1.1 Background
It is widely acknowledged that Nigeria’s infrastructure is in a state of decay.1 The abysmal state of affairs is a consequence of years of inefficient maintenance of existing infrastructure and the State’s declining financial capacity to fund new projects. Virtually all aspects of the country’s infrastructure are poor; about 70% of the country’s 193,000km of roads is in very bad shape, 60% of the population lack any electric power supply, and the railway system is moribund.2 While several Government agencies acknowledge the depth of the infrastructure problems facing the country, they have come up with differing statistics of the level of investment required to resolve the country’s infrastructure deficit. For instance, while the Governor of the Central Bank of Nigeria, Sanusi Lamido, claims that the country requires at least USD 10billion
1 For instance see the following reports: Fund for Peace (2012) ‘Failed States Index 2012’ (online) Available at: http://www.fundforpeace.org/global/?q=node/242 (Last accessed October 1, 2012); another report claims that Nigeria’s infrastructure is poor even by African regional standards. See World Economic Forum ‘Report of the Global competitiveness index for 2012/2013’ (online) Available at: http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-13.pdf (Last accessed October 1, 2012). See also Akinwale A.A. (2010) ‘The Menace of Inadequate Infrastructure in Nigeria’, (2010) Vol. 2 No.3 African Journal of Science, Technology, Innovation and Development, pg. 207
2 Sanusi, L. ‘Nigeria Needs $100b for infrastructure, says Sanusi’ The Guardian Newspaper, Thursday July 19, 2012 pg. 1. See also Infrastructure Concession Regulatory Commission (2012) Available at: http://www.icrc.gov.ng/wp-content/uploads/2012/04/ICRC-Presentation-to-CP3N.pdf (Last accessed on October 1, 2012)
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yearly for the next 10 years to check the deteriorating state of the country’s infrastructure,3 the Minister of Finance, Dr. Ngozi Okonjo- Iweala opines that the country requires about USD 67billion to fix its infrastructure in the next 4 years.4
Amidst the conflicting statistics on the volume of finance required to save the country’s infrastructure from complete collapse, it is apparent that Nigeria requires a lot more money than it can afford to remedy its infrastructure deficit. The National Policy on Public Private Partnership (PPP) clearly attests to this in its introduction thus:
Global demand for basic infrastructure services has grown over the years, quickly outstripping the supply capacity of existing assets. Many years of underinvestment and poor maintenance have left Nigeria with a significant infrastructure deficit, which is holding the country’s development and economic growth. Nigeria needs to make massive investments, beyond the means available to government, in order to close its yawning infrastructure gap. The Federal Government (‘the Government’) believes that the private sector can play an important role in providing some of this new investment through public-private partnerships (PPPs).5
3 Sanusi, L. Guardian Newspaper, Thursday July 19, 2012 ibid
4 The Nation Newspaper, November 15, 2011 pg. 5
5 ICRC, (2008) National Policy on Public Private Partnership, ICRC Abuja, pg. 1
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Therefore, due to the paucity of funds and the failure of public authorities and institutions to provide even the basic public services, Nigeria, like most countries in the world has turned to Public Private Partnerships (PPPs) to finance, develop and improve its infrastructure. This shift in government policy, from the erstwhile policy of exclusive public finance of infrastructure projects, coincided with the unveiling of the country’s Vision 2020 policy.6 In order to facilitate the PPP process, the Infrastructure Concession Regulatory Commission Act (ICRCA)7 that created the Infrastructure Concession Regulatory Commission (ICRC)8 to manage PPP transactions at the federal level9 was enacted in 2005. Since then, a few transactions have been consummated using the PPP model in different sectors of the Nigerian economy. Most of the large transactions done so far are in the transport sector including the ports, aviation and road sectors.10
It is important to point out also that prior to the enactment of the ICRCA and consequential creation of the ICRC, Nigeria had pursued an ambitious privatisation programme under which a number of transactions including concessions were completed through the Bureau of Public Enterprises (BPE) under the Public Enterprises (Privatisation and
6 Nigeria’s Vision 2020 Policy is predicated on the fact that Nigeria intends to be the ranked amongst the 20th biggest economy in the world by the 2020
7 Infrastructure Concession Regulatory Commission Act 2005
8 S. 14 (1) of the ICRCA 2005
9 Some of the 36 states of the federation have also enacted enabling legislations. For example, Lagos, Rivers, Cross Rivers, Ekiti and Niger states are some of the examples.
10 Some other projects in the electric power and real estate sectors are ongoing but none of them have reached operational phase.
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Commercialisation) Act (Privatisation Act). 11 That notwithstanding, the government’s decision to formally pursue PPP as a policy was initially greeted with a lot of optimism from the citizens who started to anticipate the availability of basic infrastructure including electricity, portable water and good roads. Multilateral financial institutions and other development agencies showed support for the nascent PPP programme as they provided technical capacity and financial support.12
However, the few transactions that have been concluded to date have been fraught with a number of serious issues threatening to scupper the projects and the country’s PPP aspirations. While public sector authorities have unilaterally breached contractual obligations, there is a plethora of court cases between concessionaires and the public authorities on one hand and between the sector workers’ unions and the private sector concessionaires on the other.13 Consequently, doubts are beginning to emerge regarding Nigeria’s adoption of the PPP model to provide infrastructure development that has eluded the country, particularly as
11 Public Enterprises (Privatisation and Commercialisation) Act No.28 of 1999.
12 For instance the World Bank recently provided a USD 200 million loan to the country as a seed fund to set up a financial intermediary loan scheme for PPPs.
13 Some of the major cases which are all reported in This Day Newspaper, Wednesday, October 31, 2012 are Bi-Courtney Limited v. Attorney General of the Federation (unreported) Suit No. FHC/ABJ/CS/50/2009; Ojemaie Investments Limited (claiming as Landlords to Arik Air) v. Bi-Courtney Limited (unreported) Suit No. CA/A/141/M/2009; Safiyanu Dauda Mohammed and National Union of Air Transport Services, Air Transport Services Senior Staff Association of Nigeria (ATSSAN) v. Bi- Courtney Limited (This was an action filed by the workers union) (unreported) Suit No. CA/A/141/M/09; Arik Air v Bi-Courtney Limited; The Federal Airport Authority of Nigeria v. Bi-Courtney Limited & Anor. (2011) LPELR 19742 (CA) pg.1-57; Suit No: CA/A/239/M/2010 and Attorney General of the Federation v. Bi-Courtney Limited reported in This Day Newspaper, Wednesday, October 31, 2012.
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the risk of collapse of some of these projects is high. 14 Confidence in PPP among its stakeholders including the citizenry, private sector and even some segments of the public sector is declining.15 The thesis aims to determine why the delivery and operation of PPP projects are beset with problems that may scuttle the socio-economic development benefits that they bear for the country and its citizens.
The central proposition of the thesis is that the flawed risk allocation and management process in Nigeria’s PPP transactions is the major contributory factor to the stress in the developing PPP system leading to delay in project completion and operations. Nonetheless, there are several other factors that have contributed to the growing inefficiency in the delivery of infrastructure development via PPP including deficiency in the legal framework regulating PPPs and the lack of proper project governance. These factors, as the thesis will discuss in subsequent chapters, arguably arise from the lack of proper risk allocation. The thesis argues that if majority of these project risks are properly managed i.e. identified, allocated and mitigated, most of the problems facing PPP projects in Nigeria will be ameliorated and result in more successful projects.
14 See the Editorial of This Day Newspaper, November 20, 2012, Pg. 15
15 See for example the report in Tell Magazine, June 26, 2012 pg. 4
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It is evident from the history of PPPs in Nigeria and even its percusor privatisation programme that the issues of risk transfer, balancing and mitigation have never been properly handled. There has always been a tendency to dump all the project risks on the private sector partner without properly evaluating whether it is capable of managing them adequately. Where the comparative advantage of parties to handle risks is not properly analysed, the allocation of risk is unbalanced and the tendency for the project to run into difficulties and/or fail increases. Yet, the practice of dumping risks on the private sector appears to be favoured by the Nigerian government, as its primary concern is to raise money off government balance sheet.16 Considering the other benefits that arise from implementing PPPs over traditional public procurement seem to be secondary.17
The thesis posits that the predisposition to shift all the risks to the private sector has led to the increase in the use of secondary risk mitigating techniques by the private sector. These techniques including “non-compete clauses”, “guarantee clauses”, “equilibrium clauses” and “stabilization clauses” amongst others are not sustainable in the long
16 See for instance. Egboh, E.A. and Chukwuemeka, E. ‘Public-Private Partnership in Nigeria: The Challenges of Human Resource Management’ (2012) Vol.1 No. 5 Kuwait Chapter of Arabian Journal of Business and Management Review, pg. 19. Note, that using PPPs solely to raise money off government balance sheet is now very difficult as it is subject to very stringent accounting regulations in several jurisdictions especially the EU as it can obscure the level of government contingent liabilities. See for example Hemming, R. (2006)‘ Public Private Partnerships, Government Guarantees and Fiscal Risk’, International Monetary Fund pp. 24-25
17 PPPs have other benefits, including providing better value for money and reduction of government debts. It also contributes to more efficiently run infrastructure services and is a better option than nationalization or privatization, particularly from a political perspective.
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term. The use of these clauses contributes to deny citizens access to the infrastructure services and stifle economic and infrastructure development in the long run. For instance, non-compete clauses could bar the government from building additional competing infrastructure close to the one built by the private sector partner irrespective of inadequacies that may arise. The likely consequence of this is that government ultimately breaches its contractual obligations following its likely inability to absorb the socio-economic consequences of contracts that include such secondary risk mitigating techniques.
Another theory that this thesis explores is that a major setback for PPPs in Nigeria is the problem of political risk. This problem is exacerbated by the inadequacy of the regulatory framework for PPPs. It is inevitable that Nigeria, being a developing country without a well-established capital market to draw funds from, will have to rely on foreign direct investments (FDI) to realise its aspirations to develop its infrastructure.18 Consequently, foreign investors (and even local entrepreneurs) will be wary of tying down their capital for 25-30years without sufficient guarantees that they would derive profitable economic benefits on their investments in the long run. Also, it does not help that the risks of doing business in an environment like Nigeria, where there are various uncertainties mainly stemming from political instability, are higher than developed economies.
18 One of the critical success factors for PPPs is a viable capital market
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Simply, prospective investors in Nigeria’s PPP industry will like to be assured of a predictable, enabling and well-defined legislative and regulatory environment to convince them that their investment is safe. Currently, Nigeria lacks this sort of legislative and regulatory framework and this has increased the perception of the likelihood of a number of political risk factors eventuating.19 For this reason, the country has not been able to attract the calibre of investors needed to develop the much required public infrastructure in the country. Where it has been able to attract any form of investment whether locally or internationally, the ensuing transactions have suffered enormous setbacks as a result of the occurrence of some of these political risk issues that will be critically examined in subsequent chapters.
Another theme that this thesis explores is the governance regime for PPPs in Nigeria. It is evident from some of the PPP issues that have been concluded so far, that governance issues that arise during the negotiation process adversely affect PPPs in Nigeria. The thesis will engage specifically with public participation deficit; that is the lack of genuine processes to actively integrate stakeholders’ participation in the PPP process beginning with project preparation and ending with project execution. It argues that inadequate public participation in PPP projects in Nigeria is a major setback that has contributed to the project delays and failure. The Lekki Toll Road Concession is an example where the
19 There is a correlation between the availability of appropriate regulatory framework and the abatement of political risk
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project was delayed and could be considered a “failure” as a result of inadequate public participation. Notably, the Lagos State government initially had to suspend the implementation of the project and pay shadow tolls, thereby hurting its credibility and incurring unbudgeted expenses.20
On the whole, this thesis provides an opportunity to critically analyse these various problems that bedevil the effective implementation of PPP projects in Nigeria through the prism of risk analysis. Better risk management is therefore the common solution that resolves all these different issues that are dealt with in this thesis. As noted previously, the thesis’ central hypothesis is that if project risks are properly identified, evaluated, allocated and mitigated, PPP projects (especially in Nigeria) will be better delivered and less problematic. The thesis relies on the framework of risks that affect projects in conducting this analysis because it provides the opportunity to analyse issues like project governance and the legal framework for PPPs in Nigeria.
This thesis will be valuable in creating more successful projects for the benefit of both the private sector partners and most importantly the citizens and ultimate end users of the PPP services. Also, it is expected that this thesis will lay the foundation for the enactment of a robust legal and institutional framework and by extension, the enthronement of an effective regulatory environment. This will create certainty, encourage
20 This is discussed in detail in Chapter 7 of this thesis.
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and incentivise the inflow of private sector led finance into the country and balance the need to create opportunity for private sector investment with the protection of public interests.
1.2 Research Aim and Objectives
Extant literature has covered issues regarding the merits and demerits of private sector involvement in the provision of infrastructure and public services in Nigeria. These literature have centred mostly on the possibility of the private sector bridging the financing gap arising from the inability of government to provide all of the required funds21 and risk perception amongst different stakeholders in participating in PPPs.22 However, there has not been a single analysis of the issues or problems that have arisen from the decision of the government to embrace the PPP model in the provision of these public services. This thesis aims to fill this gap in literature by highlighting the issues of risk allocation, which it argues is a fundamental impediment to the smooth completion of PPP projects in Nigeria. It engages in empirical analyses of three major projects that have been implemented thus far to highlight and provide deeper understanding regarding issues that impeded them and how they could be efficiently resolved and avoided in subsequent transactions.
21 See for example Sanusi, L. (2012) ‘The Role of Development Financial Institutions in Infrastructure Development: What Nigeria can Learn from BNDES and the Indian Infrastructure Finance Company’ Keynote Address at the 3rd ICRC Stakeholders Forum, 18th July 2012
22 See for example Ibrahim, A.D. et Al., ‘The Analysis and Allocation of Risks in Public-Private Partnerships in Infrastructure Projects in Nigeria’ (2006) Vol. 11 No. 3 Journal of Financial Management of Property and Construction, pg. 149.
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This research therefore seeks first to distil the critical success factors for PPPs by examining the reasons why some projects have succeeded in different countries around the world. This part of the thesis also provides evidence that one of the principal benefits to be derived from PPPs is the transfer of risk associated with the operation of the project to the private sectors23 and that lack of proper risk allocation can lead to the failure of PPP projects and contractual disputes.24 It should be noted that risk transfer in PPPs is not simply the transfer of risk to the private sector; such transfer of risk must be done in a way to ensure that value for money is attained.25 Secondly, the thesis aims to assess how risks have been managed in PPP transactions around the world to determine international best practices for risk management with the objective of replicating them in Nigeria where peculiar local conditions permit. The third broad objective of the thesis is to determine how risks have been managed so far in PPP projects in Nigeria. Finally, the thesis aims to determine how best to ensure the success of PPP projects in Nigeria by comparing the results of the case studies with the distilled international best practices to identify the gaps in practice and proffer better ways of handling risks in future PPPs projects.
In summary therefore, the objectives of this thesis are therefore to:
23 See for example Tahir, M.N. ‘Risk Management in Public Private Partnership Contracts’, (2007) 7 Public Organization Review 1.
24 Andersen, A. (2000) ‘Value for Money Drivers in Private Finance Initiative’, London: Arthur Andersen and Enterprise LSE; Ibrahim, A.D. et al., (2006) Supra Note 22; Megens, P. ‘Construction Risk and Project Finance- risk allocation as viewed by contractors and financiers’ 1997) Vol. 14, No. 1 The International Construction Law Review, pg. 5
25 Tahir M. N. Supra Note 23
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1. Determine the most critical requirement for successful PPP projects.
2. Discover the perception and the actual practice of risk allocation around the world.
3. Investigate and analyse risk allocation schemes in Nigeria and how they affect PPP projects in the country.
4. Suggest better ways, based on international best practices and local conditions, on how to manage risks in PPP in Nigeria.
1.3 Research Methodology
This subparagraph discusses the methodology that the research employs to test the hypothesis and answer the research questions.
1.3.1 Introduction
The hypothesis or central argument of this thesis as stated earlier is that: the lack of proper management of risks is the fundamental reason behind failures of PPP projects in Nigeria. In other words, the quality and sustainability of PPP projects in Nigeria will be enhanced if risks are better identified, evaluated, allocated and mitigated. To test this hypothesis, three research questions were designed:
1. Do improved risk identification, evaluation, allocation and mitigation lead to better PPP projects?
2. How have risks been managed so far in PPP projects in Nigeria?
3. How can project risks be better handled to enhance PPP projects in Nigeria?
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In order to answer the first research question, a literature review of the theoretical framework for successful PPP projects was initially carried out. The objective of this study, based on an appraisal of extant literature, was to determine the critical success factors for PPPs. The review revealed that proper risk allocation is the most critical factor for successful PPPs all around the world. This finding was further validated by an analysis of how risks have been managed in practice. To achieve this, a review of a number of empirical studies including case studies that were conducted around the world to test risk perception, allocation and mitigation processes was done and this further validated the results obtained from the theoretical analysis. This in effect answered the first research question in the affirmative.
To answer the second research question regarding risk management in PPP projects in Nigeria so far, a qualitative case study approach was adopted. Three case studies involving the ports reform, the MMA2 airport terminal and the Lekki toll road concession projects were used to highlight the risk management practices in Nigeria. The results obtained from the case studies were analysed and compared with the best practices deduced from the literature review carried out in phase one. This enabled the thesis proffer better and more sustainable ways of handling PPP risks in Nigeria in line with international best practices, effectively answering the second and third research questions.
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The methodology adopted in this research is a socio-legal studies approach. In essence, an interdisciplinary approach to analysing law, legal phenomena, and relationships between these and wider society. As indicated by the British Library, both theoretical and empirical work is included in this approach, and perspectives and methodologies are drawn from the humanities as well as the social sciences.26 A socio-legal study of law, also known as the study of law and the social sciences,27 is the study of law and legal institutions from the perspective of the social sciences (viz all social sciences, not only sociology).28 It studies the realities of law in action, the social effects of law and the relationship of law to wider questions of social structure29 and locates legal practices within the context of other social practices that constitutes its immediate environment.30
There is a strong tendency to confuse socio-legal studies with the discipline of the sociology of law.31 It should not be confused with legal sociology of most Western European countries or the law of society scholarship in the United States of America, which encourage much
26 British Library (online) at: <http://www.bl.uk/reshelp/findhelpsubject/busmanlaw/legalstudies/soclegal/sociolegal.html >(last accessed October 6, 2012)
27 Tamanaha, B.Z. (1997) Realistic Socio-legal Theory: Pragmatism and a Social Theory of Law, Clarendon Press, Oxford
28 Harris, D. R. ‘The development of socio-legal studies in the United Kingdom’ (1983)3(3) Legal Studies, pg. 315
29 Ibid
30 Lacey, N. ‘Normative Reconstruction in Socio-Legal Theory (1996) 5 Socio Legal Studies, pg. 131 online at: http://www.uk.sagepub.com/cross/files/Chapter10-Article2.pdf (last accessed October 6, 2012)
31 Lacey, N. ibid
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stronger disciplinary ties with social sciences. Lawyers and not social scientists are the main actors in the field of socio-legal research.32 In comparing socio-legal studies with sociology of law, it is imperative to point out that the sociology of law receives the bulk of its intellectual impetus from mainstream sociology and aims to transcend the lawyer’s focus on legal rules and legal doctrine by remaining exogenous to the extant legal system in order to construct a theoretical understanding of that legal system in terms of its wider social structures.33 Socio-legal study on the other hand, often employs sociology (and other social sciences) not much for substantive analysis but as a tool for data collection.34 In fact, when socio-legal scholars use social theory for the purpose of analysis, they often tend not to address the concerns of sociology or other social sciences but those of law and legal studies.35
Socio-legal studies as a methodological approach may be seen to occupy the middle ground between two extremes of a methodological spectrum in the study of law. At one end, we have a strict doctrinal approach, which relies primarily on self-informed analysis of legislation and judicial decisions from the superior courts. At the other end, we have approaches such as critical legal studies and economic analysis of law.36
32 Banakar, R. and Travers, M. (eds.) (2005) Theory and Method in Socio-Legal Research, Hart Publishing, Oxford
33 ibid; See also Campbell, C.M. and Wiles, P. ‘The Study of Law in Society in Britain’ (1976)10 Law and Society Review, pg. 547
34 Banaker, R. and Travers, M. Supra Note 32
35 Ibid
36 Ibid
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Socio-legal studies observe operational and everyday legal situations, and diverse textual sources, disciplinary and cultural perspectives. It is a complete package that looks at law from an interdisciplinary perspective.37 Wheeler and Thomas see socio- legal studies as an interdisciplinary alternative to the doctrinal study of law. For them the “socio” in socio-legal studies does not refer to sociology or social sciences but represents an interface with a context within which law exists.38
This methodological approach is suitable for this work because of the multidisciplinary character of the topic. While admitting that PPP process is basically a long-term infrastructure contract and therefore has a basis in law, it is also a procurement method that is studied widely in the project management discipline, which deals with project risk on a day-to-day basis. Risk itself is evaluated and priced by the economist and the accountant. Different types of risks are also independently managed by different disciplines. For instance the political scientist evaluates political risks while business ethics, engineering, sociology, psychology, marketing etc. deal with stakeholder opposition risks.39 Clearly, this research is multidisciplinary in both its nature and the scope. Therefore, the sources
37 Ibid
38 See Wheeler, S. and Thomas P.A. ‘Socio Legal Studies’ in Hayton, D.J. (ed) (2002) Law’s Future(s), Hart Publishing, Oxford; Thomas, P.A. ‘Socio Legal Studies: The Case for Disappearing Fleas and Bustards’ in Thomas, P.A. (ed.) (1997) Socio Legal Studies, Aldershoot, Darmouth
39 Nora, M. et al., ‘Stakeholder Management for Public Private Partnerships’, (2006) 24 International Journal of Project Management, pp. 595
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of materials consulted was wider than would have been necessary if the research was conducted under a black letter law methodology which focuses narrowly on strict positivist legal analysis of law to the exclusion of all other issues not considered relevant to law-centred research.40
It is a fact that theoretically driven research that uses multiple methods can produce stronger validity claims, better illuminate the social mechanisms through which law operates and may lead to research findings that are more readily acceptable to a broader group.41 Using the socio-legal studies methodology leads to some other advantages, some of which were succinctly analysed by Nicola Lacey thus:
First, socio-legal scholarship locates legal practices within the context of other social practices, which constitute their immediate environment. Thus it comprehends a complex of administrative, commercial, economic, medical, psychiatric and other disciplinary practices wherever they impinge upon or interact with law. Second, socio-legal studies subject legal practices to a (broadly speaking) empirical inquiry which scrutinises not merely the legal articulation of relevant rules and processes but the meaning and effects of those rules and processes as interpreted and enforced and as experienced by their subjects...socio-legal approaches to law are ...diverse, but
40 Salter, M. and Mason, J. (2007) ‘Writing Law Dissertations: An Introduction and Guide to the Conduct of Legal Research’ Pearson Longman, Essex, pg. 118, pp. 129-132, pg. 163
41 Macaulay S. ‘Law and the Behavioral Sciences: Is there any There there?’ (1984) Vol. 6 Issue 2. Law and Policy, pp. 149
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related by their espousal of an ‘external’- no lawyers perspective on the practices which they address by their concern to understand legal doctrine and legal institutions in terms of their social, economic and political environment; and to design inquiries so as to contribute to the deeper understanding of the legal doctrine and legal institutions in general in the variety of societies and social settings in which the legal phenomena exists.42
It is important at this juncture to stress that the law and legal precepts are the primary foundations of this thesis. The broad reference to other disciplines does not derogate from the fact that the research is fundamentally a piece of legal research. The broad theoretical basis is adopted to reflect the interactions between law and society, particularly as PPP projects are not abstract legal manifestations but practical transactions whose success (or otherwise) are determined by the interplay of law and society (politics, economics etc.). Thus, expectedly, socio-legal approach will provide a wider understanding and appreciation of how law is influenced and may aid these disciplines in dealing with PPP projects, specifically project risks. This research is therefore based on a multidisciplinary theoretical research framework and employs multiple methods from the diverse disciplines to produce stronger validity claims amongst the wider audience to which the research is addressed. For law in particular, it seeks a more complete
42 Lacey, N. Supra Note 31 at pg.131
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picture of risk management within the society, so that it can render valid proposals for changing the way the law in the area is presently formulated.43
1.3.2 Research Process
The design of any research study is influenced by both theoretical and pragmatic considerations.44 Regarding the latter, the fact that there were only three major PPP projects that had reached operational phase during the period of the study, limits the choice of the case study to the three projects. The research process was also designed bearing in mind the basic theoretical framework aimed at finding answers to the research questions. Indeed research generally, including case studies, benefit from prior development of theoretical propositions to guide data collection and analysis.45 In line with the above, the basic theoretical framework that was developed to answer the research questions in this thesis is that the management of risk is the most critical success factor for PPPs.
It was necessary to conduct a literature review of PPP practices across various countries, especially as the use of PPP is relatively new to Nigeria. The empirical studies from those jurisdictions that examined how project risks were managed provided information useful to conduct a
43 See for example Macaulay, S. Supra Note 41
44 McDonnell, A. et al., ‘Practical Considerations in Case Study Research: The Relationship between Methodology and Process’, (2000) 32(2) Journal of Advanced Nursing, pg. 383
45 Yin, R.K. (1994) Case Study Research, 2nd Ed., Sage, London
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comparative analysis. Literature from Nigeria, although mostly limited to the study of risk perception, was also examined. The most important sources for information on Nigeria were however mostly primary data. Therefore, a textual examination of all the primary sources (legislation, parliamentary reports and case law) relating to PPP in Nigeria was embarked upon. This was followed with an analysis of secondary literature (articles and commentaries) where available.
As stated earlier, this research incorporates a great deal of comparative analysis. This is important to this thesis, since one of its major objectives is to incorporate and introduce international best practices in handling project risks in PPPs within Nigeria. The development of Nigeria’s legal and institutional framework can benefit from adapting and incorporating some of the legal and institutional solutions and frameworks that have succeeded in some other jurisdictions, albeit with requisite adjustments to accommodate the countries’ peculiar political, socio-cultural and economic differences.
The thesis used three case studies to highlight each of the three risks that were deemed the most concerting that affect PPPs in Nigeria.46 The three case studies were also carried out through the use of primary data analysis, i.e. through studying some of the contracts between the parties, court proceedings and newspaper reports. Semi-structured interviews
46 See S.1.3,3.1 below
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were then used to triangulate some of the data that was obtained from this process.
Fig.1. Theoretical relationship of the research
1.3.3 Case Study
The principal methodology used in answering the second research question, that is, the determination of how risks have been managed so far in PPP projects in Nigeria, is through the use of the case study methodology. A case study is an empirical methodology that investigates a contemporary phenomenon within its real life context using multiple sources of evidence.47 It is suitable for answering the questions “how” and “why” things happen, when you can’t manipulate the behaviour of those involved in the study, when the boundaries are not clear between the phenomena and the context and it allows investigations into contextual realities.48 Case studies also allow investigations into the differences between what was planned and what
47 Yin, R.K. (1989) Case Study Research: Design and Methods, (rev. edn.): Sage Publications, Newbury Park, CA pg.22
48 Yin, R.K. (2003) Case Study Research: Design and Methods, 3rd Ed., Thousand Oaks, Sage Publications, CA
No.1
critical success factor
No.2
proper risk allocation
No.3
Better project performanace
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actually occurred.49 It is said to be appropriate, just like in the present study, where one needs to understand some particular problems or situations in greater depth and where one can identify cases rich in information.50 It is also useful for testing hypothesis.51
All these are pointers to why the case study methodology was apt for answering the second research question. One of the advantages of using case studies is that it enables the researcher gain a holistic view of events.52 The approach can also provide a broad picture of the issues being explored and different facets of the phenomena are revealed since many sources of evidence are used as issues are explored through a variety of lenses.53 Adopting the typology suggested by Yin54, the type of case study methodology employed in this research could be said to be descriptive and explanatory in nature because the research seeks to describe and explain how risks were handled in the different projects used as cases in the research. The case study is not an end in itself and is
49 Anderson, G. (1993) Fundamentals of Educational research, Falmer Press, London, pp. 152-160
50 Patton, M. (1987) How to Use Qualitative Methods in Evaluation, Sage Publications, California, pp. 18-20; Feagin, J. et al., (Eds.) (1991) A case for case study, University of North Carolina Press, Chapel Hill, NC
51 Stake, R.E. ‘The Case Study Method in Social in Social Inquiry’, (1978) Vol. 7 No.2 Educational Researcher, pp. 5-8
52 Gummeson, E. (1991) Qualitative Methods in Management Research, Sage Publication, CA, pp. 83-156
53 Noor Khairu, B.M. ‘Case Study: A Strategic Research Methodology’, American Journal of Applied Sciences (2008) 5 (11) pp. 1602-1604; Baxter, P. and Jack, S. ‘Qualitative case study methodology: Study Design and Implementation for Novice Researchers’, (2008)13(4) The Qualitative Report, pp. 544-559. Also (online) at: http://www.nova.edu/ssss/QR/QR13-4/baxter.pdf (last accessed August 29, 2012)
54 Yin, R.K. (1994) Supra Note 45 pp. 11-15
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not only used to understand the particular case but will be instrumental to understanding how risks are generally dealt with in Nigeria, therefore it may also be said to be instrumental in nature.55
It is important to point out that case study methodology has been criticised for lacking scientific rigour and reliability and not addressing the issue of generalisation.56 However, a number of authors have refuted this claim.57 For instance, Robert Stake counters the argument of lack of generalisation by claiming that they “are epistemologically in harmony with the readers experience and thus to that person a natural basis for generalisation”.58 In fact, case studies are said to be an intensive study of a single unit with an aim to generalise across a larger set of units.59 Therefore, even though only three cases were studied in this thesis, the outcome can be used as a basis for understanding how risks are handled generally in Nigeria.
55 Stake, R. (1995) The Art of Case Research, Sage Publications, Newbury Park, CA
56 Johnson, D. (1994) Research Methods in Educational Management, Longman Group, Essex; Jensen, J.L. and Rodgers, R. ‘Cumulating the intellectual gold of case study research’, (2001) 61 Public Administration Review, pp. 235–46
57 Ruddin, L.P. ‘You Can Generalise Stupid! Social scientists, Bert Flvberg and Case Study Methodology’ (2006) Vol. 12 No. 4 Qualitative Inquiry, pg. 797
58 Stake, R. (1978) Supra Note 51
59 Gerring, J. ‘What is a Case Study and What is it Good For’, American Political Science Review (2004) Vol. 98 No. 2 Political Science Review, 341
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1.3.4 Selection of Cases
Three different case studies were carried out, with each case study dealing with a single case or project.60 Each of the cases was used to illustrate or discuss how a particular type of risk was handled in PPP projects in Nigeria. The three cases were: the concession of the 26 ports (political risk), the MMA 2 local airport terminal in Lagos (demand risk) and the Lekki toll road concession (stakeholder opposition risk). The three cases were selected basically because they are the three biggest transactions that have been concluded and currently in the operational phase in Nigeria. The different cases were assigned to different risks based on a preliminary desk study review that looked at risk perception in Nigeria.61
Also, from a preliminary evaluation of the different issues that had arisen concerning these cases was garnered from court proceedings, newspaper and magazine articles and legislative hearings.62 These sources pointed to the fact that while all projects might have suffered
60 Miles and Huberman define a case a phenomenon of some sort occurring in a bounded context. The case is a unit of analysis. See Miles, M.B and Huberman, A.M. (1994), Qualitative Data Analysis - An Expanded Sourcebook, 2nd ed., on Sage, Newbury Park, CA., pg. 25
61 For e.g. Ibrahim, A.D. et al., Supra Note 24 pg. 141; Awodele, O. et al., Understanding and Managing Risk- Necessary Conditions for Success and sustainability of Privately Financed Market Projects in Nigeria, (Online) at: http://www Arcom.ac.uk/workshops/2010-wolverhampton.pdf (last accessed on February 29, 2012); Akerele, D. and Didado, K. The risks and Constraints in the Implementation of PFI/PPP in Nigeria, (Online) at: http://www.arcom.ac.uk/publications/procs/ar2003-379-391_Akerele_and_Gidado.pdf (last accessed on January 1, 2012)
62 For example: Maduegbuna, N. ‘On Lekki Toll Road Concession Project’ Business Day Newspaper, January 19, 2012; Abioye, O. ‘ MMA 2 Concession: FAAN, Bi-Courtney Disagrees on Debts’ Punch Newspaper, April 1, 2013
25
from the poor management of several types of project risks, some of the cases provided richer information on a particular risk than the others. This is in line with the directive from Patton that whichever the case selection method used, the most important principle is to select information rich cases, i.e. cases worthy of in-depth study.63 Also according to Yin, a single case may be used when the phenomena being studied is unique.64 In this instance, each particular case (project) is unique and therefore the research is justified in relying on a single case per case study. The cases chosen are also truly representative of the larger class and can be used for generalisations.
1.3.5 Sources of Data
The data that was used for the case study was obtained from several sources. Firstly, documentary evidence was the most used source of information. Some of the documents used were transaction documents including the agreements between the private sector and public sector partners where they were available. Others were parliamentary reports and proceedings. The second source of data was media reports including newspapers, magazines and other commentaries while stakeholder interviews formed the third source of data. The use of this multiple sources of data for triangulation helped validate and enhance the reliability of the findings. This is in consonance with the suggestion by
63 Patton, M.Q. (1990), Qualitative Evaluation and Research Methods, Sage, Newbury Park, CA, pg. 64
64 Yin, R.K. (2003) Supra Note 48
26
Yin, who advocates for this on the basis of the ethical need to confirm the validity of the data and process.65
Formal letters were written to the regulatory agencies for permission to use some of the transaction documents that were not easily available. The Infrastructure Concession Regulatory Commission (ICRC) and The Bureau of Public Enterprises (BPE) were very useful sources in this regard. However, it was more challenging to get permission to use documents belonging to the Lagos State Government for the Lekki Concession. However, this did not adversely affect the case study materially because the nature of the risk being studied in relation to the Lekki Concession (i.e. stakeholder opposition risk) did not require detailed transaction documents for analysis. Other available public documents like court proceedings, newspaper reports and also interviews with key personnel more or less filled this gap.
Since the projects used as case studies are relatively new projects, involve important infrastructure to the country and are undergoing court and parliamentary hearings, contemporaneous media reports were a veritable source of data for this research. Newspaper reports and magazines were therefore widely used in the case study with reports from different newspapers corroborating the findings of the other. This further strengthened the validity and veracity of the information obtained.
65. Yin, R.K. (1994) Supra Note 54
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As mentioned previously, stakeholder interviews were used in the form of semi-structured interviews to triangulate the primary and secondary data that were earlier obtained. A semi-structured interview itself is a qualitative method of inquiry that combines a pre-determined set of open questions (questions that prompt discussions) with a flexible and fluid structure that allows for the opportunity for the interviewer to explore particular themes or responses further.66 This is different from structured interviews, which contain a structured sequence of questions to be asked in the same way to all the respondents.67 Semi structured interviews allow respondents to discuss issues that may not have been considered initially by the interviewer.68
The semi-structured interview was chosen for this research because it offered sufficient flexibility to approach diverse respondents differently whilst still covering the same areas of data collection.69 This was particularly important in this study because of the differences in projects and types of respondents i.e. public and private sector.
1.3.6 Designing the Interview Questions
In structuring the interview questions, major questions were developed into the form of a general statement, which was then followed by a
66 Michael, S. et al., ‘Semi-structured Interview, The SAGE Encyclopedia of Social Science Research Methods (Online) at: http://www srmo.sagepub.com/view/the-sage-encyclopedia-of-social-science-research-methods/n909.xml [last accessed November 27, 2012]
67 Ibid
68 Ibid
69 Noor Khairu B.M. Supra Note 53
28
sequence of sub-questions for further probing. The literature review and the documents studied earlier had provided a guideline for formulating the interview questions. The interview questions were designed based on the objective of answering the second research question of how risks were handled in the three PPP projects that were chosen for case studies. In order to craft the questions that would elicit appropriate answers, the model employed by Abednego et al 70 to determine appropriate allocation of risk was used. This model is based on designing questions along predetermined prerequisites for proper risk allocation in PPPs. If all the questions are answered in the affirmative, then it proves that PPP risks were properly allocated. However, a negative determination of any of the questions meant otherwise.
According to Ward et al,71 Edwards72 and Flanagan and Norman73, several conditions must be satisfied to ensure the proper allocation of risk:
a) Risk should be allocated to the party with the best capability to control the events that might trigger its occurrence.
b) Risk must be properly identified, understood and evaluated.
70 Abednego, M.P. and Ogunlana, S. ‘Good Project Governance for Proper Risk Allocation in Public Private Partnerships in Indonesia’, (2006) International Journal of Project Management, 24 (7) pp. 622-634.
71 Ward, S.C. et al., ‘On the allocation of risk in construction projects’, (1991) 9 (3) International Journal of Project Management, pp. 140–147
72 Edwards, L. (1995) Practical risk management in the construction industry, Engineering management series, Thomas Telford, London, pp. 24-26.
73 Flanagan, R. and Norman, G. (1993) Risk management and construction Oxford-Blackwell Scientific Publications, Oxford UK, pg. 24
29
c) A party must have the technical/managerial capability to manage the risks.
d) A party must have the financial ability to sustain the consequences of the risk or prevent it from it occurring.
e) A party must be willing to accept the risk.
Abednego74 points out that these criteria only determines who should bear the risk and adds that proper risk allocation should also acknowledge the appropriate time to allocate the risks and provide an alternative solution. They contend that besides determining which party (“who”) has the best capabilities to accept the risk (“what”), the “when” and “how” factors should also be considered to ensure proper risk allocation.
Based on this work by Abednego, questions were crafted for the semi-structured interviews. The questions are classified into 3 main sections. The aim of section 1 is to get an overview and general information about the project. Section 2 explores the risk allocation scheme adopted in the project and finally section 3 establishes whether project risks have been allocated properly to produce better project performance.75
1.3.7 Choosing Respondents
In choosing respondents, purposive sampling was employed. Purposive sampling is a selection method where the purpose of the researcher’s
74 Abednego, M.P. and Ogunlana, S. (2006) Supra Note 70
75 Sample questions are annexed as Appendix 1 of this chapter
30
knowledge of the population guides the process.76 The advantage of this method is that it makes it easier for the interviewer to select samples that suit the needs of the study.77 For each case therefore, four respondents were chosen, two each from the public and private sectors. Senior transaction officers, who had participated actively in the transaction phases of the projects, or regulators conversant with the cases in the course of their official work schedule, were selected as respondents. Generally, the decisions on the respondents that would represent individual organisations were at the discretion of the organisations. However, respondents were also selected on the basis of the researcher’s judgement where this was permitted by the organisation in situations where, known to the researcher, a particular respondent was better suited the needs of the study.
1.3.8 Conducting the Interviews
The choice of semi-structured rather than structured interviews was employed in this research because of its flexibility. Notes were taken during the interview rather than tape recordings to make the respondents (particularly those from the public sector) more relaxed. While the disadvantage of taking notes is the inability to record events verbatim, the less-formal atmosphere made the respondents more forthcoming with information. Importantly, other sources of information
76 Mahoney, J. and Goertz, G. ‘A Tale of Two Cultures: Contrasting Quantitative and Qualitative Research’, (2006) 14, Political Analysis, pg.246
77 Tansey, O. ‘Process Tracing and Elite Interviewing: A Case for Non-probability Sampling’, (2007) Vol. 40, No.4, Political Science and Politics, pp.756- 772
31
like documentary evidence and the print and other electronic media provided initial data for the case studies. Therefore, the interviews were used to basically cross validate and triangulate information discovered from the other sources.
The interviews were conducted on the premises of the participants. This has advantages because of the likelihood that the researcher is treated both as a guest and as a researcher, this it is believed may lead to an increase level of disclosure from the participants as they are more relaxed.78 The research was mindful that interviews might increase the chances of bias either due to the phrasing of poor questions or the deliberate attempts by the interviewees to mislead or try to defend their positions or stance on a particular issue since interviewees have their own personal subjective worldviews and opinions on particular issues.79 The possibility of bias was however mitigated by the fact that respondents from both the public and private sector were interviewed with the researcher distilling the information from an objective standpoint.
1.3.9 Ethical Considerations
According to Stake, “qualitative researchers are guests in the private spaces of the world; their manners should be good and their code of
78 Larossa, R. et al., ‘Ethical Dilemmas in Qualitative Family Research’, (1981) 43 Journal of Marriage and the Family, pp. 303-313
79 Diefenbach, T. ‘Are Case Studies More than Sophisticated Storytelling?: Methodological problems of Qualitative Empirical Research Mainly Based on Semi Structured Interviews,’(2009) 43 Qual Quant, pp. 875
32
ethics strict”. 80 Bearing this in mind and also in compliance with the University of Hull Ethics Policy,81 the researcher maintained the appropriate standards of ethics necessary for a study of this magnitude. The researcher was very open with interviewees, explaining the reason for the interview and how the data obtained was going to be used. Also, the researcher paid attention to the appropriate treatment of confidential information. For instance, in line with good practice and the instructions from the regulatory authorities, the commercially sensitive information in the contracts between the government and the private sector that was not already in the public domain was not disclosed in this thesis.82
80 Stake, R.E. (2003) ‘Case Studies (134-164)’ in Denzin, N.K. and Lincoln, Y. (eds.) (2003) Strategies of Qualitative Inquiry (2nd ed.), Sage, London. Pg 134
81 University of Hull ‘Ethics in Research at the University of Hull’ (online) at: http://www2.hull.ac.uk/administration/researchfundingoffice/usefulinformation/ethicspolicy.aspx (Last accessed August 8, 2013)
82 This is also in line with The University of Hull Research Ethics Policy Supra
33
Fig. 2 Case Study structure
1.4 Structure of Thesis
The thesis is divided into 8 chapters including this introductory chapter. The aim of this preliminary chapter is to introduce the work, explain the reasons for embarking on the research and discuss what objectives this thesis aims to achieve. This chapter also seeks to clarify the methodology adopted in testing the hypothesis and answering the research questions in order to make it easier to follow the arguments put forward in the thesis. This chapter also clarifies the ambit and limitations of the thesis.
The second chapter, titled “the conceptual framework”, critically engages with the discourse of the key concepts the thesis refers to, particularly with a view to define them for the purpose of the research. The chapter defines PPP, traces its history and examines the different
Key Criteria Framework
Political risk; demand risk; stakeholder opposition risk
Review of Documents
contracts
Statutes/policies/parliamentary reports
Stakeholder interviews
Analysis
Conclusions & Recommendations
Media reports
34
models that exist. The chapter also provides a brief introduction to the concept of risk, a concept that is equally central to the thesis. The chapter also presents the background for the understanding of the remainder of this thesis. For instance, the nature and extent of infrastructure development in Nigeria is discussed as well as the state and use of PPPs for financing infrastructure projects in Nigeria. This is essential in order to reveal some of the shortcomings for which this thesis aims to recommend solutions.
A comprehensive study of the concept of risk was carried out in Chapters 3 and 4. Chapter 3 critically engaged in the theoretical underpinnings of risk. Relevant literature was analysed to determine the critical success factors for PPPs and the nature of risk in PPPs including other ancillary benefits of proper risk allocation such as the creation of value for money, for example. Chapter 4 assessed the management of risk in practice. This was done through the evaluation of different case studies that had been carried out previously on risk management. This was used to validate some of the findings that were made from the theoretical analysis in chapter 3 and also allowed for certain definite conclusions to be reached regarding desirable methods for managing risk.
Chapters 5, 6, and 7 discussed each of the three case studies that highlight one of the three risks deemed most pertinent to PPPs in Nigeria. Chapter 5 discussed political risk and a case study of the port concession
35
was used to highlight issues of political risk in Nigeria. Chapter 5 also provided an opportunity to review the current laws regulating PPPs in Nigeria and suggest improvements that can be made to them. Chapter 6 discussed demand risks through the framework of incomplete contract theory. The thesis focused primarily on some of the problems that result from demand risk mitigation strategies. The chapter explored how best to mitigate demand risk by balancing the interests of the public and private sectors without compromising on the long-term interests of the country and the overall benefits of the citizens. The MMA 2 local airport concession case study highlighted the problems with demand risk in Nigerian PPPs. In chapter 7 the thesis, by extending the application of the stakeholder theory, provided a fresh theoretical perspective of the role and legal rights of stakeholders in PPPs. This chapter contributes to the thesis by providing a platform for the codification of stakeholder rights. The Lekki toll road concession project was the case study project in the chapter.
Chapter 8 concludes the research by reiterating the objectives of the thesis and the research questions. It determined whether the objectives had been met and necessary research questions answered. It summarised all the basic determinations and recommendations that were made in the previous chapters of this thesis; including the contributions of this thesis to the body of knowledge and also suggests possible future areas for further research.
36
1.5 Research Significance and Value
This thesis is significant in several respects. Firstly, there has been limited research on PPPs in Nigeria. This limitation is even more pronounced in the area of risk management. The few studies on risk that have been carried out to date were limited to issues of risk perception amongst different stakeholder groups in the country.83 None of the studies have examined and/or questioned risk management in practice with specific attention to completed PPP projects. There is therefore a gap in literature that needs to be filled. Consequently, there is the need to do an ex post analysis of some of the transactions that have been concluded so far to evaluate how those projects were done and to determine how these projects have fared to date. There has been no such diagnostic review conducted on any of the projects. This thesis achieves all of this. Also, conducting an analysis through case studies of some of the transactions already done through PPP in Nigeria will reveal the reasons for transaction failures and contribute to the avoidance of similar pitfalls in future. This will create a transparent, flexible and competitive market for public service delivery in Nigeria. The country can only be the better for it and it will help the country achieve some of its vision 2020 targets.
83 See for example Ibrahim, A.D. et al., (2006) Supra Note 61; Awodele, A.O. et al., ‘Understanding and Managing Risk- Necessary Conditions for Success and sustainability of Privately Financed Market Projects in Nigeria’ ARCOM Doctoral Workshop, University of Wolverhampton UK, 25th of June 2010 ; Akerele, D. and Gidado, K. (2003) ‘The risks and constraints in the implementation of PFI/PPP in Nigeria’, in Greenwood, D.J. (Ed.), 19th Annual ARCOM Conference, 3-5 September 2003, University of Brighton, Association of Researchers in Construction Management, Vol. 1 pp. 379-91 .
37
As stated earlier, the concept of PPP as a means of financing infrastructure in Nigeria is still relatively new. In the haste to provide this much needed infrastructure, the government has not put in place the appropriate enabling legislative framework and the results of the first few attempted transactions have made these shortcomings glaring. This study evaluates the present legal framework and seeks to untangle the confusing and complex web of regulations currently operating in this area. It is believed that this will provide the foundation for the design of an appropriate legal and institutional framework that will govern PPP in Nigeria. It is also assumed that if this issue is resolved, that it will lead to a substantial increase in private sector investment in much needed infrastructure in Nigeria.
The thesis also tackles some of the governance issues that are bedevilling the consummation of PPP projects in Nigeria. For instance all over the world, but more so in developing countries like Nigeria, there has been the wide use of certain risk mitigation clauses and other similar legal devises to protect private sector investments in long-term contracts like PPPs. This has impacted negatively on fairness of these contracts and even the long-term sustainability of the projects. There was therefore a need to examine these clauses and legal devices critically to ensure that they are equitable. The issue of stakeholder involvement in PPPs was also critically evaluated. The stakeholder theory was extended from business ethics into the realm of PPPs to provide a basis for the legal protection of stakeholder rights in PPPs.
38
In the final analysis, it is expected that the thesis will be valuable in contributing to the development of a robust legal and institutional framework and by extension, an effective and decent governance regime for PPPs in Nigeria and much of sub-Saharan Africa. This will create certainty, encourage and create incentive for the inflow of private sector-led finance into the country and also balance the need to create opportunity for private sector investment with the protection of public interests. This study will not only bridge or close the existing gaps in the legal and regulatory framework for PPPs in Nigeria, but will also be the first major work of any sort in this area in Nigeria. It will definitely be the foundation on which future legal discourse will be advanced in this novel and exciting area.
1.6 Limitations of Study
The concept of PPP is wide and therefore it is important to define the boundaries of the research in order to keep it within manageable limits and avoid undue generalisations.84 There have been attempts in Nigeria to give PPPs a broader meaning than its conventional definition, particularly when there was a battle for supremacy between two competing public agencies on who should be responsible for the regulation of concessions. It was argued by BPE that PPPs should include privatisation and vice versa since both involved some form of partnership
84 Hutchinson, T. (2006) ‘Research and Writing in Law’ (2nd ed). Thomson Lawbook Co, Pyrmont N.S.W. 102-104
39
between the public sector and the private sector.85 This argument is flawed because even though both are alternative service delivery arrangements to traditional public sector led procurement and focus on the relationship between the public sector and private sector, they are significantly different. The difference between PPP and privatisation is that in PPP the public sector retains a substantial role despite the private sector involvement, by retaining ultimate responsibility for the services despite it being provided by the private sector. However when a government entity is privatised, the private sector not only takes over the business but also assumes responsibility for service delivery.86 For the purposes of this research therefore, full-scale privatisation or mere outsourcing is not considered.87 Looking at PPP from a wider point of view could lead to other conclusions and determinations not intended in this work.
Secondly, it is important to note that this thesis does not declare that proper risk management is the only factor that determines success of PPP projects. Indeed it has been consistently noted throughout the thesis that proper risk allocation is just

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iii
CONTENTS
TITLE PAGE .................................................................................... Error! Bookmark not defined.
CONTENTS ................................................................................................................................. iii
DEDICATION ............................................................................................................................... x
AKNOWLEDGEMENTS ................................................................ Error! Bookmark not defined.
TABLE OF CASES ....................................................................................................................... xii
TABLE OF LEGISLATIONS AND POLICY DOCUMENTS ..................................................... xiii
LIST OF ABBREVIATIONS ......................................................................................................... xiv
CHAPTER 1 ................................................................................................................................. 1
INTRODUCTION ......................................................................................................................... 1
1.1 Background ............................................................................................................... 1
1.2 Research Aim and Objectives ........................................................................... 10
1.3 Research Methodology ....................................................................................... 12
1.3.1 Introduction ..................................................................................................... 12
1.3.2 Research Process ........................................................................................... 19
1.3.3 Case Study ....................................................................................................... 21
1.3.4 Selection of Cases ......................................................................................... 24
1.3.5 Sources of Data .............................................................................................. 25
1.3.6 Designing the Interview Questions ............................................................ 27
1.3.7 Choosing Respondents ............................................................................... 29
1.3.8 Conducting the Interviews ......................................................................... 30
1.3.9 Ethical Considerations .................................................................................. 31
1.4 Structure of Thesis ................................................................................................... 33
1.5 Research Significance and Value .................................................................... 36
1.6 Limitations of Study ................................................................................................ 38
1.7 Conclusion ............................................................................................................... 41
Appendix 1 .......................................................................................................................... 42
Interview Questions ....................................................................................................... 42
CHAPTER 2 ............................................................................................................................... 43
THE CONCEPTUAL FRAMEWORK ........................................................................................ 43
iv
2.1 Introduction ............................................................................................................. 43
2.2 What is PPP? ............................................................................................................ 44
2.2.1 Why Do We Need A Definition? ................................................................ 46
2.2.2 Institutional Definitions .................................................................................. 47
2.3 The History of PPP ................................................................................................... 56
2.4 Types of PPP ............................................................................................................. 58
2.5 PPP and Conventional Public Procurement .................................................. 64
2.6 Differentiating PPP from other Similar Types of Procurements .................. 65
Contracting Out ............................................................................................................. 65
Privatisation ...................................................................................................................... 66
2.7 Risk .............................................................................................................................. 67
2.8 Infrastructure Development in Nigeria ............................................................ 69
2.9 PPPs in Nigeria ......................................................................................................... 72
2.10. The Legal and Institutional Framework for PPPs in Nigeria ..................... 76
The Infrastructure Concession Regulatory Commission Act 2005 .................... 78
The Public Enterprises (Privatisation and Commercialisation) Act 1999 (Privatisation Act) ........................................................................................................... 79
The Public Procurement Act 2007 ............................................................................. 80
The Debt Management Office Act 2003 ................................................................ 82
The Fiscal Responsibility Act 2007 .............................................................................. 82
The National Planning Commission Act 1993 ........................................................ 83
Various infrastructure sector Acts and Bills (currently before the National Assembly) ......................................................................................................................... 84
2.10 Conclusion ........................................................................................................... 85
CHAPTER 3 ............................................................................................................................... 88
THE THEORY OF RISK IN PUBLIC PRIVATE PARTNERSHIPS ............................................... 88
Introduction ................................................................................................................. 88
3.1 .......................................................................................................................................... 88
3.2 Definition of Risk ...................................................................................................... 88
3.3 Risk and PPPs ........................................................................................................... 93
3.4 Nature and Categorisation of Risks in PPPs .................................................... 96
3.5 Risk Assessment ..................................................................................................... 102
3.6 Allocation of Risks ................................................................................................ 103
3.7 Valuation/Pricing of risk ...................................................................................... 110
3.8 Value for Money Considerations ..................................................................... 114
v
3.8.1 Quantitative Assessment ........................................................................... 120
3.8.2 Qualitative assessment ............................................................................... 123
3.8.3 Mitigation of Risks ......................................................................................... 129
3.8.4 Public Loans ................................................................................................... 131
3.8.5-Loan guarantees ............................................................................................... 131
3.8.6-Equity Participation ........................................................................................... 131
3.8.7 Subsidies ............................................................................................................... 131
3.8.8 Sovereign guarantees ................................................................................ 132
3.8.9 Tax incentives ................................................................................................ 132
3.8.10 Viability gap funding................................................................................... 133
3.8.11 Protection from competition .................................................................... 133
3.8.12 Payment Mechanism .................................................................................. 134
3.8.13 Annual Operating Subsidies ..................................................................... 134
3.9.1 Allocation and Mitigation of Risk in Legal and Policy Documents ... 135
3.9. 2 Insurance Risk ................................................................................................ 139
3.9.3 Design, Construction and Technical Specification Risk .................... 139
3.9.4 Planning and Approvals Risk .................................................................... 140
3.9.5 Change in law risk........................................................................................ 141
3.9.6 Operational Performance Risk. ................................................................ 141
3.9.7 Financial/Economic Risk. ........................................................................... 141
3.9.8 Exchange rate risks ...................................................................................... 141
3.9.9 Default risk ...................................................................................................... 142
3.9.10 Demand Risk ................................................................................................ 142
3.9.11 Political or Legal risks ............................................................................... 142
3.9 Conclusion ............................................................................................................. 143
CHAPTER 4 .............................................................................................................................. 146
THE MANAGEMENT OF RISK IN PRACTICE IN PUBLIC-PRIVATE PARTNERSHIPS ...... 146
4.1 Introduction ........................................................................................................... 146
4.2 Classification of Risk ............................................................................................ 147
Classification According to Countries ....................................................................... 148
China ............................................................................................................................... 148
Indonesia ........................................................................................................................ 149
Vietnam .......................................................................................................................... 150
4.3 Allocation of Risk .................................................................................................. 153
vi
China ............................................................................................................................... 155
Hong Kong ..................................................................................................................... 157
United Kingdom............................................................................................................ 159
Indonesia ........................................................................................................................ 160
Portugal .......................................................................................................................... 161
Ireland ............................................................................................................................. 161
4.5 Value for Money Considerations ..................................................................... 163
United Kingdom and Australia ................................................................................. 164
Malaysia ......................................................................................................................... 165
United States ................................................................................................................. 166
Japan and Netherlands............................................................................................. 166
4.6 Assessment of the Achievement of VFM ...................................................... 168
United Kingdom............................................................................................................ 168
Australia .......................................................................................................................... 170
United States, Canada, Denmark, Netherlands ................................................. 171
4.7 Mitigation of Risk .................................................................................................. 174
Demand Risk ................................................................................................................. 174
Exchange rate risk ....................................................................................................... 175
Construction risk ........................................................................................................... 176
Political risk ..................................................................................................................... 176
Cost and Schedule Overrun ..................................................................................... 177
4.8 Contractual Documentation of Risk............................................................... 178
Change in Law ............................................................................................................. 179
Exchange Rate ............................................................................................................. 180
Political risk ..................................................................................................................... 180
Force Majeure .............................................................................................................. 180
Legal and Institutional risk .......................................................................................... 182
4.8 Management of Risk in Nigeria ........................................................................ 183
4.9 Conclusion ............................................................................................................. 189
Appendix I: ........................................................................................................................ 191
Classification According to the Frequency or Occurrence of Risks by Nur Alkaf Abd Karim .......................................................................................................................... 191
Standard Risk Allocation Matrix by Grimsey and Lewis ........................................ 198
Chapter 5 ............................................................................................................................... 203
Political Risk ............................................................................................................................ 203
vii
5.1 Introduction .......................................................................................................... 203
5.2 Definition ................................................................................................................ 203
5.3 Theoretical Basis for Political Risk ..................................................................... 212
5.4 Political Risk Assessment .................................................................................... 215
5.5 Political Risk Mitigation ....................................................................................... 218
5.5.1 Good Project Governance ............................................................................. 218
5.5.2 Contractual Clauses ................................................................................... 219
5.5.4 Formal Risk Mitigation Instruments ........................................................... 223
5.6 Case Study: Concession of 26 Federal Ports ................................................ 225
Analysis ............................................................................................................................ 231
Whether the political risk in this project was allocated to the party with the best capability to control the events that might trigger its occurrence? ... 232
Whether risk was properly identified, understood and evaluated? ............. 233
Whether the party to whom the risk was allocated has the technical/managerial capability to manage the risks?................................... 234
Whether the party to whom the political risk was allocated has the financial ability to sustain the consequences of the risk or prevent it from it occurring? ...................................................................................................................... 234
Whether the party to which the risk was allocated is willing to accept the risk? .................................................................................................................................. 235
Whether the risk was allocated at the appropriate time (when question)? ......................................................................................................................................... 236
Whether the process used in allocating the risk was appropriate (how question)? ...................................................................................................................... 236
5.7 Other issues with Political risk in PPP in Nigeria ............................................. 237
5.8 Managing Political Risk through better PPP Regulation ........................... 243
The Infrastructure Concession Regulatory Commission Act 2005 .................. 244
The Public Enterprises (Privatisation and Commercialisation) Act 1999 (Privatisation Act) ......................................................................................................... 246
The Public Procurement Act 2007 ........................................................................... 251
The Debt Management Office Act 2003 .............................................................. 253
The Fiscal Responsibility Act 2007 ............................................................................ 254
The National Planning Commission Act 1993 ...................................................... 255
Various infrastructure sector Acts and Bills (currently before the National Assembly) ....................................................................................................................... 255
5.9 Conclusion ............................................................................................................. 256
CHAPTER 6 .............................................................................................................................. 259
viii
DEMAND RISK ........................................................................................................................ 259
6.1 Introduction .......................................................................................................... 259
6.2 Demand Risk and PPPs ....................................................................................... 259
6.3 Allocation of Demand Risk ............................................................................... 263
6.4 Incomplete Contract Theory ............................................................................ 267
6.5 Incomplete Contract Theory and Demand Risk ......................................... 271
6.6 Concession Contracts versus Availability Contracts ................................. 274
6.7 CASE STUDY OF THE CONCESSION OF MURTALA MOHAMMED AIRPORT, TERMINAL 2 (MMA2) ........................................................................................................ 278
6.7.1 Project Background .................................................................................... 280
6.7.2 Analysis and Findings .................................................................................. 282
6.7.3. The Allocation and Mitigation of Demand Risk ................................... 283
Has Demand Risk Been Allocated to the Right Party? ...................................... 288
Was the risk allocated to the party with the best capability to control the events that might trigger its occurrence? ............................................................ 288
Was the risk properly identified, understood and evaluated? ....................... 289
Does the party to whom the risk was allocated have the technical/managerial capability to manage the risk? .................................... 290
Does the party have the financial ability to sustain the consequences of the risk or prevent it from it occurring? ......................................................................... 290
Is the party willing to accept the risk? ................................................................... 291
Was the risk allocated at the appropriate time? ............................................... 291
Was the process used in allocating the risk appropriate? ............................... 292
6.8 RECOMMENDATIONS FOR FUTURE APPLICATION OF DEMAND RISK IN NIGERIA ............................................................................................................................... 294
Demand Risk Mitigation ............................................................................................. 297
Traffic Guarantee Contracts .................................................................................... 299
Duration Adjusted Contracts .................................................................................... 300
6.9 Conclusion ............................................................................................................. 306
Chapter 7 ............................................................................................................................... 308
STAKEHOLDER OPPOSITION RISK ...................................................................................... 308
7.1. Introduction ........................................................................................................... 308
7.2. Definition of Stakeholders .................................................................................. 308
7.3. Theoretical basis for Stakeholder Engagement .......................................... 313
7.3.1. The Stakeholder approach ....................................................................... 314
7.3.2. Stakeholder Accountability Theory Approach ................................... 319
ix
7.4. Stakeholder Opposition Risk ............................................................................. 322
7.5. CASE STUDY: LEKKI TOLL ROAD CONCESSION ............................................. 327
7.5. 1. Background ....................................................................................................... 327
7.5.2 Analysis ............................................................................................................ 336
7.6. Prerequisites for Adequate Stakeholder Risk Management ................... 340
7.7. Stakeholder Engagement in PPPs In Nigeria ................................................ 352
7.8. Conclusion ............................................................................................................. 357
CHAPTER 8 .............................................................................................................................. 359
CONCLUSION ........................................................................................................................ 359
8.1 Introduction ................................................................................................................ 359
8.2 Major Findings ............................................................................................................ 360
8.2.1. Political risk .......................................................................................................... 361
8.2.2. Demand Risk ...................................................................................................... 362
8.2.3 Stakeholder Opposition Risk............................................................................ 363
8. 3. Value of Findings and Recommendations ...................................................... 363
8.3.1 Recommendations for Political Risk .............................................................. 364
8.3.2 Recommendations for Demand Risk ........................................................... 366
8.3.3. Recommendations for Stakeholder opposition risk ................................ 368
8.4 Postscript ...................................................................................................................... 370
8.5 Scope of Future Research ...................................................................................... 373
BIBLIOGRAPHY ..................................................................................................................... 377