Ewalefoh: Faster Approvals, Stronger Oversight, Political Will Driving Nigeria’s PPP Infrastructure Investment

Two years into his tenure as Director-General of the Infrastructure Concession Regulatory Commission,Dr. Jobson Oseodion Ewelafoh believes private-sector investment is critical to bridging Nigeria’s huge infrastructure deficit, particularly in energy and transportation. In this interview with Tokunbo Adedoja and James Emejo, he discusses reforms to streamline public-private partnership (PPP) approvals, strengthen regulatory oversight and boost investor confidence. Ewalefoh explains how the Commission is addressing contractual risks, protecting public assets and balancing investors’ returns with affordability for citizens. He also highlights investment opportunities in power and transportation, the potential of unsolicited proposals and prospects for cross-border infrastructure development across West Africa. Excerpts

Two years in the saddle as Director General of ICRC, has there been challenges?

Well, two years in the saddle I would say has not been easy, and easy. I will say it has not been easy because the work we have to do is very challenging and demanding. Mr. President was very clear on the assignment he gave me when I was appointed and that is to use innovative financing to accelerate our infrastructure projects in Nigeria.

And we all know the deficits we have is much; as you all know.

All the reports – the Nigerian Infrastructure Masterplan reports, World Bank and other development institutions, have highlighted the scale of the challenge. As at three years ago, one report estimated that between 2023 and 2046, Nigeria would require about $2.3 trillion to bridge infrastructure gap. And it went ahead to say we would require $100 billion yearly in our budget to build infrastructure. If you check the budget trajectory we’ve had over the last four to five years, you will see that our budget had been less than $50 billion. That means we have more than half of this infrastructure left unattended to through the budget. What that tells you is that the only way to bridge this gap is to leverage on the financing potential of the private sector.

And that report went further to say that the areas that require the financing the most is in energy and transportation; in energy alone, we require about $759 billion and $579 billion in the transport sector. Definitely, government alone cannot do it. And that is the essence of ICRC and I think that is one thing I was charged to come and do here.

I say challenging because the fiscal space is tight right now. And when we came on board, that was at the beginning

of the liberalisation of the foreign exchange regime, same time, we had the removal of fuel subsidy and so the economy was trying to balance itself. There were lots of apprehension among investors and financiers about what was going to be the impact of this policy on their investments? But what we did was that we were able to allay their fears. Mr. President was able to put measure in place that ensured the right balancing of these policies were created on time. Investors can now forecast, and can now plan with specific exchange rate in mind when doing their assumptions and calculations. That has made things easier for us.

And when I said easy also, I don’t think in the history of this country until now, we have the support of the President who wants to leverage the financing of the private-sector. Mr. President has given all the support we need. In doing so, when I took a memo to him and said sir, he should decentralize approval for public-private partnerships, because before now, every approval for PPP projects, whether N1 billion or N200 billion, must go to Federal Executive Council (FEC). But I approached the president and said, “why don’t we look at ways of making PPPs more interesting and attractive to the private sector?” And he charged me to come up with ideas.

When I resumed, we came up with a six-point agenda which clearly aimed to clearly to remove some of the barriers we had identified. Before now, timeline to finish a project takes about two years if you are fast. We removed the barriers and we increased turnaround time. I then found out that one of the things we needed to do was that – ICRC don’t own these projects, we are only regulators. The initiation of these projects must start with MDAs. But what did we find? Most MDAs were reluctant to embrace PPP as alternative for financing infrastructure projects. So, when I came up with the six-point agenda, I approached the MDAs, met with them individually and I had sessions with them trying to let them know that gone are the days. We have rejigged our processes, we have increased the ease of doing business and faster approach. And I will tell you that clearly, they understood us immediately and they bought into the idea.

After that, I approached Mr. president and said one other barrier that we need to remove is thresholds – that all projects must go to FEC; we want decentralization of powers and he equally agreed with us.

And the reasons that actually made us to come up with this was that we have social infrastructure, economic infrastructure including ports, transportation that are self-sustaining. We have social infrastructure that are near to the people like schools, health and housing – that you cannot run purely on commercial terms.

So, to attract investors into that space, we needed to remove the thresholds because the president created the thresholds for us, of N10 billion and N20 billion. For projects below ₦10 billion, approval was delegated to the relevant MDAs. What this has done for us, essentially, is to increase participation in the sector. For example, if you want to install an MRI machine in a hospital, the project could cost less than ₦5 billion. You have to go all the way to FEC. No.

But what did Mr President do? Mr President said we should create a project approval board in place of FEC. If you want to build a student’s hotel, say 100 to 200 bedrooms, it is less than N10 billion and you go to FEC? So, with this threshold that president has brought in, it has made PPPs attractive in the social sector.

By broadening the scope of participation, we can attract more people into the sector. With that support, I think my job has become easier. That was why I said it is easy but challenging. But with the kind of President we have, work became easier because we have his support.

One of the fears investors have had in the past was policy summersault and that a change of government could affect projects and agreements. Investors worry about whether the government will honour its commitments.

But the President has set an example. Since he came on board, he has never canceled any PPPs projects. Rather, when there are challenges, he will say let the parties sit down and renegotiate or find a way to address those concerns. That has improved investor confidence with what we do at ICRC.

We are now approaching an election period. Before now, no investor will talk to you and they will be waiting to see what happens. They feel there would be a change in policy and agreement and that the agreement could be cancelled.

But we have been able to create that assurance and allay those fears, and that we are a country that respects rule of law and sanctity of contracts. We want them to understand that our laws are not merely enacted; they are meant to be observed and enforced. I believe these two things have helped us achieve many of the objectives the government has set out to accomplish over the past few years. One has helped us move forward, while the other has strengthened the framework for infrastructure development.

The President has directed that all PPPs, regardless of the name under which they are structured, should pass through the ICRC. What prompted the need for this directive, and how will the Commission ensure compliance across government?

You will recall that before the ICRC board was inaugurated in August 2008, we had the ICRC Act of 2005. The board was inaugurated in August 2008, and the institution began its work in that period. Prior to that, a lot of initiatives had taken place in the PPP space, and many contracts had been signed and consummated. However, we realised that there was no uniform standard. There were insufficient transparency and no third eye or independent oversight in some cases. Government had been committed in those agreements in one way or the other.

The government therefore felt that there was a need for a uniformity of standards form of contract. We cannot have you call a project a lease and another says it is a concession and another says it is a PPP. And whether you like it or not, the person that has the authority to bind the government is the contractor. The only way we can get out of it as a country is if we establish a fraud.

One project might be called a project agreement, another a lease, another a concession, and another a payment arrangement. Different names and structures were being used.

One example is the case of P&ID. P&ID never passed through ICRC…I am not saying we have fraudulent contracts in MDAs because I cannot allege that but we have means of compliance in best practices and risk-sharing. Everything in a public-private partnership involves the allocation of risks. In PPPs, the general principle is that the party best positioned to manage a particular risk should bear that risk. Therefore, when we review agreements, we must ensure that this principle is properly entrenched.

If you transfer a risk to the government when the private sector is better placed to manage it, the government ultimately bears the consequences. The structure of the agreement must therefore reflect the appropriate allocation of risks.

We noticed this mismatch in most of the contracts that were signed by MDAs, some out of ignorance. In some cases, this has happened out of ignorance. Before now, I do not think we had sufficiently developed the commercial expertise and understanding required to assess these agreements properly.

That is part of what our action plan is addressing through advocacy and capacity-building.

It is part of our responsibility to guide, regulate, support, advocate, supervise and monitor PPP projects.

What we do is not to wait until money has been spent before identifying mistakes. Through our advocacy and review processes, we try to identify problems early and help the MDAs ensure that the right projects PPP agreements are properly structured and consummated.

From our reviews, we have identified these problems. Everything we do is guided by the law, including Section 1 of the ICRC Act.

Any ministry, department, agency or government institution entering into a PPP project, project financing arrangement or joint venture any other form of public-private partnership must comply with the applicable legal and regulatory framework.

It does not matter whether the arrangement is called a joint venture, a concession, a PPP or something else. It must comply with the ICRC Act.

The substance of the arrangement matters more than the name given to it. If it is a public-private partnership arrangement, the applicable requirements must be followed.

We have also focused on fiscal risks because we cannot simply allow contracts to proceed without considering their implications for the government.

An MDA may have the authority to undertake a project, but it does not operate independently of the federal government. It is an agency of the government and must act within the law.

If an agreement is not properly structured, it can create a crisis.

Remember a case in Ogun State when the state government signed a contract with Chinese firms. But when the agreement crystalizes, federal government assets were to be held responsible. Following these experiences, we have emphasised proper screening, transparency, and due diligence purpose. The Ministry of Finance came up with a circular that says any PPP arrangement that does not comply with ICRC requirements and law is null and void. Government was very clear on that.

We have communicated this position to the relevant MDAs as part of the institutional support provided by the ICRC. This has helped redirect many MDAs to the ICRC to ensure that their proposed PPP arrangements are properly reviewed. What we do at ICRC is to ensure that risks are properly shared.

We are also working to improve compliance and consistency in the implementation of these requirements.

I believe awareness remains a major challenge. Many people do not fully understand the implications of the arrangements they enter into. Government agencies may not always appreciate the risks and liabilities that can arise from such agreements.

Sometimes, the problem is a lack of knowledge. But once the financial implications become apparent, the consequences can be serious.

That was what motivated the government to issue the circular directing all MDAs to comply with the established requirements. Otherwise, an agreement may not receive the necessary recognition or approval.

The circular was important because some agencies did not understand the requirements. They were not putting the appropriate safeguards in place, and that was creating problems.

Nigeria has had several PPPs that attracted controversy, litigation or public criticism. What lessons has the ICRC learnt from past failures, and what safeguards now exist to prevent a repeat?

Let me say this that globally not only in Nigeria, PPPs are complex transactions. At the time you begin a project, most of the time, you are working on assumptions and studies. You may have assessed the risks and considered how the project would work.

But when the contract is signed and the project enters the operational stage, many other issues can arise. The bottom line in many of these controversies is that the risks were not properly identified and allocated under the PPP agreement. When we assess projects and determine how risks should be allocated among the parties, we must consider the possibility of litigation and other problems that could arise during the life of the contract. Some of these problems result from force majeure provisions and the failure to properly anticipate and allocate risks. In Nigeria, as I have said, many of these challenges arise from poorly structured contracts, a lack of understanding of the contracts and their implications. If you understand the different sectors and the requirements of each, you will appreciate that each project presents its own challenges. We are also seeing new developments and approaches in this area. As a country, one of the reasons the ICRC exists is to address these mistakes and ensure that they are not repeated. I can give you an example. When the power privatization started. ICRC was not in place. The ports concessions, there were even no Acts, the Act they used was the NPA Act. Our law was passed 2005. so many of the agreements we inherited had been prepared under earlier arrangements or without sufficiently developed standards. So, most of the PPPs you see were badly structured. Even if a project will go wrong there should be safeguards in the contracts to address it. There should be provisions that address it. Even in force majeure, provisions should be in the contract on how you handle such things. And the beauty is this; some of those contracts that were signed then and had issues, some of them don’t have provisions for amendments. So, following those mistakes, when we came on board, we always insist that for every contract signed, there must be periodic reviews and there must be room for amendment, and the amendment can be triggered by either party to the contract.

When we noticed some of these issues, we agreed that the most essential instrument is the concession agreement which is the bible of the project. We noticed some of the inconsistency in PPP agreements signed by different agencies and we thought there was a problem. And so, we approached the ministry of justice and sought for a uniform template for drafting PPP agreements that every MDA will adapt on a case-by-case basis. So, we came up with a model agreement that was launched about four months ago by the attorney general of the federation. That has helped people to understand risk sharing very well and to better prepare concession agreement. And this has also help ICRC in reviewing agreements faster. Before now, we used to have brief case investors; people that just come, get an MoU from you or any MDA with a lot of liabilities on government. In the new concession agreement, we have in place, MoUs have no place in PPPs anymore and that has reduced the challenges of failed projects.

There is often a tension between attracting investors and ensuring value for money for taxpayers. When those two objectives conflict, where does the ICRC draw the line?

One of the cardinal principles of risk sharing, PPP is value for money. Value-for-money analysis is one of the key considerations in ICRC. I may come in as an investor to build infrastructure, but of what cost is it to the country and its citizens? Let me give you a typical example. I remember when they wanted to build a road from second Niger bridge. When they did the financial analysis vis-avis the recovery of investment, I think they arrived at N20,000 that people will pay as toll to cross the bridge. That’s the only way to make it viable for people to be able to recover their money within a timeframe.

I remember when they came here, ICRC was of the opinion that this would not work; you can’t tell me that because I want to cross from Asaba to Onitsha, I should pay N20,000 – that was then anyway. And we advised that why don’t you use that money to build roads from Shagamu to Asaba and bring down the toll from that end…so with that, yes, their project got to increase but the burden on the people will be less. You have other resources of recovering your money and you will also create a bigger infrastructure.

And another thing we use to ensure value for money; we can say okay, it is a 20-year concession and this is what it could cost you to deliver it. We could say okay, from our affordability study and willingness to pay, it will not work, why not look at other things to do – s on the roads, create transit park on the road to reduce your cost…we can say 20 years you are charging N5,000, why don’t you charge N3,000 and your tenure will be 30 years? With that people can afford it. Because there must be that value for money. You must arrive at an equilibrium.

So, talking about the investor desire to recoup investment and the users getting maximum utility for that service at an affordable price, we must check that equilibrium and balancing.

Two things we do when on our business case is stakeholder consultation, affordability and willingness to pay

If you are building an infrastructure from here, you must make me understand what I stand to gain and stakeholder buy-in that reduces the hostility and resistance to such infrastructure.

Now, let me explain – there is the affordability, can I afford it? Even if they can afford it, are they willing to pay? From the proper stakeholder consultation, you would have taken care of those aspects before you get to signing your agreement because that is one of the requirements we put in our guidelines for business case. So, there’s been a learning curve; for every project, I and my team sit down together to say what are the lessons learnt from this so that what we got right here, we try to enhance and what we got wrong, we try to fix it in the next project. We need to understand the traffic projections, the income profile of the users, the proposed charges and the extent to which people are likely to use the facility.

These considerations help us determine whether a project is sustainable. The challenge is to strike a balance between the investor’s expectations and the expectations of the people who will use the infrastructure.