The Future of Public Private Partnership

RECENTLY, news emerged that the Lekki-Epe Road Concession contract in Lagos has been terminated. The Lagos State Government not only refuted the announcement, but also announced a plan to buy over the tolling rights of the concessionaire. The Lekki-Epe Road Concession is a 30-year concession agreement between the Lagos State Government and a private company called LCC (Lekki Concession Company) in a Build Operate and Transfer (BOT) scheme. In the Public Private Partnership (PPP) framework, BOT is a model in which a single contract is awarded for the design, construction and operation of a capital project for a specified period. Ownership and control typically reverts back to the public after a specified period.
The contract, which was signed in 2006, has been mired in controversies, including allegation of corruption. Controversy and resistance are not uncommon features of public-private partnership. Globally, PPPs are always controversial. This is because they often operate as monopoly, a kind of market behaviour that often raises public concern. The only way to reduce the level of intensity of such controversy is by displaying high level of openness and transparency in all aspects of the project. Unfortunately, these are the key elements missing in the Lekki-Epe concession contract.
Between 2006 and 2008 when the project was conceived and signed, little attempt was made to address the concerns and complaints of critical stakeholders like the residents of the axis. At inception, there was controversy on the ownership of the company which was not adequately addressed. The fact that the company will be making profit from a public property makes it expedient that the issue of ownership be addressed expressly and clearly. The public deserves to know who and who is benefiting and whether the company actually made investment that justifies profit.
The politics surrounding the project further reinforced the ownership issue and the allegation of corruption. At the height of the tolling controversy in 2011, not a few felt that the distance completed relative to the total size of the road did not justify tolling. As it is, it is not very clear what the Lagos State government plans to do when it eventually takes control, but the buy-out plan being pursued by the government as shown in the recent supplementary budget passed by the Lagos State House of Assembly is a tacit admission of error on the project.
Beyond the Lekki-Epe road, what should be of concern is what this termination says of other public private partnership schemes. From 1999, PPP became a fad with all levels of government mouthing rhetoric of collaborating with private sector in almost everything. While some states have initiated PPP projects, only a few of them have established appropriate legal framework.
Though the Federal Government in 2005 passed the Infrastructure Concession Regulatory Commission Act (ICRC), one is however yet to see what ICRC has been doing since then. Lagos State even passed its own Act earlier in 2004, but the recent termination of the Lekki concession means the biggest example of a road PPP has failed. The fear that PPP project might not outlive the government that initiated it is real. There is a clear trend toward this across the federation. For example, the present administration in Ogun State cancelled all concession arrangements entered into by the previous administration. The much talked about Olokola Free Trade zone is at present experiencing hitches, all the major partnering oil companies having withdrawn.
In spite of several court judgments, the Federal Airport Authority of Nigeria (FAAN) terminated a PPP contract signed with a concessionaire, Maevis Nigeria Limited. In 2012, the Federal Government terminated the concession agreement between it and Bi-Courtney over the Lagos-Ibadan Expressway. There are many things that are wrong with the design of PPPs in Nigeria. Firstly, the term ‘partnership’ as used in the framework provides an indication of the nature of relationship that should exist between the public and private authorities. In most PPP projects in Nigeria, it is observable that public authorities are the leaders and dominant partners. They award contracts and could also cancel contracts.
The danger in this leader-follower relationship is that the balance of power tilts disproportionately toward the government in a way that makes it look more like any road construction contract. Because of the high level of political risks coupled with high level of funding often required, it is typical for private company to seek funding from many sources. This raises the costs of fund for private company. Despite this, the fear that government may renege on its part of the contract is always high.
Secondly, those designing PPP projects seem to lack the theoretical understanding that PPP arrangement is susceptible to principal-agent problem in which the principal (the government) has superior information to the agent (the company), thus rendering many of the PPPs as an incomplete contract. With the present plan by the Lagos State Government (LASG) to raise bond toward completing the road, the Lekki-Epe Expressway can no more be described as a real public private partnership. The many examples of failed PPP projects clearly suggest that the environment, political and economic, is not ripe for private sector cooperation and/or partnership in funding and maintaining public goods. Private sector participation in such areas as management contract for public facility and non-pure public goods might work. But, not in mode of privatising an intra-city road that has the rich at one end and the poor at the other end.
The drive for PPP is coming down simply because of the realisation that those in government are unwilling to make the required commitment. The governments are often unable and unwilling to provide the irrevocable guarantee that is required and it is obvious, many of the projects may not outlast a government. The example of Lekki-Epe concession shows that these problems were caused by the failure of government to be open with the process and inability to ensure project decisions are based on hard evidence.
Infrastructure is mostly seen as public goods to be provided by government. This belief creates a negative start for PPP projects. To make PPP successful requires a higher level of transparency and openness beyond what is now available. With the state of things with the project, it is reasonable to believe that the Lagos State government will eventually acquire the project completely. The ongoing buy-out is only a prelude. However, it is important that they do this quickly in order to control the damage, both in terms of politics and public finance.

Solution truly lies in policies that ensure transparency of the process. The problem with road PPP is not only about tolling, many private estates in Lagos charge toll within their estate. For PPP to be successful, there just has to be a broad consensus with the company being socially involved with the community beyond business. Building community support is critical; without it, any infrastructure PPP project is likely to end in failure.
• Sotola and Ayodele are with the Initiative for Public Policy Analysis, a public policy think-tank based in Lagos.