Enabling Private Sector Participation in African Infrastructure Projects

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Enabling Private Sector Participation in African
Infrastructure Projects

• Lessons from the Lekki Toll Road Conession

Opuiyo Oforiokuma CEO/Managing Director
Africa Investor Project Summit Lagos, 7th
November 2007
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Todays Focus

• As a project originator, what lessons from your
  Toll Road Project can be transferred to assist
  regulators across Africa engage private sector
  project originators and investors?

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About the Project Originators

• Lekki Concession Company Ltds mission is to
  provide high quality road infrastructure and
  related services along the Lekki Peninsular of
  Lagos, Nigeria, and to be recognized as the
  pioneer for change in the way road infrastructure
  is delivered throughout Nigeria
• Lagos Infrastructure Project (LIP), our first of
  such projects, is already in the process of
  execution. Financial close is also being
  achieved in parallel
• LCC is an initiative of the ARM Group, which has
  a broad-based ambition to develop major
  infrastructure projects throughout Nigeria and
  West Africa
• ARM Group is a leading player in the Nigerian
  asset management sector, with approximately
  NGN130 Billion under management

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About the Project

• Scope
• Public-Private Partnership with Lagos State, to
  design, build, finance and operate
• Phase I - Lekki Epe Expressway (49.4 km)
• Phase II - Coastal Road (20km) plus option to
  do the Southern Bypass
• Funding
• Financed by the Concessionaire, LCC, on a
  limited-recourse basis. Estimated project cost
  during construction is 300 Million
• Toll
• Concessionaire will collect tolls and charges on
  the Concession Roads to recoup cost of
  investments
• Concession Period
• 30 years

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General Overview of The PPP Model

• PPPs involve collaboration between the Public
  Sector and the Private Sector
• Usually for the construction and/or management of
  a specific asset or a group of assets
• Helps to assign risk to the partner best equipped
  to deal with it
• Helps to secure specialist skills and experience
  not readily available in the Public Sector, for
  public interest projects
• Enables Public Sector funds to be used for other
  programs, where private sector financing is part
  of the PPP package
• Various Models of PPP exist
• Concessions transfers the rights to develop and
  operate defined assets, within a defined area,
  over a defined term
• Others PPP models include BOT, BOOT, DBFO, DBF
• They should not be confused with privatization,
  which involves a transfer of ownership of the
  assets
• PPPs are common in asset intensive and/or Utility
  type industries, eg, Roads, Water, Power, Airports

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Balancing Project Risks Returns is Key
Note Risks shown are not an exhaustive list
Project returns must be commensurate with the
risks involved otherwise knowledgeable investors
will be unwilling to participate in the project
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Example Toll Road Concession Periods

• Typically range between 20 and 99 years
• Sufficient time required to allow Concessionaire
  to recover costs of investment and to earn a
  reasonable return on the capital employed
• Longer Concession Terms reduce pressure on Toll
  prices and therefore make the costs more
  affordable for end users

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Effective Regulation Requires Balance
Note Risks shown are not an exhaustive list

• The drivers do not always pull in the same
  direction, at the same time, in the same way, and
  with the same amount of force
• Regulation should be transparent, fair, balanced
  and apolitical
• Interests of the key stakeholders should be
  balanced over the long-term

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LIP Key Enablers
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Summary of Key Tips for Regulators

• Investors weigh up risks against returns they
  go where the investment climate is favourable,
  and leave where it is not
• Infrastructure is a long-term business
  consistency and continuity of Government policy
  is critical to creating an enabling environment
  for private sector investment
• Regulatory/Legislative Framework new
  legislation may be necessary, eg, the 2004 Lagos
  Roads Law
• Respect for Contract the burden of fulfilling
  obligations does not fall on the Private Sector
  alone government has an ongoing role to play
• Regulators must have a clear understanding of the
  PPP Model its hard to regulate what you dont
  fully understand
• Greenfield Projects often need Government
  support waivers, incentives, and guarantees,
  targeted in the right areas and properly
  controlled, can make the difference
• Bureacracy / Red Tape is often used by some
  as cover for corrupt practices, and can frustrate
  investors