The challenging state of Nigeria’s revenue vis-à-vis its public debt is no longer news. Hardly will a week pass without major headlines regarding this important topical issue. Some of us are of the opinion that having flogged the matter for so long, it is high time we moved the discussions away from the problem and begin to have more engagements on the solutions.
2020 was an unusual year, but in such unusualness is our vulnerability made more obvious. The total retained revenue of the Federal Government for the year was N3,937.34trillion, whereas its non-debt recurrent expenditure was N4.645.21trillion. Simply put, we did not even make enough money to meet our personnel costs and put on the lights in government buildings! Essentially, we borrowed to meet part of our non-debt recurrent expenditure, we borrowed to meet our debt obligations and we borrowed to finance our capital expenditure!
While the government struggled financially through that year, it is interesting to note that all the debt offers by the Debt Management Office (DMO) were grossly over-subscribed. Findings from the DMO website showed that while the borrower, the Federal Government, asked to borrow a total of N1.825trillion, investors threw a whooping N6.58trillion at it!
The foregoing contradiction is reflective of the disconnect between the dearth of funds on the side of government vis-à-vis the huge investor pool of funds looking for profitable opportunities on the side of the private sector. A critical part of the solution mix, therefore, is to court private capital directly in the delivery of infrastructure via various models of Public Private Partnership (PPP). With this, the government avoids piling up debts but instead mobilises private sector resources – financial, technical and management for the common good.
It is along this vein that the Highway Development and Management Initiative (HDMI) of the Federal Ministry of Works and Housing (FMWH),in collaboration with the Infrastructure Concession and Regulatory Commission (ICRC)appears to be a solution in due season for the development of the highway economy for a select 5.6percent of Nigeria’s Federal Highways.
Under the HDMI programme, 1,963.2km out of the 35,000km federal highway network and assets along these rights of way would be concessioned to eligible private sector vehicles to develop, operate and manage sustainably. The dedicated portal captioned the objectives of the HDMI succinctly thus: Bring order, accountability and profitable entrepreneurship to the operations, management and maintenance of Federal Highways; attract sustainable investment/funding to the development of highway infrastructure across the country; facilitate the development of assets and other highway furniture along the right of way and develop the economic potentials of viable road corridors.
To achieve the objectives, the programme has been structured along three components
– the “Value Added Concession” which is the concession of economically viable routes to private companies/consortiums with proven technical and financial capability to develop and manage the road pavement and entire right of way;
– the “Unbundled Asset Approval” which provides the opportunity for companies to be issued approvals/permits for individual revenue-generating assets along the highway right of way on a Build, Operate, and/or Maintain basis;
– and the “Vendor Market Place” under which interested companies can register and verify their businesses with the Federal Ministry of Works and Housing indicating the kind of services they can provide within the value-added concession, thus providing a pool of service providers for the concessionaires under the Value-Added Concession to partner with.
I got fascinated with the initiative in March when I joined a virtual launch of the Request for Qualification. I learnt during the session that there is a dedicated portal for the initiative and was pleasantly surprised when I visited it. I’m not aware that the government had ever made public the level of information about any of its projects as I saw with the HDMI portal. The vision was carefully laid out and a professionally prepared 93-page Information Memorandum detailing the specifics on each of the 12 roads under consideration in the first phase was published.
After the launch, the RFQ became available online. Interested bidders could check out the requirements, determine if they qualify, fill out the information required and submit online. I also noticed that they displayed the names of some partners including KPMG, UK-Nigeria Infrastructure Advisory Facility, Lagos Business School and CIPRA.
The detailed relevant information made available online, the access provided to bidders and the list of strategic partners involved with the project will set the tone for effectively managing two critical challenges in infrastructure concession in developing countries – Transparency and Credibility. These two factors have been known to derail several infrastructure concession programs in our part of the world, and it is important that the promoters of the HDMI keep their eyes on these two issues because they will be central to the success of the first and subsequent phases of the initiative.
However, while I commend the FMWH, ICRC and their strategic partners for the diligence, transparency and credibility put on the table thus far on the HDMI, I cannot but give my two cents on what could go wrong and how I think the initiative can be sustained through to disciplined execution and fulfilment of its objectives.
First, our problem has never been the dearth of laudable initiatives, but where things fall apart tend to be in the course of the execution. The foremost pitfall that the promoters of the HDMI must avoid is a push to rush the program which could compromise the thoroughness of the processes along the path. This is probably the single most important pitfall because compromising the process has the potential to erode the hard-earned credibility built thus far and make a mockery of the transparency.
These two elements are at the heart of the success of the initiative.
Secondly, proper validation of the technical and financial capabilities of the successful bidders is a sine qua non to assure that both the Preferred and Reserve bidders will be able to execute when and if the assets are concessioned to them.
Another issue that is usually of public concern is the fear that private operators under a PPP arrangement may charge an unaffordable toll to recover their investments and returns. This issue is so sensitive that the pushback from it has been known to kill some PPP initiatives, even as citizens continue to suffer the absence of the infrastructure that the PPP would have delivered. Gaining the trust and understanding of the public is achievable by robust stakeholder engagements and sustained transparency and credibility of the process.
While toll is one of the means of recovering investments by the private operator, the way the HDMI is structured presents several other income opportunities other than tolling. It is an entire highway economy with several services. Thus, the concessionaire in the HDMI should not have to put all its eggs in the basket of tolling. It can arrive at an affordable toll while supporting its income from other revenue streams within the highway economy – trailer parks, emergency services, mechanic villages, filling stations etc
We should also touch on the concession contracts. We live in a country where judgement debts involving government contracts became a profitable graft source. Contracts were drafted with clauses that disposed the government to default in its obligations and resort to judgement debt. It is of essence that the HDMI keeps faith with the same diligence with which it has gotten this far. With an unyielding focus on credibility and transparency, it would surmount this.
I will close with post-concession review and monitoring.
What we have seen with most of the concessions around is that once the contract is signed, the concessionaire becomes Lord and Master operating the asset as it so wishes, outside of the expectations detailed in the contract. For HDMI, the ICRC as the regulator and the FMWH must be deliberate about ensuring that parties to the contract each keep strictly to their sides of the agreement.
The above is not exhaustive, and the risk assessment framework for the initiative should be able to pick out these risks and provide robust mitigations to them. I am hoping, that in a few years’ time when the HDMI is reviewed, all the stakeholders would be happy it happened.
Government resources is overstretched, and there is no microwave solution to shoring it up. On the flip side, the private sector has access to money looking for investment opportunities. In the face of a huge infrastructure gap, it makes perfect sense to mobilize this private capital, efficiency, and other resources to bridge some of the gaps.
The HDMI has started on an excellent and strong note. If seen through with the level of credibility and transparency with which it was started, it might well be the key that would unlock the door of public trust and confidence in this model of delivering infrastructure. I wish the promoters great success at it.
Olojede, a Public Policy Analyst and Executive Director at DMA Associates writes from Lagos