOR PUBLIC-PRIVATE PARTNERSHIP (PPP) IN VARIOUS INFRASTRUCTURE SECTORS IN NIGERIA
CHAPTER ONE INTRODUCTION 1.1 BACKGROUND TO THE STUDY
Throughout the world, governments are being faced with increasing demand to finance the rising expectation of their citizens (Ibrahim et al, 2007). Regardless of the economic resources at the disposal of a country, it is a social and political responsibility to provide basic services to the citizens. However owing to the limitation of capital resources, there has been increase in private sector involvement in the provision of public services through the formation of public private partnerships (PPPs) (Ibrahim et al, 2007).
PPP market has become popular for the delivery of public sector service around the world after nearly 2 decades of its introduction into the UK construction industries. Its position in the industry is well rooted and substantial in size. Yet structure, nature of competition and the market orientation are little known (Kyaw and Akintoye, 2009).
With the current estimated population of 141,568,000 and annual growth rate of about 3.2% (National Population Commission (NPC), 2010), Nigerian faces huge deficit of basic amenities and essential public infrastructure for the majority of the citizens (Oyedele, 2008). The government encourages the introduction of PPPs by involving the private sector in the provision of public infrastructure and services. Consequently, the application of PPP in Nigeria is becoming increasingly for both new project (such as road construction, market development, car park and estate development) and for the operation and management of old facilities (Ibrahim et al, 2006). Public services are provided by the private sector through the formation of PPP. These initiatives have taken many forms such as outright privatization of previously state-owned industries (Ibrahim et al, 2007). Others include Private finance initiatives (PFI), Build Operate and Transfer (BOT), Joint venture and concessions, Build Owned Operate Transfer (BOOT), Build operate train Transfer (BOTT), Build Transfer Operate (BTO) outsourcing etc (Jagafa, 2008). It’s generally recognized that a PPP program offers a long term, sustainable approach to improving social infrastructure, enhancing the value of public assets and making better use of tax-payers money. PPP also offers a rapid and effective way of offsetting immediate infrastructure need (Jagafa, 2008).
There is no straightforward definition of PPP. Many forms of public-private co operation exist and numerous definitions are available to describe PPPs. PPPs can be defined as co operation between public and private actors with a durable character in which actors develop mutual products and/or services and in which risk, costs, and benefit are shared (Mirjam and Dewulf, 2007). Akintoye (2006), defined PPP as “a contractual agreement of shared ownership between a public agency and private company, where they pool resources together and share risk and reward to create efficiency in the production and provision of public or private goods. Jagafa (2008) opines that, PPP entails a shift in the role of public sector from supplying to buying of services, with private firms designing, constructing, financing, operating and maintaining infrastructure, and the public sector paying for these services. Infrastructure according to Longman Dictionary (2007) is the basic needs and structure that a country or organization needs in order to work properly. For example, roads, railway, health care services, bank etc.
Optimum Conditions as defined by oxford Advanced Leaner Dictionary is the set of conditions producing the best result. Also according to Longman dictionary of contemporary English (2007), Optimum is the most suitable for a particular purpose or in a particular situation e.g. Optimum condition for growth etc. therefore the aim of this study was to investigate the optimum conditions for PPPs in various infrastructure sectors in Nigeria.
1.3 STATEMENT OF RESEARCH PROBLEM (including research questions)
Research has shown that the requirements for PPPs differ between infrastructure sectors and between countries/jurisdictions (Eaton et al, 2007). While some studies have been conducted on different countries, the requirements for each infrastructure sector are still not well known (Akintoye, 2006; Li et al 2005a, 2005b; Ibrahim et al 2006a, 2006b; Eaton et al, 2007).
According to Jagafa (2008), Abuja investment and property development company (AIPDC), the private sector arm of the federal capital development Authority (FCDA), is one of the leading promoters of PPPs in Nigeria. It is also undertaking PPP projects for various infrastructure sectors using the BOT method of delivery. Some of which have been revoked by government. With all these involvement in PPP, why such failed PPPs?, could it be that the projects were not planned well or properly assessed to check their viability or value for money or PPP most suitable conditions for various infrastructure sectors were not properly investigated before they were implemented?, investigating optimum conditions in various infrastructure sectors before they are implemented is one of the factors that are critical to the project’s success.
1.4 AIM AND OBJECTIVES
This research aims to investigate the optimum conditions for PPP in various infrastructure sectors in Nigeria. However, the objectives of the study are to determine the following for each infrastructure sector:
a). the attractive factors for adopting PPP instead of traditional procurement
b). Negative factors for adopting PPP arrangement
c). privileges/attractions for private sector involvement
d). the driving forces leading to the adoption of PPP
e). the measures that enhance the achievement of value for money in PPP
1.6 JUSTIFICATION FOR THE STUDY
many infrastructure projects that had been developed through PPPs, even in countries with relatively long history of PPP applications, have failed (Ibrahim et al, 2006) or did not even materialize (Birgounul and Oldogan, 1998) cited by (Ibrahim et al,2006). Therefore, given the multitude of stakeholders, the duration of a typical PPP project and the complexity of contractual agreement involved, it is imperative for both the public and private sectors to understand the optimum conditions of PPPs in various infrastructure sectors in Nigeria so as to maximize the attainment for achieving value for money throughout the whole life cycle of the projects
1.7 SCOPE AND LIMITATIONS
SCOPE:
One of the best ways of achieving value for money (VFM) in PPP is through understanding and applying the most suitable conditions of PPP during public services delivery in a particular sector of infrastructure. However, this research focuses on investigating optimum conditions for PPP in various infrastructure sectors in Nigeria. Therefore the scope of the study will limited to Housing and Offices, Hospital, School and education, Transportation, military and market building in FCT and Kaduna state. The scope also covers the following areas:
a). PPP agencies
b). construction firms
c). consultancy firms and
d). public sector ministries involved in PPP in federal capital territory (FCT) Abuja and Kaduna state.
LIMITATIONS:
The following were the limitations of the study encountered by the researcher which should affect the accuracy of the results:
a). 70% of the responses were from public sector and 30% were from private sector. Therefore the inequality of the percentages for responses may not convey the true levels of opinions between public and private sector.
b). Because of the PPP procurement system is still at the formative stage in this country, the number of the returned questionnaire were not as expected.
c). most of the experienced respondents in PPP approached by the researcher were reluctant when asked to fill the questionnaire
CONCLUSIONS AND RECOMMENDATIONS5.1 INTRODUCTIONThis chapter presents the key conclusion of this research. It also gives recommendations and proffered areas for further study so that future researchers and prospective PPP practitioners will take full advantage of the research work.Effective infrastructure such as energy, transport, communication, housing, school andeducation, hospital and water distribution etc, is crucial to a country`s productive capacity and growth prospects. Infrastructure has also been variously described as the building block to development or as the catalyst for development.Government all over the world are finding it more and more difficult to solely finance the construction and maintenance of needed physical infrastructure. In addition, the large and unwieldy nature of governance results in efficiencies when government tries to operate in a largely business environment. The Nigerian government today is going the way of the rest of the world by encouraging private sector initiatives in infrastructure development through the formation of public private partnerships (PPPs). This research investigated the optimum conditions for PPPs in various infrastructure sectors in Nigeria. Mean score values of response data from survey respondents has been used to rank the optimum conditions in the Nigerian PPP environment. 5.2 SUMMARY OF FINDINGSATTRACTIVE FACTORS; The analysis shows that, PPP accelerate project development emerged as the most attractive factor for adopting PPP instead of traditional procurement, while benefit to the local economic development is ranked as the second attractive factor in Housing and offices, Hospital and others respectively. In school and education, benefit to the local economic development ranked as the first attractive factor, while PPP accelerate project development is ranked as the second attractive factor. On the other hand, Technology transfer to local enterprise is ranked as the third attractive factor in School and education, Hospital and others. However, only in Housing and offices PPP provide an integrated solution is ranked as the third attractive factor for adopting PPP instead of traditional procurement.NEGATIVE FACTORS; from table 6 above, Lengthy delays because of political debate is ranked as the most negative factor for adopting PPP arrangements in school and education, Hospital and others. While high risk relying on private sector is ranked as the most negative factor in Housing and offices. On the other hand, high risk relying on private sector is ranked as the second negative factor in school and education, Hospital and others. While Lengthy delays because of political debate is ranked as the second negative factor in Housing and offices. Higher charge to the direct users is ranked as the third negative factor in Hospital and others, while in Housing and offices PPP reduce project accountability is ranked as the third negative factor and lastly, High project cost is ranked as the third negative factor in school and education.PRIVILEGES/ATTRACTIONS FOR PRIVATE SECTOR INVOLVEMENT IN PPP; Based on the above analysis, Government guarantee is ranked as the most privileges/attractions for private sector involvement in PPP in all of the above sectors. Incentive of new marked penetration is ranked as the second attractions in Hospital and others respectively. Government assistance in financing is ranked as the second attractions in school and education, while in housing and offices, Government sponsorship is ranked as the second attraction. The third most attraction of Private sector in housing and offices and school and education is incentive of new market penetration, while government assistance in financing is ranked as the third attraction in Hospital and others respectively.DRIVING FORCES LEADING TO THE ADOPTION OF PPP; The analysis shows that high quality of services required is ranked as the most driving force in all of the above sectors. Inefficiency because of public monopoly and lack of competition is ranked as the second driver in hospital and others, while in housing and offices, the second driving force is as a result of shortage of government funding and economic development pressure of demanding more facilities is ranked is ranked as the second driver in school and education. Inefficiency because of public monopoly and lack of competition is ranked as the third driver in housing and offices; social pressure of poor public facilities is ranked as third in school and education, while shortage of government funding is ranked as third driver in Hospital and others respectively.MEASURES THAT ENHANCE THE ACHIEVEMENT OF VALUE FOR MONEY IN PPP PROJECTS; Efficient risk allocation emerged as the most measure that enhances the achievement of value for money in PPP projects in all of the above sectors. Optimal use of asset and project efficiency is ranked as the second measure in school and education, Hospital and others, while private management skill is ranked as second in housing and offices. On the other hand, optimal use of asset and project efficiency is ranked as third measure in housing and offices, while in school and education is competitive tender and private sector technical innovation is ranked as third measure in Hospital and others respectively. 5.3 RECOMMENDATIONSResearch has shown a high positive correlation between availability of infrastructure and growth rates, development indices and income levels of most economies. Therefore this research has recommended the followings:a). given the amount of importance the respondents attached to high quality of service required by the citizens as well as PPP accelerate project development, it is therefore crucial for the Nigerian government to recognize PPP as a catalyst for developmentb). given the amount of importance the respondents attached to efficient Risk allocation and government guarantee, it is also crucial for the PPP participants to allocate the Risk to the person or sector that is best able to manage it and guarantee also should be maintained by the governmentc). based on the findings of this report, Lengthy delays because of political debate appeared to be the most negative factor for adopting PPP arrangements, therefore both public agency and private sector should device a means for eliminating politics in PPP infrastructure projects where possibled). since 100% of the survey response for hospital were from public sector and that of others were from private sector, therefore it is crucial to look for 50:50% responses for both sectors to effectively determine the attractive factors, negative factors, privileges/attraction of private sector involvement in PPP, driving forces and measures that enhance the achievement of value for money in PPP infrastructure projects.
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