Published in This Day Newspaper October 7, 2014
Ebele Irabor LL.B(HONS), B.L
The growth of Public-Private Partnerships (PPPs) in Nigeria has been disappointingly slow, especially in light of our dire need of the sort of infrastructural projects that PPPs are so well suited to. This slow pace of growth is worrying, not only because of how much Nigeria stands to benefit from PPPs, but also in comparison to the rate of growth in other emerging economies. The initial thinking was that Nigeria was a sure bet of a nation that would embrace and imbibe PPPs. However, the reality seems to be a case of government complaining of a shortage of private sector investments whilst investors express a dearth of viable projects. It is my belief that the reason for this is because at the heart of every successful PPP lies a symbiotic and smooth flowing nexus between government and investors. This synergy is built on several platforms: proper foundation (project conceptualization), proper co-ordination, proper funding, political will and preservation of contracts (continuity of public projects). Constraints to the growth of PPPs are generally a reflection of inadequacy in one or more of these listed areas. Consequently, potential for failure of PPPs in Nigeria has remained high.
The Role of Government
Government as the key PPP partner, concessions its assets and/or services to the private sector for better management in expectation of greater efficiencies in service delivery as well as better value for money, to the public. There are several types of PPP modules including Design and Build, Design-Build-Maintain, Design-Build-Operate–Maintain, Build-Own-Operate, Build-Operate-Transfer, Management Contracts, Concession Contracts, Service/Management Contract and even Divestitures, amongst others. The Build-Operate-Transfer module has been the most prevalent and effective in Nigeria. PPP modules can be applied to almost every sector of the economy, including education, transportation, health, communication, power, agriculture, and even human resource training. Government thus provides the assets, grants rights over these assets, provides regulatory conditions, and availability of a pro-active and realistic enabling law and environment. However, beyond these, it is key that government demonstrates the political will to provide this requisite support base. Unfortunately this is hardly so. Government services are generally not feasible and cannot be structured for bankability from the on-set. Converting them to bankable projects is expensive and an essential process that must be conducted to encourage private sector involvement. This stage of the process would include training civil servants, addressing social issues, re-planning policies and addressing political sensitivities. The cost of the conceptualization stage is a significant bane of PPP projects and can account for up to 5%-10% of the total cost of the project. This stage often involves initial planning and co-ordination, due diligence, research and design; and because of the deplorable existing conditions of most government assets, investors are generally not able to fund this stage of the process alone. This is a cost government is generally not willing to take on, and which can eventually lead to the failure of a project. For projects to succeed, government must be ready to share these base financial costs with the private sector partner. It has been suggested that a special fund be set aside by government to contribute to this stage of the process because it is often at this stage that projects die. Furthermore, civil servants are generally not trained to work with commercial considerations and contract management, further resulting in the deficient regulatory and supervisory role of government. The success of PPPs also depends on the module adopted, for projects are module specific. For instance, for social services projects such as education and health, the module adopted must ensure government introduces incentives to guarantee that provision of such services under a PPP is viable enough for private sector interest. This is because the provision of social services is generally the statutory duty of the government and must be made available to the public, at affordable costs. PPPs in the social services sector are more difficult to structure as investor and government interests would appear to be in conflict. Investors are only interested in financial gains whilst the consideration for government is non-economic. In this wise, government would often have to subsidize tariffs, grant exclusivity rights, and other guarantees to ensure affordability of these services to the public. A typical example of this is the newly reformed power sector where the regulator and the operators are almost locked in a deadlock over pricing.
Another major drawback to the success of PPPs in Nigeria is the non-availability of long term funding. In developed economies, a good source of funding for PPP projects are pension funds and life insurance companies which unfortunately have not been so available here for this sector. These are funds government should encourage for PPP funding by offering incentives to those sectors. Also, participation of international financial institutions helps bolster PPPs, through long term funding, which in turn encourages private investors. Thus the capacity and credibility of government to secure and retain the involvement/participation of such institutions in PPPs is a key element to ensuring their success. Of course, like all private sector ventures, projects must be found to be viable, through asset-liability matching, inflation linked returns, and lower risk profiles compared to equities.
Inadequate Public Acceptance
Another difficulty PPPs face the world over, and also in Nigeria is acceptability by the public. With the prevalence of corruption, taxpayers already feel short-changed by government and do not understand why they should pay for services within the purview of government’s obligations. For PPPs to be more readily acceptable, government must be seen to develop much stronger regulatory as well as consumer protection protocols. It will be the job of these agencies to enlighten and sensitize the public of the needs and benefits of projects, as well as to provide avenues for addressing public complaints. The Lekki Expressway concession is a typical example of such conflict where the Lagos State Government failed to appreciate the importance of carrying the public along when planning an otherwise good project. The essential policy of providing an ‘alternative route’ when tolling an improved highway, was not considered at the onset. What this led to was a series of protests which a democratically elected government did not need, as the impression people had was that government simply helped to enrich some private persons by putting a strangle hold on the public. I am assuming that this is probably why the Lagos State Government has slowed down on its otherwise laudable PPP drive.
The Role of Lawyers in PPPs
An integral ingredient of successful PPPs is respect for the rule of law. Lawyers can make a positive contribution to PPPs by ensuring that there is sanctity of contracts; parties, especially government, must not be allowed to abdicate or breach the contractual obligations they make under PPPs. It is often the case in Nigeria that whenever there is a change of leadership in government, the new administration would abandon projects to which the previous one had committed. This is illegal, as government, irrespective of whom heads its administration is a legal personality, and remains bound by contracts entered into properly in its name. Contractual obligations are sacrosanct and lawyers and the judiciary as a whole must place greater emphasis on this. Governments are vested with a lot of power, but they are not, and should not be allowed to act above the law. Indeed, once governments imbibe the culture of following through on contracts, the risk that currently pervades PPP projects due to periodic changes in government leaders will be greatly diminished. The challenge of funding is not a legal one. However lawyers can help to draft guidelines for investments in PPPs by creating suitable investment templates and guidelines to give adequate comfort to investors. Lawyers also advise on the terms of the module to be adopted, and the negotiation of such terms. This is a paramount role to the success of PPPs. A well drafted contract must include an efficient and appropriate risk allocation and distribution between the public and private sectors by carefully assigning to the party best able to manage each risk, and ensuring proper dispute resolution mechanisms are included. Possible risks would differ for example, from political risks to financial risks such as interest rate fluctuations due to long term credit implementation, to environmental risks and so on.
Regulatory Safeguards for PPPs
Government in realizing a need for a standardized procedural environment, created the Infrastructure Concession Regulatory Commission (ICRC) by statute in 2005. If well funded, this is an institution that will change the face of infrastructure development in Nigeria. The ICRC has developed a national policy on PPP as well as guidelines for their supervisory roll. All PPP projects must be submitted for approval by the ICRC and must comply with the Public Procurement Act, 2007, Fiscal Responsibility Act, 2007 amongst other statutory regulations. There are also other sector specific laws which must be observed depending on the project, such as the Civil Aviation Act, 2006 for aviation industry, Federal Highways Act, 2004, Nigeria Ports Authority Act 2004, Land Use Act, 2004 etc. The existence of this agency is laudable and should be supported. Finally, it is safe to conclude that the problem with PPPs is that, many of the infrastructural projects that they cover are meant to bring long term benefits to the society and the economies they operate in; they are not typically, designed to bring quick return on investments. This makes them attractive to fewer investors than is the case with other investments. Making such projects financially viable and thereby attractive to a wider range of investors is a challenge that is largely outside the realm of or this article.
LUWA OSINOWO LL.B (HONS), B.L
Competition law is a legal framework put in place to promote or maintain market competition by regulating anti-competitive conduct by companies. (Taylor, Martin. 2006) It is otherwise known as anti-trust law and anti-monopoly law in other jurisdictions.
The major aim of competition law is to ensure a deep supply market for consumer goods and services, not just to ensure that there are many suppliers in the market for particular goods and services, but to ensure that such suppliers play according to a set of rules that would make it difficult for any of them, individually or as a group, to lessen or eliminate competition in the market.
The first jurisdiction to put in place a framework similar to the various forms of competition law in existence in recent times is the United States of America. The USA passed into law the Sherman Antitrust Act of 1890 on the understanding that markets needed some form of protection from the activities of large firms particularly as against small firms.
It became a common trend at that time for shareholders to transfer shares held in competing companies to trustees who then controlled the activities of those competitors as a result of which competition was lessened between them. Hence the name antitrust law in the United States.
The UK’s development of the area, in comparison to the US, was slow with no urgency for the need of black and white competition law. This was because the common law of restraint of trade (the predecessor to modern competition law) served its purpose for their economy at that time. After several legislative twists and turns, the UK finally settled on the Monopolies and Restrictive Trade Practices Act 1969.
The United Kingdom joined the European Community (now the European Union) with the European Community Act 1972, and through that became subject to EC competition law thus going on to pass the Competition Act 1988 in order to harmonise with the European policy.
THE WORKINGS OF MARKET COMPETITION
The underlying factor for competition law is consumer protection. According to Leonard Ugbajah, “in a free market economy (read: in a market where there is competition), the consumer is king”.
On this basis, most such laws surround the prohibition of individuals/businesses from agreeing with one or more other persons to engage in specified cartel arrangements such as price fixing, limiting production or supply, collusion to share markets and rigging bids.
Some industry watchers argue that competition laws can produce negative results, one of which is the protection of competitors who fall below industry standards. Yet some others argue that a particular company may dominate a certain industry because of the skill and innovativeness which it brings to the business. Eventually, no amount of competition law will be useful in such a scenario where no other company can match the skill level of the dominant player.
Where there are two or more suppliers of a particular good or services, the market responds to consumer needs in terms of lower prices, quality or variety of goods and services. Where there is only one entity which supplies a large market with new entities prevented from entering the business due to “high entry barriers”, the supplying entity becomes king and consumers are at its mercy.
It is the writer’s opinion that where market prices are kept at a fair level, better companies with higher standards will always win the market, ultimately forcing the incompetent ones to up their game.
Gleaning from the aforesaid, the three main issues competition law seeks to address are: market structure; collusion; and mergers and acquisitions.
THE NIGERIAN POSITION
Nigeria is yet to have a codified set of rules promoting competition in the marketplace. Before the turn of the millennium, the absence of a specific legal framework could be justified by the hitherto status of government monopoly over certain commercial enterprises e.g. telecommunications, electricity, etc. Arguably, there was little or no need to regulate competition since government no rivals. Whereas, in industries where competitive commercial activity existed, industry specific regulatory bodies were set up to encourage healthy competition.
Owing to the recent privatisation phase of certain aspects of the economy by the federal government, there is now a need for a general competition law. This is because, as many rightly argue, privatisation in the country has resulted in the concentration of economic power in the hands of a few private entities instead of improving the level of competition in the markets and bringing down prices of goods and services.
There have been nine bills so far presented at the National Assembly in a bid to create a legal framework for competition in Nigeria (www.nassnig.org), the most recent being “A Bill For An Act To Provide For The Establishment Of The Nigerian Trade And Competition Commission And For Other Matters Connected Therewith” (NTCC Bill) in 2012 at the upper legislative house (sponsored by Senator Magnus Odion Ugbesia). None of these bills have made any significant progress till date.
The delay in the passing of this bill, and its predecessors, seems to be due to an insufficient understanding of the nature and essence of the subject by our political leaders. In September 2006 the first bill during its first reading, met a hostile reception at the Senate for reasons which include the extensive powers given to the Minister, the fact that there were already too many Commissions in Nigeria dealing with various issues; and the belief that a similar law to the competition bill had been passed before. (Nnamdi Dimgba, 2008.)
Some of these sentiments seem to be shared by others outside the political class who believe that Nigeria has much more important problems that should be addressed.
We must not shut our minds also to the fact that the delay in passing the bill might also be as a result of the relationship between the political class and the ruling business class, wherein certain individuals even wear both caps. This can lead one to infer that the government has a hand in encouraging unfair market competition by offering tariff waivers and tax relieves to a select few, e.g. the alleged abuse of import waivers and tax concessions on rice importation between 2000 and 2007.
As it stands now, what is obtainable is the regulation of competition in different industries by dedicated industry regulators. For example, Nigerian Communications Act 2003 and the Electric Power Sector Reform Act 2005 which regulate amongst other things, competition in the communications sector, and in the power sector, respectively.
One of the most important and pervasive competition specific regulators in Nigeria is the Securities and Exchange Commission. This is the body empowered by the Investment and Securities Act 2007 to regulate the securities market. Part XII in particular, provides the rules guiding mergers, acquisitions and take-overs, and strictly curtails adjustments which might substantially prevent or lessen competition in the relevant market.
COMPETITION SPECIFIC LEGISLATION
The 2012 NTCC Bill serves to promote the efficiency, adaptability and development of the Nigerian economy, provide consumers with competitive prices and product choices, promote employment and advance the social and economic welfare of Nigerians, ensure that small and medium enterprises have an equitable opportunity to participate in the Nigerian economy; and protect Nigerian industries from unfair trade practices.
Where a competition law is eventually passed, what happens to government bodies such as the Consumer Protection Agency, Securities and Exchange Council, etc. already seized with the functions that ultimately lead to prohibiting restraint of trade?
Section 8 of the NTCC Bill attempts to address the possible conflict that may arise between these industry specific regulators and the Commission when in sub-section (f) it states that;
“the negotiation of agreements with any other regulatory authority for the purposes of coordinating and harmonising the exercise of mandate over consumer protection and competition matters within the relevant industry or sector”
This writer would suggest that rather than establish a competition agency, the responsibility of enforcement of the law when passed should be given to the consumer protection council. So far, the industry regulators have done a good job in ensuring that there is no monopoly of the market by any one entity. However, there are insinuations, that in certain industries, cartels hold sway. This is Nigeria’s biggest problem, which only a general competition law, properly enforced, can remedy.
Whether a specialised agency would be established or not, it is pertinent that we move forward in regulating market activities within the economy. This can only be done where the basic legal framework for competition is put in place, and upon which other sector regulations can build upon.
As is common in Nigeria, the major issue with most laws is in their enforcement. There is no point in passing a competition law that will not be adequately enforced. What should be done is to ensure that there are modalities in place to enforce the competition law once passed. This should be the focal point for government. Once this can be guaranteed, then efforts to pass the bill (whichever is chosen, or if harmonised) should be intensified.
Pending this, it is important to embark on consumer awareness and sensitisation. The consumer can only be king in a marketplace when they know their rights. In the absence of adequate knowledge, competition law or not, business entities will take advantage of consumer ignorance.