Increasing the Share of PPPs

An opportunity also exists for Nigeria to employ PPPs to finance its public infrastructure spend requirements:  in recent decades, this has been a common (though not ubiquitous) approach taken by governments in developing nations. When comparing to other developing markets, a potential USD 15-25 billion could be financed through PPPs over the next 5 years.

Governments typically consider PPPs to deliver one or more fundamental benefits that generate significant value for money. These benefits may include:

■       Increased efficiency, as the private sector has a financial interest in delivering on time and on budget, while competition between bidders can drive down price;

■       Appropriate risk allocation, by shifting selected risks to the private sector (e.g., construction risk, operational risk, technology risk);

■       Public sector reform, by breaking up systems and allocating parts to the best owners while refocusing the public sector on its core mission;

■       Unlocking new sources of financing through injection of private capital, thus making projects affordable where borrowing is limited.

However, not all projects are suited to PPPs. PPPs are generally unsuited to projects where there are specific public sector policy requirements, where there are no cash flows or risks are too high, or where the public cost of capital appears lower than the private cost. Not taking such factors into account can have negative repercussions, for example, on London’s Metronet underground rail project.  The private sector firm, Metronet, ended up spending USD 4 billion more than what was projected.

Many countries (e.g., the U.K., South Korea, Australia, Portugal and South Africa) have set up PPP units as a mechanism to accelerate adoption and improve the effectiveness of PPPs. However, as the limited success of Nigeria’s ICRC demonstrates, establishing a PPP unit alone is not enough. The government must also establish enablers for private sector involvement in order for the unit to be fully effective.