8/30/2015 1 Legal & Regulatory Framework For Public Private Partnership In Nigeria Under the Infrastructure Concession Regulatory Commission Act 2005 CWC.

04/19/23 1

Legal & Regulatory Framework For Public Legal & Regulatory Framework For Public Private Partnership In Nigeria Under the Private Partnership In Nigeria Under the Infrastructure Concession Regulatory Infrastructure Concession Regulatory Commission Act 2005 Commission Act 2005

CWCCWCPUBLIC PRIVATE PARNERSHIP TRAINING PUBLIC PRIVATE PARNERSHIP TRAINING

ABUJA, November 17, 2009ABUJA, November 17, 2009

Ayuli Jemide, Lead Partner.Ayuli Jemide, Lead Partner.

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OUTLINE

1. Highlights of the Infrastructure 1. Highlights of the Infrastructure Concession Regulatory Commission Concession Regulatory Commission Act 2005 (“ICRC Act”)Act 2005 (“ICRC Act”)

2. Other Key Legislations related to 2. Other Key Legislations related to PPP’sPPP’s

3.3. A Preview of PPP RegulatorsA Preview of PPP Regulators

4.4. Legal & Contractual Issues In Legal & Contractual Issues In PPP’s.PPP’s.

5. Conclusions5. Conclusions

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Highlights of the ICRC Act

IIs the ICRC Act meant for only s the ICRC Act meant for only ““ConcessionsConcessions”” or all forms of or all forms of Public Private Partnerships? Public Private Partnerships?

Forms of PPP’S Forms of PPP’S

SERVICESERVICE

MANAGEMENTMANAGEMENT

LEASESLEASES

JOINT VENTURESJOINT VENTURES

CONCESSION/BOTCONCESSION/BOT

BOO - DivestBOO - Divest

1. Increase Private Sector Risk2. Increase Private Investment3. Institutional Changes4. Longer Tenures5. More Complicated

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Scope of the ICRC Act

SectionSection 36 36 defines Concessionsdefines Concessions to mean: to mean: " means a " means a contractual arrangementcontractual arrangement whereby the whereby the

project proponent or contractor undertakes the project proponent or contractor undertakes the constructionconstruction, including , including financingfinancing of of any any infrastructureinfrastructure, facility and the , facility and the operation and operation and maintenancemaintenance thereof and shall include the thereof and shall include the supply supply of any equipment and machinery for any of any equipment and machinery for any infrastructureinfrastructure and the and the provision of any servicesprovision of any services””

• Does this definition cover all PPP’S?

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Does the short title help?

• ““An Act to An Act to Provide for Provide for private sector private sector participationparticipation in the in the development development financingfinancing, , constructionconstruction, , operation or operation or maintenance maintenance of federal infrastructure of federal infrastructure or development projects or development projects (by whatever (by whatever name called)name called) through Concessions through Concessions and and contractual arrangementscontractual arrangements””

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Do these Sections align with PPP?

• Institute of Public Private Partnership (IP3):“A partnership between government and an appropriate qualified private sector, entity or group of entities, for the purpose of financing, designing, constructing and/or operating infrastructure or services that would normally have been provided through traditional public channels”.

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Mischief cured by the Act

• Provides a legal basis for MDA PPP deals• To regulate and guide the manner in which MDA’s

engage in PPP’s • Give private investors comfort• Ensuring that projects are based on a strong business

case and needs analysis.• Ensure that Govt obtains Value For Money.

How does Govt define Value For Money?

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Key Actors under the ICRCA

• The Infrastructure Regulatory The Infrastructure Regulatory CommissionCommission

• Federal Ministries, Departments, Federal Ministries, Departments, AgenciesAgencies

• Mr PresidentMr President• The Federal Executive CouncilThe Federal Executive Council• The private proponentThe private proponent

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The Commission:

• Sections 19, 20, 9, 34Sections 19, 20, 9, 34• Provide general policy guidelinesProvide general policy guidelines• Manage & superintend the policiesManage & superintend the policies• Take custody of every concession agreement Take custody of every concession agreement

made under the Act and monitor compliancemade under the Act and monitor compliance• Ensure efficient execution of any concession Ensure efficient execution of any concession

contractcontract• Set up a Special Concession AccountSet up a Special Concession Account• Make regulations pursuant to the ActMake regulations pursuant to the Act

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Ministries, Depts & Agencies

• Prioritize Projects – S 2 (2) Prioritize Projects – S 2 (2) • Abide by procurement process – S 2(4) to Abide by procurement process – S 2(4) to

4.4.• Supervise the projects – S 12Supervise the projects – S 12• Inspect projects – S 10Inspect projects – S 10• Authenticate Amortization costs – S 8Authenticate Amortization costs – S 8• Ensure that Private proponent has the Ensure that Private proponent has the

relevant expertise and financial capacity relevant expertise and financial capacity – S 2 (3)– S 2 (3)

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Mr President

• Appoint ICRC BoardAppoint ICRC Board• Give general directives – S 33Give general directives – S 33• Receive yearly reports – S 26 Receive yearly reports – S 26 • Approve regulations of the Commission – Approve regulations of the Commission –

S 34S 34

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Federal Executive Council

• Approve MDA prioritized Projects – S 2 Approve MDA prioritized Projects – S 2 (2) (2)

• Ensure there is nEnsure there is no Arbitrary variation or o Arbitrary variation or cancellation of agreementscancellation of agreements – S 11 – S 11

• Pre-approve GPre-approve Guarantees by Federal uarantees by Federal AgencAgencies on PPP deals. – S 3ies on PPP deals. – S 3

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Private Proponent

• Comply with bidding process – S 4Comply with bidding process – S 4

• S 7 – the private proponent shall:S 7 – the private proponent shall:

a)a) Take out Insurance policy on the concession Take out Insurance policy on the concession with and Insurance company approved by with and Insurance company approved by National Insurance Commission.National Insurance Commission.

b)b) Maintain and repair facility during the Maintain and repair facility during the concession period. concession period.

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National PPP Policy

National PPP Policy has been National PPP Policy has been passed:passed:

Establishes the:Establishes the:

i)i) PPP Resource CentrePPP Resource Centre – policy, advisory – policy, advisory

and transaction structuringand transaction structuring

i)i) Compliance CommitteeCompliance Committee – to take custody – to take custody of agreements and monitor complianceof agreements and monitor compliance

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ICRC Guidelines

ICRC has issued a few guidelines to ICRC has issued a few guidelines to MDA’s pending the full regulation to MDA’s pending the full regulation to deal with:deal with:

- Transaction thresholdsTransaction thresholds- Procedure for unsolicited bids etc.Procedure for unsolicited bids etc.

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ICRC as a regulator

Note: ICRC regulates PPP activities but is not a contracting parties to the PPP’s.

Is this good for regulation?

What else should a good regulator have?

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Highlights of the ICRC Act

o What about the States?

o Is the Federal Capital Territory Abuja a State?

o What about the Local Governments?

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Other Key Legislations Related to PPP’s

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1. The Nigerian Constitution2. Public Procurement Act 20073. Fiscal Responsibility Bill 20074. Public Entp. (Privatization &

Commercialization) Act 1999 5. Utilities Charges Commission Act 19926. Land Vesting Title Act7. National Inland Waterways Authority

Act8. Highways Act 19719. Federal Roads Maintenance Agency Act10 Lagos State Roads, Bridges and

Highway Infrastructure Law 2005.

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Note the existence of Sector Legislations:

NCCNERC etc

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1. The Constitution

• Establishes ownership of assets between Federal, State & Local Governments.

- Onshore/Offshore Dichotomy

- Current dispute between Lagos State & National Inland Waterways Authority.

• Allocates legislative power via Exclusive, Concurrent and Residual List.

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Constitutional Power to LegislateExclusiveExclusive• Federal Federal RoadsRoads• MaritimeMaritime• AviationAviation• Mines & Mines & MineralsMinerals

• Railways Railways **• Nuclear Nuclear EnergyEnergy

ConcurrentConcurrent• Electric Electric PowerPower

• Industrial, Industrial, Commercial & Commercial & Agric Dev.Agric Dev.

• EducationEducation

Residual Residual • Urban Urban planning planning • TransportationTransportation**• State Roads State Roads **• WaterWater• HousingHousing• HealthHealth

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Practical issues with limits on legislative powers:

• States may require Federal Govt consent to establish:

- a State owned airport- a state owned railway system- a state Maritime transport system

• States depend on the workability of the Federal policy on gas supply from the Oil Companies to fuel their

State owned Independent Power Projects.

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Practical issues with limits on legislative powers:

SOME CURRENT DISPUTES:

• NIWA VS LASG re Maritime Transport and Dredging

• Bi-Courtney Vs LASG re Lagos State Governments proposed Lekki Airport.

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Public Procurement Act 2007

• “This Act establishes the National Council on Public Procurement and the Bureau of Public Procurement to “monitor and oversee” public procurement and to “regulate and set standards” for public procurement in Nigeria.

• “No objection certificate” required before Fed. Exec. Council approval.

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• Is a Public Private Partnership a “Procurement” within the Procurement Act 2007?

TWO SCHOOLS: 1ST School: It is a NOT a

Procurement.

2ND School: It is a Procurement.

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Arguments and Counters

1st School: “Procurement” is about “purchases” & Govt buys nothing in PPP’s.

2nd School: In PPP’s Government trades an Asset and buys the provision of a

PSO (public service obligation).

1st School: Procurement seeks the lowest bidder and PPP’s seek the highest bid.

2nd School: PPP calculates Value for Money (VFM) which is the same principle.

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Debate continues

1st School: The Act’s scope is “goods”, “works” and

“services” it does not cover PPP

2nd School: a) BOT’S would fall under “works” in

the Act. b) Management Concessions are

“services”

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Conclusion

The reality is that if the Bureau of Public Procurement does not issue a “Certificate of No Objection” the Federal Executive Council would not approve the project.

“Compliance” is therefore the key word

Fiscal Responsibility Act 2007

• To strengthen fiscal policy design and implementation. Citizen’s legal right to challenge budgetary lapses is supposed to reduce ineptitude in Govt spending.

• May increase Govts sophistication in designing financial models for PPP’s and ensuring that Govt contributions are within budgets and available.

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Public Entp. (Privatization & Public Entp. (Privatization & Commercialization) Act 1999Commercialization) Act 1999

• The Bureau of Public Enterprise (BPE) has powers to privatize Fed. Govt shares in companies listed in the Act.

• Interestingly, BPE has used PPP models instead of privatization in several instances.

• For example: the Port Concessions by the Nigerian Ports Authority.

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Utilities Charges Commission Act 1992Utilities Charges Commission Act 1992

• Establishes a Utilities Charges Commission that regulates prices on certain utilities.

• “Nepa, Nitel, NNPC, Nigerian Airways, Nigerian

Railway Corporation, Ferry Services Organizations, Nigerian Ports Authority, Road Transport Organizations, Nipost and such others as Commission determines from time to time”.

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Land Vesting Title ActLand Vesting Title Act19751975

• All land reclaimed from Inland Waterways is the property of the Federal Government.

• This Act clearly prohibits a State or Local Government from purporting to grant a Concessionaire ownership of land reclaimed from the Lagoon in the course of the project.

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The Act is in dispute?

Oba Yekini Adeniyi Elegushi & Ors v Attorney General of the Federation and others. 2000 case.

– Fed High Court. (FHC/L/CS/669/95

Challenged the validity of the Land Vesting

Title Act.

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National Inland Waterways Authority National Inland Waterways Authority Act 1996Act 1996

• Inland Waterways are vested in the Federal Government – National Inland Waterways Authority. (NIWA)

• reclaiming land from any Lagoon requires written consent of the NIWA or if Project relates to a bridge or a motorway over an inland waterway, the NIWA should be on your radar.

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FederalFederal Highways Act 1971Highways Act 1971

• Section 2 of the Federal Highways Act empowers the Minister for Transportation to build Toll gates, operate and collect Tolls on Federal Highways .

Can the Minister delegate this power to a private company?

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Lagos State Roads, Bridges and Lagos State Roads, Bridges and Highway Infrastructure Law 2005.Highway Infrastructure Law 2005.

• Enacted by the Lagos State as the legal framework for Concession on Roads in Lagos State.

• It was specifically enacted for the Lekki Concession Company PPP re the Lekki road. and is limited to Roads.

• Some other states have or are about to pass separate PPP laws

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Federal Roads MaintenanceFederal Roads Maintenance Agency Act 2002Agency Act 2002• EEstablished FERMA stablished FERMA

• Section 8(a) and (b) that:Section 8(a) and (b) that:

“ “FERMA shall enter into road concession FERMA shall enter into road concession contracts for the purpose of executing contracts for the purpose of executing relevant projects as well as set guidelines relevant projects as well as set guidelines for the working of concession contracts”for the working of concession contracts”

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Preview of Regulators

ICRC All PPP’s by Federal Govt, its ministries and agencies.

Securities & Exchange Comm.

•Bond Financing; • Shares of PLC’S; • PPP with Trusteeship or corporate restructuring

Bureau of Public Procurement

Federal Government procurement above N50 million naira

Federal Executive Council

All Federal Government contracts above 50 Million Naira need FEC approval.

Bureau of Public Entp. All entities listed in the BPE Act

Debt Management Office

• State or FGN debt • State or FGN Sovereign Guarantees, • Bond Financing• PPP’s with Govt cash contribution or equity

Nigerian Railway Corporation

• All railway related Projects (state or federal)

Federal Airports Authority

All Airport Projects - state or Federal

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Basic Legal & Contracting Issues In PPP’s

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1. Is there an Enabling Law?

- Enabling Law goes beyond giving legal authority for a deal, it also sets the playing field:

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2. Who Is The Contracting Party?

- Preferred Bidder/SPV or both- Government/Agency or both- Lenders via substitution

Agreements

Note: Section 54 of Companies Act.

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3. Who owns the Asset?

a) Asset owner may not be the dealing authority – Example of BPE

b) One transaction may have different asset owners

– NIWA, NRC, Federal Ministry of Works own different assets on the Lagos Light Rail Project.

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4. Contractual Allocation of Risks

Key principle in Risk Allocation: Risks are allocated to the party that is best suited to handle the risk.

For example: Political Risk are usually covered by Government

For example: In the Motherland Badagry Resort transaction the risk of settlement of community landowners was allocated to Lagos State Government.

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5. Insurance

Private sector usually insures subject to review on the following:

• Who has the Insurable interest? Who has the Insurable interest? • Same transaction may have different asset Same transaction may have different asset

ownersowners• Is it expedient to have one or several Is it expedient to have one or several

policies?policies?• What are the rules on reinstatement?What are the rules on reinstatement?• What happens to Insurance monies where What happens to Insurance monies where

asset asset cannot be salvaged?cannot be salvaged?

• NOTE: Restrictions on using foreign Insurers NOTE: Restrictions on using foreign Insurers under under the 2003 Insurance Act. the 2003 Insurance Act.

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6. Exclusivity

1.. Exclusivity vs CompetitionExclusivity vs Competition

• Virgin Nigeria vs MM2 – was there any restraint on competition on both sides?

• Competition Bill not yet passed

2. 2. Must Government provide an Must Government provide an alternative route alternative route before granting a before granting a road concession in Nigeria?road concession in Nigeria?

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6. Dispute Resolution

KEY ISSUES: KEY ISSUES:

1.1. Investor Comfort vs Government Investor Comfort vs Government SovereigntySovereignty

2.2. Clause in Agreement to ensure the Clause in Agreement to ensure the Continuity Continuity of Public Service of Public Service Obligations during a dispute Obligations during a dispute situation.situation.

3. 3. Fast & efficient resolution of Fast & efficient resolution of

disputesdisputes

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Dispute Resolution

What are the options? What are the options?

1.1.DRC (Dispute Resolution Committee)DRC (Dispute Resolution Committee)

2.2.Experts determinationExperts determination

3.3.Arbitration Arbitration

4.4.Courts (domestic or foreign)Courts (domestic or foreign)

5.5.Note other options like UN Centre for Note other options like UN Centre for Settlement of Investment disputes. Settlement of Investment disputes.

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7. Force Majeure

As a general rule force majeure operates As a general rule force majeure operates on the “NO FAULT PRINCIPLE”on the “NO FAULT PRINCIPLE”

PPP agreements have redefined force PPP agreements have redefined force majeure and allocated compensation majeure and allocated compensation based on the role that Government had based on the role that Government had to play in the event.to play in the event.

Why is this? What is the difference Why is this? What is the difference between PPP’s and private contracts?between PPP’s and private contracts?

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Force Majeure Compensation Flow

EventEvent Defined Payee Defined Payee

Political Event

A direct act by Govt affecting the contract

Govt pays on full Indemnity basis

Indirect

Political

An act of Govt that causes an FM event.

Govt splits with private sector

Non- Political

FM event from an Act of God

Govt may pay little or nothing

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8. Permits & Licences - What permits are required?

Note: State transaction requiring Federal Permits

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CONCLUSIONS

• Things will continue to evolves• The Pending Bills particularly the National Transport Commission Bill will change the landscape• The ICRC Regulations will bring a sense of organization, certainty and fluidity to PPP deals on the Federal level• States will begin to come up with their frameworks• The PPP market will grow exponentially in the next 5-10 years.

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THANK YOU FOR LISTENINGTHANK YOU FOR LISTENING