“The responsibility of development is a heavy one, the road is clear, the clock is ticking and our country will bear witness to our actions” …Sheikh Mohammed bin Rashid Al-Makhtoum, The Ruler of Dubai, (Flashes of Thought, p.80)
INTRODUCTION
The issue of the Second Niger Bridge is fast becoming a comedy of sorts. The bridge has become the carrot used to taunt my brothers on the other side of the Niger, unfortunately. The project was proposed as a public-private partnership (PPP) project while the Loko-Oweto Bridge in Benue is being fully financed by the government. Despite being termed a PPP project, the government we are told already paid N30 billion to the concessionaire. The first question is, what is the N30 billion meant for if it is a PPP? Is it an equity contribution for which the government would be receiving part of the profits commensurate with its contribution? Or is the money a loan to the Concessionaire, if so, what are the terms of the loan? Across the world, every country has a dedicated PPP unit responsible for all PPP projects. In Nigeria, the Infrastructure Concession & Regulatory Commission (ICRC) is saddled with that responsibility. Somehow, we want to believe that they were sidelined in the course of negotiating the Second Niger Bridge project, hence the series of anomalies on the project currently. The ICRC has spent millions in sending its staff to countries around the world to understudy how PPP projects are executed, hence it would be a shame after all they have learnt to negotiate such a poor contract on the Second Niger Bridge. But, even if the ICRC was sidelined, the foreign consultancy firm involved in the project ought to have pointed out the anomalies in the process, that is what they are being heavily paid for.
WHAT IS PPP & HOW DOES IT WORK?
Public Private Partnership (PPP) is simply an infrastructure procurement strategy where the government and a private consortium enter into an agreement requiring the consortium to design, finance, construct, operate, and maintain a PUBLIC infrastructure or provide a PUBLIC service for an agreed duration(usually 25-30 years). The private consortium is granted the rights to charge the users certain agreed amounts throughout the duration of the agreement. The amount charged is increased every 5 years to cater for inflation & other exchange rates related issues. The consortium shall hand over the infrastructure to the government in GOOD working condition at the end of the agreed duration. In an ideal situation, governments are NOT supposed to contribute a single penny to the project, and when they do, their contribution is supposed to be treated as EQUITY for which they should receive returns. Under the PPP, the only money a government spends is the fee it pays to her independent transaction consultants/advisers. You can see why it is surprising that the government still contributed N30 billion to the Second Niger Bridge PPP project.
WHAT SHOULD BE DONE…
A renewed opportunity has been provided for the ICRC to show how a PPP project should be undertaken, that is if they had been sidelined in the last dispensation. But if they were a part of the current contract, then they need to sit up because the initial contract smells of inefficiency. The ICRC has been sending its staff to Malaysia & other countries to attend PPP conferences and understudy how the Malaysian government successfully delivered large scale PPP projects. Being PPP researchers, our supervisor sponsored us to some of these conferences where we had the opportunity of meeting some staff of ICRC. We are hoping they would bring the knowledge gained from their numerous conferences to bear on this project and others.
LESSONS FROM MALAYSIA’S SECOND PENANG BRIDGE
Given the strategic nature of the Second Niger Bridge, it would be too profitable a project to be given to a private company as a PPP. It would be a gross mistake for the government to hand such a strategic route to a private company. We would suggest that the government adopts the strategy the Malaysian government used on the Second Penang Bridge. The Malaysian government initially wanted to undertake the Second Penang Bridge as a PPP project, but after careful analysis the government changed its plan and instead created a SPECIAL TEMPORARY AGENCY, Jambatan Kedua Sendiri Berhard (JKSB) to oversee the project on behalf of the government over the life-cycle of the Bridge. The staff of the agency were pooled from the ministry of public works, ministry of finance, and other relevant agencies SPECIFICALLY for the bridge project alone. The change in plans from a PPP to a government-led consortium was done because of the HIGH COST of the PPP option and profitability of the first Penang Bridge. The same fate befell their current multi-billion ringgit MRT project, the PPP option was cancelled in favour of a government-led consortium. Infact, currently there is a remunicipalisation movement across the globe advocating for the return of infrastructure responsibility to governments because it is cheaper. In California, their proposed High Speed Rail and Water Supply PPPs were reverted to government balance sheet. A recent report from the Public Services International Research Unit (PSIRU) shows that about 180 PPP water projects were cancelled in 2014 alone, including 59 in the U.S.A and 49 in France! On page 5 of the same report, it stated that government provision of essential services improves access & quality of service by eliminating the profit maximisation imperatives associated with the PPP. The report is advocating for a Public-Public Partnership as has been practiced in Chile and Malaysia.
SECOND PENANG BRIDGE FINANCING
In financing the second Penang bridge, the Malaysian government first determined the estimated cost of the design and when the cost turned out to be very high, the design was then changed in order to reduce the total cost of the project. The initial design of the Second Penang bridge can be seen in figure 1 below. The government decided to replicate the design of the first Penang bridge on the Second one, hence both are cable-stayed box girder bridges. After determining the cost of the final design, they applied for a loan from the Chinese government at a 3% interest rate with a 20 years repayment period. The borrowed money was then handed over to the newly created temporary agency-JKSB to oversee the contract to its completion. The advantage of this process is that, money meant for the bridge cannot be diverted to any other use. The JKSB is also going to operate, maintain and collect tolls on the bridge for the repayment of the loan financing until the entire loan is paid back. If the bridge was left as a PPP, there was no way they would have had the benefit of a 3% interest rate. The situation is often worse in the African continent which many investors classify as high risk, after factoring in political risks, regulatory risks, foreign exchange risks and all sorts of risks the international financial institutions have associated with the dark continent, we are likely to end up with an interests rate of up to 25%. The U.K has had to endure between 17-33% interest rates on some of their PPP projects during the financial crisis!
SECOND PENANG BRIDGE CONSTRUCTION
The Second Penang Bridge is a 24km bridge constructed over the Straits of Malacca which has an average depth of 27m, the bridge has an additional clearance of 30m over water. The First bridge which is 13.5km took about 3 years (1982-1985) to construct while the Second Penang bridge took about 6 years (Nov 2008-Feb 2014) to construct. So it is appalling that the 1.59km Second Niger Bridge would take 4 years to construct. It clearly indicates a measure of inefficiency on the part of the contractor involved. Hence, it would have been a good idea if a contractor that can complete the project in a maximum of 2 years is brought in, that way the project would be completed under PMB’s first 4 years tenure.
During my interview with the head of JKSB and the Project Manager of one of the companies on the Second Penang bridge back in 2010, I got to learn that in order to quicken the construction time on the Second Penang bridge multiple contractors were used; one foreign company and two local companies. For the first bridge, two companies were responsible for its construction, one foreign company & one local company. There was also a special provision that atleast 65% of ALL MATERIALS for the bridge MUST be sourced from within the country- that is an economy-improving strategy. The Second Niger Bridge project should adopt the same strategy by breaking the project into 3 packages. For example, the Asaba Approach including toll collection booths (package 1); The Main Span of the bridge (Package 2); and the Onitsha Exit (package 3). Breaking it this way can reduce construction duration by as much as 50% because each package would be handled by a different contractor.
SECOND PENANG BRIDGE TOLLING
On both Penang Bridges, tolls are only charged ONE-WAY, on your way into Penang Island on both bridges you have to pay tolls, but you DO NOT PAY tolls when leaving Penang Island. The same could be done on the Second Niger Bridge, Vehicles coming through the Asaba approach would pay tolls, while those exiting from Onitsha should not pay tolls as it is done in many climes around the world. We would advise that the government makes this bridge one of its flagship projects in the East and it should be number ONE on their High Priority Infrastructure (HPI) projects list, if they have such a list.
Generally, PPPs are financed by 10% equity from the Consortium and 90% debt from financial institutions, and as a result of the cost of capital on the bank debt, PPPs become NATURALLY more expensive than government financed projects. A report by the U.K’s House of Commons Treasury Committee in 2011 found that a 1% reduction in interest rates on the U.K’s £40 billion PPP projects would result in a savings of £400 million annually! That is the impact interest rates have on the costs of projects and eventually the charges that end users would have to pay for using the bridge. One study also found that over 50% of PPPs in Latin America have undergone renegotiations and most within just 2 years of contract signing, while another found that 53% of transport and 76% of water concessions have undergone renegotiations.
SECOND PENANG BRIDGE COST
The Bridge section of the Second Penang Bridge constitutes 70.41% of the total length while the bridge section of the Second Niger Bridge constitutes just 13.36% of the total length. Added on to that, is the fact that the Second Penang Bridge is the longest in the world where High Damping Natural Rubber (HDNR) Bearing was first used, this will help the bridge withstand earthquakes measuring up to 7.5 on the Richter scale. It’s one of the safest places anyone can be in the event of an earthquake in Malaysia! Now despite these huge differences, the Second Penang Bridge (24km) at a total cost of N225 billion (RM4.5 billion) is still cheaper in per/km (N9.4billion/km for Second Penang Bridge & N81billion/km for the Second Niger Bridge) terms than the Second Niger Bridge (1.59km) at a cost of N130 billion. The government urgently needs to review the cost of this project. One of the major problems with the PPP approach to infrastructure is that PPP project financial information is usually hidden on grounds of business confidentiality. We need TRANSPARENCY because this is a PUBLIC project and the constitution, public procurement Act and all public procurement rules require TRANSPARENCY on all PUBLIC contracts.
The Initial Design for the Second Penang Bridge in Malaysia
CONCLUSIONS
Now that the government has handed the Second Niger Bridge to the right organisation-ICRC, it is imperative that the ICRC puts all its efforts into making the project a success. They must urgently seek ways of reducing the excess costs of the project and also completing the project within a maximum of two years, it is possible! We would also recommend the sacking of the current consultants on the project. Most of these foreign consultants often give developing countries the type of advice they would not give to their own countries. For example, the PPP model in the UK has been revised since December 2012 to follow the Malaysian model, yet these foreign consultants continue to advise developing countries using the older model which tends to favour the private company at the expense of the public tax payers.
The ICRC should lead the execution of the Second Niger Bridge project. Once a reliable estimate has been ascertained, the government should either undertake a Second Niger Bridge Project-SPECIFIC Loan or provide the entire cost to a Newly created Second Niger Bridge Agency to supervise the disbursement and monitoring of the project to completion. The agency will then be responsible for toll collection and repayment of the loan from whatever source the money came from. Once the loan has been repaid, the project will then be handed over to the ministry of works and the agency disbanded. In this way, money meant for the bridge cannot be diverted to any other use and repayment of the loan will be more certain. I wish the ICRC GOD’s guidance in seeing the project to a successful completion. We believe the Head of the ICRC understands our feelings in south, if he fails to deliver this project before PMB’s first 4 years, we would hold him complicit in denying us a LONG OVERDUE & Befitting Second Niger Bridge! I hail oooo…
Oh, lest we forget, the ICRC should try to give us a bridge design ALL NIGERIANS can be proud. Australia has the Opera House, Malaysia has the Twin Tower, Dubai has Burj Khalifa…and we still rely on Zuma Rock!!!
Copyright © 2015
Authors
Dr. Abdullahi Ahmed Umar (PhD) a.k.a Abdul Edo hails from Ivbiaro in Owan East L.G.A of Edo state.
Mr Abdullahi Baba Ahmed (co-author) hails from Toro L.G.A of Bauchi state.
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