Transportation Sector Analyis_Retreat Pre-Read Material

8/2/2019 Transportation Sector Analyis_Retreat Pre-Read Material

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The Role of the Financial System in Nigerias Economic

Development

December 3 5 2010

Transport Sector Pre-Read


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Executive Summary

Nigerias transportation infrastructure is mostly in a state of disrepair as a result of

decades of inadequate investment and maintenance

In recognition of the huge infrastructure deficit, the government has accepted the use

of Public Private Partnerships (PPP) in the development and maintenance of

transportation infrastructure

While there have been some success stories in the use of PPP, private financial

institutions still face sizeable challenges in funding transport infrastructure. The

absence of an enabling environment and lack of strategic support from the

government reduces the pool of projects that can be made bankable

A look at South Africas situation yields learning points and change imperatives for

Nigeria in her quest to develop an adequate, safe, environmentally sound, efficient,

affordable and integrated transport system

Key to this success is the governance framework - the structures, policies, institutions

etc are in place to procure, deliver and manage transportation infrastructure


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Executive Summary

Aside from the governance framework, the strategic approach of government to the

use of PPP is critical PPPs are a tool to enhance the quality of government spending,

and not just a channel to route private investments into public infrastructure projects

Key learning points for Nigeria include:

o Focus on procurement of services rather than assets

o Role of public sector should be on policy and strategy formulation, not asset operations

o Application of PPP in transport infrastructure development should be broadened beyond

concessions to private operators, to include government spending on public works

This presentation provides an overview of the Nigerian transportation system, theopportunities and challenges with financing transportation infrastructure and

recommendations to drive development of the sector


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Outline

Recap of 2009 Bankers Committee Retreat

Overview of the Nigerian Transportation System

Governance and an Enabling Framework in

Transportation Infrastructure Development

Case Study: South Africa

Appendix


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The 2009 Bankers Committee Retreat identified seven (7) key areas to address

to expedite reform of and investments in the Nigerian transport sector

Proposed

Intervention

Responsibility Progress to-date Status What else needs to be

done?

1. Articulate

framework and

guidelines for special

assets

CBN Done Creation of framework for

special assets

2. Tax relief and special

grants for project

development costs

Government Government has granted

sector pioneer status-new

industries in sector can

avail of tax holiday of up to

7 years

N/A

3. Approval of the ICRC

Act , National

Transportation

Commission Act and

other sub sector bills

Government NTC Act is still being

reviewed prior to

submission to Senate and

House of Reps

Passing of bill into law


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The 2009 Bankers Committee Retreat identified seven (7) key areas to address

to expedite reform of and investments in the Nigerian transport sector

Proposed

Intervention

Responsibility Progress to-date Status What else needs to be

done?

4. Support agencies

and governments with

clear integrated

strategies and plans by

fundingspecific projects

Financial

System

Projects to date include

LCC Lekki-Epe expressway

funded by a consortium of

local banks

Increase funding for

additional infrastructure

projects

5. Build capacity for

project delivery within

private and public

sectors

Financial

System

N/A N/A

6. Create a larger pool

of debt and equitycapital to achieve

Financial

System

Introduction of the

PENCOM policy to utilisePFA funds for

infrastructure finance

Explore debt raising from

multilateral institutions e.g.

World Bank

7. Articulate the

criteria required to

finance transport

infrastructure projects

Financial

System

Criteria has been

articulated N/A


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Outline






Appendix


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Nigerias transportation infrastructure is insufficient to meet the aspirations of

Vision 20:2020 and the infrastructure is in a state of disrepair

Nigeria has 193,200 km of roads, made up of 34,123km of Federal roads, 30,500km

of state roads and 129,577km of local government roads

More than 50% of the roads are dilapidated based on the last review; almost 90%

of current inter-state movement are done by road

3500km of narrow gauge rail lines, with 827 km of narrow gauge sidings and loops;

306 km of standard gauge rail lines

Rail infrastructure comprises wagons, coaches, railcars, rail buses, cranes,

workshops, and station buildings, most of which are in a dilapidated state

Nigeria has a total of 23 airports distributed all over the country

Due to the high fixed costs and relatively low income involved in running these

airports, only three of the airports operate at a commercial self sufficiency, while

the others operate at a substantial loss

Nigeria has 13 major ports

Cost of doing business at the ports is high as a result of multiple taxes and levies

imposed on operators

This has resulted in diversion of cargo to other countries within the West African

sub-region

Low level penetration of inland waterways in most states of the country due to

lack of infrastructureSource: Dra t National Trans ort Polic : Au ust 2010


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Globally Nigeria ranks low in the quality of its infrastructure, which impacts the

ease of doing business

Criteria 2010 11 Ranking

/ 139

2009 - 10 Ranking

/ 133

Change (from

2009-10)

Quality of roads 128 112 -16

Quality of railroad infrastructure 104 104 0

Quality of port infrastructure 121 122 +1

Quality of air transport

infrastructure

101 78 -23

Overall Infrastructure Ranking 135 126 -9

Country Ranking on Global

Competitiveness Index

127 99 -28

Source: World Economic Forum: The Global Competitiveness Report 2010-11; 2009-2010

As part of the Global Competitiveness Report, a survey was conducted to determine the most

problematic factors for doing business in each country

Inadequate supply of infrastructure and access to financing were identified as the two most

problematic factors for doing business in Nigeria


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Sub-optimal investments in transportation have resulted in the current

infrastructure deficit

Nigerias infrastructure spend is low and largely sourced from government

0

2

4

6

8

10

12

US$

Private Investment in Transportation

(US$ per US$1,000 of GDP)

Nigeria Brazil South Africa Russia China

Source: Team Analysis, 2009 Bankers Committee Documents


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Key challenges include inadequate investment and poor management of

transport infrastructure - which have created a huge infrastructure deficit

Specific Infrastructure Challenges

Poor roads and road network

Weak regulatory environment

Inadequate strategic planning, oversight and

regulatory functions

Poor contracting procedures and quality control

High dependence on public sector subsidies

Highly dilapidated infrastructure and lack of

serviceable locomotives and rolling stock

Poor management of the Monopoly player,

National Railway Corporation

Inadequate visual and navigational

aids

High cost of air travel

Lack of a well-articulated national air

transport policy and weakenforcement of existing policies

General Infrastructure Challenges

Federal government is the

primary financier of

infrastructure projects

Annual budgetary allocation isinsufficient to meet the

countrys infrastructure

demands

Process of allocating budget to

rehabilitate existing

infrastructure is slow, opaqueand inefficient

Capacity gaps exist for project

development, management,

operations and maintenance

Source: Team Analysis


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Outline






Appendix


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An estimated US$15b is required annually to adequately fund Nigerias

infrastructure deficits

Traditionally, government has been the

sole financier of road infrastructure

projects, often taking responsibility for

implementation, operations and

maintenance.

Capital infusion through the fiscal

budget to rehabilitate or replaceinfrastructure, instead of periodic

maintenance makes funding

increasingly difficult, thereby

accelerating infrastructure

deterioration.

There are gaps in capacity for project

development, management,operations and maintenance.

It is clear that Private sector

participation is imperative to transform

transportation sector and attain

national development aspirations

Source: Infrastructure Concession Regulatory Commission; Team Analysis; 2009 Bankers Committee Documents

Public-PrivatePartnership

Partnership between a public authority

and private sector organisation to fund or

operate a public service.

Project-BasedDebt

Financing

Long-term financing of projects, the debtof which is expected to be paid backusing cash flow generated by operationof the project

Such a debt is typical of funding forconcessions

Privatisation

Share issue or outright sale of assets

Part-owners/ managers of public assetsor full ownership transferred from publicauthorities to investors


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The government has adopted the use of Public Private Partnerships

A governance framework has been set to ensure success in the use of PPPs

Policy

PPP Policy Framework - Adoption of a Policy framework for theprivate sector to play an important role in providing investmentthrough Public Private Partnerships (PPPs)

Regulations

ICRC Act (2005)

PPP Policy Framework

National Transport Commission Bill (in progress)

Institutions

Infrastructure Concession Regulatory Commission

National Transport Commission (in progress)

Source: Draft National Transport Policy: August 2010; Corporate Nigeria: The Business, Trade and Investment Guide 2010/2011


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in alignment with global trends in transportation infrastructure development

Local Bus BRT Interchange

Guayaquil, Ecuador

Transmilenio, BRT/Local Bus,

Bogota, Colombia

Herndon-Monroe Transit Center,Virginia Dulles Corridor, USA

Metro/Local Bus/BRTInterface, Mexico City, Mexico

Lekki-Epe Expressway, Lagos

Nigeria


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Development of road infrastructure via PPP remains in the infant stages

Policy governing

Infrastructure

Financing

Execution Success

to Date

Current Status

Challenges

Experienced

Existing policies include:

oNational Transport policy (currently being reviewed)

oFederal Government of Nigeria's PPP framework; and

oInfrastructure Concession Regulatory and Commission Act of 2005 established

to promote opportunities for Public private partnership in the sector

The Government has made a few attempts to adopt the PPP model but yet to be

successfully completed

Lagos States and LCC - Lekki-Epe Expressway

Federal Government and Bicourtney Lagos Ibadan Expressway

Privately developed or commercially operated roads (with the exception of Lekki-

Epe expressway) are not in existence in Nigeria despite several attempts by the

government

Conflict in policy objectives between the State and F.G.

Absence of clear responsibilities

Non-transparent procurement process

Non- credible sponsors or promoters

Source: Draft National Transport Policy: August 2010


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Development of rail infrastructure via PPP is still in the conception/design

phase

Policy governing

Infrastructure

Financing

Execution Success

to Date

Current Status

Challenges

Experienced

Same as policy governing Road infrastructure

The Government has initiated the process of concessioning the two main lines of

the Nigerian Railway Corporation Lagos State is negotiating with bidders for operation and maintenance of Red &

Blue Railway Lines

None

Outcome of current exercise will indicate potential challenges



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Only one successful example of concessioning exists in the Nigerian aviation

industry

Policy governing

Infrastructure

Financing

Execution Success

to Date

Current Status

Challenges

Experienced

Same as policy governing Road infrastructure

Efforts have been underway by agencies of Government to design a Concession

Model for the Airports, however, this is still inconclusive The recent governments have provided direct funding for Terminal Upgrades and

Runway Extensions in recent time in a bid to ramp up the quality of infrastructure

Only one successful example of concessioning Terminal II of Murtala

Muhammed Airport to Bicourtney Ltd

Policy inconsistency and uncertainty as a result of change in government

Key risk factor for investors

An example is the revocation of the Nnamdi Azikiwe Airport concession to Abuja

Gateway Consortium



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Concession of seaports has been the most successful when compared to other

modes of transportation in Nigeria

Policy governing

Infrastructure

Financing

Execution Success

to Date

Current Status

Challenges

Experienced

National Inland Waterways Act

Same policies governing road transportation

Most of the seaports have been leased out to private sector operative under 2

models (the landlord model and the service port model) The landlord model seems to be the most preferred option

The concession of seaports is most successful when compared to other modes

of transportation

N/A



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An enabling framework is critical to the success of PPP models in

transportation infrastructure financing and development

GOVERNMENT

Infrastructure Policy &

Objectives

Legislative Framework

Enabling Environment

Anti-Corruption Measures

REGULATORS

Industry Focus

Economics / Pricing

Standards

Levels of Service

Capital Investment

COURTS & TRIBUNALS

Judicial Independence

Rule of Law

Enforcement of Contract

Arbitration

Legal Redress & Protection

FINANCIAL

Diversity of Financing

Terms & Conditions

Liquidity & Credit

Risk Management & Mitigation

Source: Transportation Infrastructure , Institutions and Operations: Importance of Institutions

A presentation by Opuiyo Oforiokuma Managing Director/CEO, Lekki Concession Company at the 5th Lagos Economic Summit

INFRASTRUCTURE

INVESTMENT


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Outline

Background






Appendix


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South Africas transport sector is a key contributor to her competitiveness

in global markets and is increasingly being seen as a crucial enabler of

economic growth and social development

Political Context

Increased racial segregation culminated in apartheid

in the early 20th century

Apartheid legislation and ban on political

organizations lifted in the early 90s

First universal elections held in 1994

Transportation

System

Infrastructure

Development

Colonized by Britain

Gained independence in 1960

Experienced prolonged military rule between 1966 &

1999, with a brief democratic interregnum

Return to democracy in 1999

Extensive, quality road and rail network

Rail networks connect to other countries in Southern

Africa

Sea ports serve as hubs for traffic to and from

Europe, Asia, the Americas

Roads are primary means of transportation but are

largely in a state of disrepair

Rail infrastructure remains in dilapidated state

Sea ports are currently concessioned to private

sector

Investment in infrastructure during the apartheid eralocalized around four economic centers

Key challenge for South Africa is spreading

infrastructure development to other regions of the

country

Significant investments in transport took place in

preparation for World Cup 2010

Overall investment in the economy paradoxicallyreduced following the discovery of oil in the 70s

Heavily dependent on government for financing

Decades of neglect have created a huge

infrastructure deficit

Nigeria South Africa

Source: CIA Factbook, Wikipedia


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South Africas transport infrastructure is considerably more developed than

Nigerias

Criteria

Land Area (sq. km) 1,214,470 910,770

GDP (2009) $ 285.9bn $ 168.9bn

GDP per Capita PPP (2009) $ 10,291.3 $ 2,150.1

Road Network (km) 362,099 193,200

Road Density (km of road per 100 sq. km of land area) 29.8 21.2

Rail Network (km) 20,872 3,505

Rail Density (km of rail per 100 sq. km of land area) 1.7 0.4

Number of Airports 85 22

Number of Seaports 8 13

Cargo Throughput (Million tonnes) - (2008) 185 65

Source: World Bank Development Indicators; CIA World Factbook; Transnet, Nigerian Ports Authority

Airports by International Civil Aviation Organization (ICAO) code - http://en.wikipedia.org/wiki/List_of_airports_by_ICAO_code:_F#FA_-_South_Africa

http://en.wikipedia.org/wiki/List_of_airports_by_ICAO_code:_D#DN_-_Nigeria
http://en.wikipedia.org/wiki/List_of_airports_by_ICAO_code:_Fhttp://en.wikipedia.org/wiki/List_of_airports_by_ICAO_code:_Fhttp://en.wikipedia.org/wiki/List_of_airports_by_ICAO_code:_Fhttp://en.wikipedia.org/wiki/List_of_airports_by_ICAO_code:_Fhttp://en.wikipedia.org/wiki/List_of_airports_by_ICAO_code:_F


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The Apartheid Era

< 1995

Definition of a Public Transport Strategy(2007 2020)

Investment of R170 billion into thetransport system from 2005/06 to2009/10

Rail Network = 24487km

Road Network = 362099km

Passengers carried by air transport = 32.6m

Bus Rapid Transit (BRT) systems beginoperations

Construction of new Seaport at Ngqura

Launch of Gautrain rapid rail system King Shaka International airport begins

operations

More than 70 international airlines flyinginto the South Africa

World Class Transportation

Infrastructure

2005 - 2010

Review of 1980s National Transport Policy

Preparation of new White Paper on

National Transport Policy

Decision made to build more hub ports

and airports to maximize South Africa's

participation in the global economy

Rail network = 20319km

Road network = 264000 km Airports = 130

Seaports = 7

Passengers carried by air transport = 6.4m

Defining A New Beginning1995 - 1996

Sources: Green and White Papers on National Transport Policy, South AfricaPocket Guide to South Africa 2009/2010

SouthAfrica Info: http://www.southafrica.info/business/economy/infrastructure/transport.htm

Evolving over the years into what we see today

Transportation system inadequate to

meet basic accessibility needs in

developing rural and urban areas

Over dependence on roads for

internal passenger and freightmovement (three quarters of such

movement)

Only three national ports classified as

hub ports

Fewer than 12 international airlines

flying into South Africa


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A transport infrastructure that surpasses others within the African continent

Gautrain

OR Tambo International

Airport

Rea Vaya Bus Rapid Transit

System

Durban Port

Transports 16,000*

commuters every day

Exceeded 400,000passengers in first

month of operation

Achieved 1m passenger

after 4 months in

existence

Busiest seaport inAfrica

Handled 74,683,597

tonnesof cargo

during fiscal year

2008/09

Busiest airport in

Africa

Transported 17.56m

passengers in fiscal

year 2009/10

Source: Rea Vaya - http://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-day(*figures for 2009)http://www.engineeringnews.co.za/article/rail-2010-10-08; http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19;

ORTambo International Airport Total Passengers September 2010;

Ports & Ship, Durban: http://ports.co.za/durban-harbour.php
http://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.engineeringnews.co.za/article/rail-2010-10-08http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/rail-2010-10-08http://www.engineeringnews.co.za/article/rail-2010-10-08http://www.engineeringnews.co.za/article/rail-2010-10-08http://www.engineeringnews.co.za/article/rail-2010-10-08http://www.engineeringnews.co.za/article/rail-2010-10-08http://www.engineeringnews.co.za/article/rail-2010-10-08http://www.engineeringnews.co.za/article/rail-2010-10-08http://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-day


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Although the public sector is still the primary source of funds, South Africa is

increasingly reliant on PPPs to finance transportation infrastructure development

PPPs constitute a

small percentage of

the capital

expenditure for

infrastructure build

Table 4.8 Public sector infrastructure expenditure and estimates, 2006/7 2012/13

2006/07 2007/08 2009/09 2009/10 2010/11 2011/12 2012/13

R million Outcome Revised

estimate

Medium-term estimates

National departments 4 631 5 712 6 318 6 382 6 847 7 758 10 703

Provincial departments 27 112 29 395 36 094 41 185 45 623 49 971 50 786

Municipalities 21 084 30 736 39 577 37 480 41 305 50 449 56 028

Extra-budgetary institutions 3 699 3 726 6 194 10 859 11 175 15 083 18 821Public-private partnerships 1 343 3 857 4 942 13 751 9 939 11 389 6 109

Non-financial public enterprises 25 736 56 765 103 322 125 504 147 025 148 665 157 970

Source: Budget Review 2010, National Treasury, Republic of South Africa; Infrastructure Finance: The Changing Landscape in South Africa, Deloitte


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with emphasis placed on private-sector based service delivery and utilization of

PPPs in procurement of infrastructure, even when government funding is required

Register Project

Appoint Advisors

InceptionFeasibility

StudyProcurement Development Delivery Exit

Public Institution

PPP AgreementDirect

Agreement

Private PartyShareholdersShareholders

AgreementLenders

Financing

Agreement

Construction

Subcontract

Operations

Subcontract

ConstructionSubcontractor

OperationsSubcontractor

South Africa employs a fairly standard PPP model, but prioritizes private service delivery in all government spending

Needs Analysis

Due Diligence

Valuation

Procurement Plan

Design fair, equitable, transparent, competitive

process

Prepare bid documents and draft PPP agreement

Conduct bid process

Select, negotiate and finalize management plan

Measure Output

Monitor Performance

Regulate Progress

Settle Disputes

Annual Reporting

Scrutiny by Auditor

General

Evaluate Status

Coordinate Exit

PPPs are utilized as a central government procurement and investment catalyzing tool

Source: Team Anal sis


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Despite the picture painted, South Africa is not without its transportation

challenges

Infrastructure expenditure has not historically kept pace with the rate of economic growth

Financial sustainability in the long run, arising from the twin goals of meeting customer goals and

national objectives over time

Transport operating models in a number of critical entities are behind international best practiceand exacerbate the lack of investment

Safety (particularly on road and rail) is a weak link that creates its own significant economic costs

Skill gap in the transport sector, including capacity to execute and project manage large scale

transport projects

Source: Importance and Shortcomings of Transport in Society by Dr. Meshack Kosha at National Public Consultation Workshop on Prioritising

the Thematic Areas in the Transport R&D Strategy


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The primary supports for infrastructure financing model include:

White Paper on National Transport

Policy

PPP Legislation

Policy & Legal

Framework

Department of Transport

PPP Unit

Public Entities of the Department of

Transport e.g. ACSA, SANRAL, SACAA,

PRASA etc

Stakeholders &

Institutions

Support South Africa Nigeria

Primary Sources

oNational & Provincial Governments

oMunicipalitiesoOperators, Developers or Contractors within

the transport sector

Secondary Sources

o Equity funds focused on infrastructure

investments

o Bilateral Institutions e.g. DBSA, IDC

oOther Financial Sponsors e.g. INCA

Sources of

Funding

Draft National Transport Policy

ICRC Act

PPP Policy Framework

Federal Ministry of Transport

Federal Ministry of Aviation

ICRC

Other agencies & parastatals e.g.

NPA, FAAN, NRC etc

Primary Sources

oNational & State Governments

oOperators, Developers or Contractors withinthe transport sector

Secondary Sources

oMultilateral Institutions e.g. World Bank

o Financial Institutions e.g. Banks

o Equity funds

Source: Draft National Transport Policy : August 2010; Green and White Papers on National Transport

Polic South A rica In rastructure Finance: The Chan in Landsca e in South A rica Deloitte


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Comparing Nigerias financing & procurement model to South Africa, we see

key differences

South Africa Nigeria

Funding

Approach

Rely on the government and private sector for

funding

Government exhaust all other alternative funding

sources before funding any project

Government in some instances provides seed

funding and leverage Governments financing with

private sector funding

Until now, relies heavily on the Federal Government

and State Government for funding

Awards contract directly to contractors who bears

little or no risk

Recently seeking to grow a diversified funding by

attracting private sector funding

Procurement

Policy

Has a transparent procurement policy that can

attract funding from International Financial

Institutions (IFI)

Procurement policy needs to be reviewed to attract

IFIs

Emphasis is now being placed on a transparent

procurement process using the ICRC and Bureau of

Public Procurement

PPP Approach The PPP approach as a procurement process hasbeen long adopted by South Africa

The PPP model is currently being adopted

The PPP approaches are similar, but there are fundamental differences in

the funding approach and procurement policy



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Public-Private

Risk Allocation

Service Delivery versus

Asset Procurement

Application of PPP

Beyond Concessions and

User Pay Projects

Hierarchy of

Government Recourse

for Financing Projects

Strategic Focus on

Creating a Private Sector

Service Industry

Gaps to Address Recommendations for ImprovementNigeria model focused on paying for physical

infrastructure roads, bridges, rail lines; ratherthan procuring service availability

Financial Planning in

Tandem with Project

Conception

And have identified gaps in the Nigerian model and recommendations to

improve sector performance

Risk allocation too heavily skewed towardsgovernment in Nigerian transport infrastructureprocurement (contract-to-build versus pay-for-

service)

PPP application tied too closely to concessions anduser-pay projects, as opposed to a broader tool ofgovernment procurement from a self-fundingprivate sector

Operating philosophy in Nigeria is to look first togovernment for funding, with private finance and

PPP options seen only as a side opportunity

PPP model requires an industry of serviceproviders, not just traditional contractorsreinvented as concessionaires

Project conception, prioritization and selectionmust be in tandem with a plan to source financing

Implement changes to payment model for transport capexprojects, require private operators to raise funding backedby government offtake contracts

Broaden application of PPP use beyond concession issuancefor existing road, rail and port assets, to service delivery onnew capex, and operations/maintenance projects

Institute additional planning element to annual transportbudgeting process that seeks to exhaust private financing

potential before public spending

Begin process of developing private infrastructure servicedelivery industry through use of annual budget spendingpower

Institute additional planning element to budget process thatanalyzes extra-budgetary funding options for every proposed

transport project

Institute service procurement approach to annual transportcapital expenditure budget, issuing service purchaseguarantees not construction contracts



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In summary, the primary learning points for Nigeria include:

Focus on procurement of services rather than assets

Role of public sector should be on policy and strategy formulation, not asset operations

Broaden the application of PPP use beyond concessions this has implications for the

current framework of ICRC


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What goals should Nigeria set for its transportation infrastructure?


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Outline

Background






Appendix


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The future state transport system is expected to have the following envisioned

characteristics

Adequate

Safe

EnvironmentallySound

Integrated

Efficient

Affordable

Nigerias

Transport

System

Meets the needs of all

Nigerians for access to the

market, place of

employment and to basic

social services

All reasonable standards are

set and actions taken to

prevent accidents andminimize the number of

potential victims and the

destruction of property

Reasonable, effectiveactions will be taken to

diminish atmospheric,

water and other pollution

Transport services are

provided in a way that ensures

resources are used efficiently

- achieving sustainable gains in

productivity, reduced costs

and improved service quality

Adequate transport

services can be enjoyed

by all classes of Nigeriansat reasonable cost

Effective connectivity

between ports, rail, road,

inland waterways and air



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In alignment with this vision, specific goals have been set for each transport

mode (1/2)

Source: Nigerias Vision 2020 Economic Transformation Blueprint : Mid-Term Review of the National Technical Working Group Reports June 2009

The overall target for the aviation industry is to meet the ICAO standards

There is also a target of achieving full capacity utilization in the sub-sector; this will

mean the generation of increased demand for air transportation

Modern Railway of 1435mm Standard gauge; High speed Train of at least 250km/hr

passenger and 200km/hr freight travel

Double line network of up to 9,000km total route kilometre in addition to the existing

narrow gauge track

Develop Railway at the rate of 800km per year of new line; rehabilitation of the existing

narrow gauge to 50% of its installed capacity Reduction by 6% per year of Road dependent traffic so that by year 2020 Railway should

carry 40% of total national traffic generated

Funding target towards railway expansion should be at the rate of US$ 3 billion per

annum with at least 40% expected from private investment


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AirWaterLand

Federal Ministry of Transport

Rail Road Local Intl

Federal Ministry of Aviation

Nigerian Railway

Corporation (NRC)

Nigerian Institute of

Transport Technology

(NITT )

Ministry of

Agriculture

Ministry of Works

Nigerian Inland

Waterways

Authority (NIWA)

Maritime Academy

of Nigeria (MAN)

Nigerian Ports Authority

(NPA)

Nigerian Maritime

Academy (NMA)

Nigerian Shippers Council

(NSC)

Joint Maritime Labour

Industrial Council

(JOMALIC)

Nigerian Clearing and

Forwarding Agency

(NACFA)

Finance and

Supplies (FS)

Federal Road

Maintenance

Agency (FERMA)

Roles:

Regulatory

Supervisory

Execution (Investment, Ownership,

Operation, etc.)

Local and Intl

(Nigerian Civil Aviation

Authority (NCAA)

Federal Airports

Authority of Nigeria

(FAAN)

Nigerian Airspace

Management Agency

(NAMA)

Nigerian Meteorological

Agency (NIMET)

Nigerian College of

Aviation Technology

(NCAT)

Skypower Aviation

Handling Company

(SACHOL)

Transportation Sector Policy & Regulatory Framework

Source: Bankers Committee 2009 Documents


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Project Summary Owner Estimated

Cost

Financing Structure Start Date /

Duration

Current Status

Lekki-Ikoyi

Bridge

Link bridge from Lekki Phase I

to Ikoyi across the Lagoon

When completed, will help

decongest traffic on the Lekki-

Epe expressway

Lagos

State

Govern

ment

$ 200m SPV will be created for financing

the project

LASG N5 billion expenditure is

converted to equity capital in

the SPV

SPV will raise 36-month bridge

facilities of N20 billion from

Financial Institutions

SPV to be sold to interestedinvestors under the States PPP

programme

36 months Construction -

Foundation of

pier, abutment

and steel piling

in progress

Murtala

Mohd

Airport

Road

Expansion

Expansion and tolling of

existing 2-lane road into 8-lane

divided carriageway inclusive

of 2-service lanes and an

elevated ramp from Ajao

Estate

Road length is approximately4km

Lagos

State

Govern

ment

$ 70 - 100m Optimal mix of State and Private

Sector Financing

18 24

months

Pre-feasibility

Study and

Preliminary

Drawings have

been completed

Selective tender

process inprogress

Berger-

Isawo-Ita

Oluwo Toll

Road

An alternative route to Lagos-

Ikorodu Road being proposed

The project will increase the

real estate potential along that

axis and reduce man-hours

spent commuting considerably

The project will be in 4phases

The road will be tolled andinclude a bridge

Lagos

State

Govern

ment

$ 400m State to concession tolled road

Concessionaire to recoup

investment from toll fees

Terms of concession will be

subject to negotiation with the

State

TBD Traffic and

preliminary

feasibility

studies have

been

undertaken

Feasibility study

and EIA to beundertaken

Investment Opportunities Road (1/3)

Source: LAGOS STATEINFRASTRUCTURE DEVELOPMENT PLAN: Presentation to the Bankers Committee


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Cost

Financing Structure Start Date /

Duration

Current Status

Lagos-

Badagry

Expressway

10-lane dual carriage

expressway project that

will provide modern

transportation as well as

access for people coming

to Nigeria from the West

African sub-region

Lot 1 Orile to Mile 2

LagosState

Government

$ 270m

(Lot 1)

Optimal mix of

State and Private

Sector Financing

36 months (Lot

1)

Work has

commenced

on Phase 1 of

Lot 1

Lagos-IbadanExpressway

105-kilometre roadgranted to Bi-Courtney on

as a concession contract

Entails redesign,

reconstruction, expansion,

modernisation and

maintenance for 25 years

Federal Ministryof Works $ 600m

PPP, concession Concessionedi nMay 2009

Operator yetto begin work

at site

Abuja-Kaduna

Carriageway

166km dual carriageway Federal Ministry

of Works

$ 138.3m TBD, owner leaning

towards PPP,

concessioning

Immediate

Prospect

Pre-feasibility/

OBC study

Kaduna-Kano

Carriageway


of Works


towards PPP,

concessioning

Immediate

Prospect

Pre-feasibility/

OBC study

Shagamu-

Benin

Carriageway


of Works


towards PPP,

concessioning

Immediate

Prospect

Pre-feasibility/

OBC study

Benin-Asaba

Carriageway


of Works

$ 139m TBD, owner leaning

towards PPP,concessioning

Immediate

Prospect

Pre-feasibility/

OBC study


Source: LAGOS STATEINFRASTRUCTURE DEVELOPMENT PLAN: Presentation to the Bankers Committee World Bank


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Project Summary Owner EstimatedCost

Financing Structure Start Date /Duration

Current Status

Niger River

Bridge at

Nupeko

1.2km, 11m wide

single carriageway,

greenfield

Federal Ministry

of Works


towards PPP,

concessioning

Short-Medium

Term Prospect

RFP issued for

pre-feasibility

River Katsina Ala

Bridge at Buruku

0.8km, 11m wide

single carriageway,

greenfield

Federal Ministry

of Works


towards PPP,

concessioning

Short-Medium

Term Prospect

RFP issued for

pre-feasibility

Ibadan-Ilorin

Road

150km, completion of

middle segment

Federal Ministry

of Works


towards PPP,

concessioning

Short-Medium

Term Prospect

RFP issued for

pre-feasibility

Lagos-Iseyin-

Kishi-Kaiama

375km, construction &

rehab

Federal Ministry

of Works


towards PPP,

concessioning

Short-Medium

Term Prospect

RFP issued for

pre-feasibility

Kaiama-

Konkweso-

Kanje-TugarGwambe

410km , extension of

Lagos-Kaimacorridor,

Involves greenfieldconstruction

Federal Ministry

of Works


towards PPP,

concessioning

Short-Medium

Term Prospect

RFP issued for

pre-feasibility

Onitsha-Enugu

Road

122km, rehabilitation

and upgrade

Federal Ministry

of Works


towards PPP,

concessioning

Short-Medium

Term Prospect

RFP issued for

pre-feasibility

Enugu-Port

Harcourt Road

215km, upgrade and

modernization

Federal Ministry

of Works


towards PPP,

concessioning

Short-Medium

Term Prospect

RFP issued for

pre-feasibility


Source: World Bank


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Cost

Financing Structure Start Date

/ Duration

Current Status

Light Rail

Mass

Transit

Network of seven intra-

city rail lines

Two are to be developed

as a matter of priority

o Red Line - a 37 kilometer

rail road from Alagbado

to Marina

o Blue Line - a 27

kilometer rail road from

Okokomaiko to Marina

Lagos State

Government

Total =

$2,554 bn

Red Line =

$1,019 bn

Blue Line =

$1,535 bn

Combination of Debt,

Equity & Export Credit

Financing

LASG, the preferred bidder

and other core investors

to invest equity via a

Special Purpose Vehicle

(SPV) which will be

created specifically for

financing the project

2010 Preferred Bidders

for both Red and

Blue Lines have

been selected

Negotiations with

the Preferred

Bidders have

commenced

Abuja

Light Rail,

Lot II

Represents third of the

first three of six lines that

are planned for a light rail

system in Abuja

Federal

Capital

Territory

Admin

$ 1.2bn TBD, owner leaning

towards PPP,

concessioning

Short-

Medium

Term

Prospect

Conceptual design

stage

Lots I, III ongoing

Investment Opportunities - Rail

Source: LAGOS STATEINFRASTRUCTURE DEVELOPMENT PLAN: Presentation to the Bankers Committee; World Bank


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Cost

Financing Structure Duration Current Status

Lekki Airport International Airport

located in Lekki

Circa 5 million passengers

per year (Phase1)

Modular Terminal for easy

expansion

Future use by the AirbusA380 aircraft

Modern architecture

Lagos State

Government

TBD Optimal mix of State and

Private Sector Financing

TBD Master plan and

EIA completed

Geotechnical,

topographical

and perimeter

roadongoing

Investment Opportunities - Air

Source: LAGOS STATEINFRASTRUCTURE DEVELOPMENT PLAN: Presentation to the Bankers Committee


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Cost

Financing

Structure

Duration Current Status

Kiri-Kiri

Terminal,

Phases I & II

Ministry of

Transport / NPA

TBD TBD, owner leaning

towards PPP,

concessioning

Short-Medium

Term Prospect

Early project

preparation, steering

committee formed

Onitsha River

Port

Ministry of

Transport /

NIWA

TBD TBD, owner leaning

towards PPP,

concessioning

Short-Medium

Term Prospect

First concession

attempt cancelled

Investment Opportunities Seaports & Waterways

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