Transportation Sector Analyis_Retreat Pre-Read Material
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The Role of the Financial System in Nigerias Economic
Development
December 3 5 2010
Transport Sector Pre-Read
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Executive Summary
Nigerias transportation infrastructure is mostly in a state of disrepair as a result of
decades of inadequate investment and maintenance
In recognition of the huge infrastructure deficit, the government has accepted the use
of Public Private Partnerships (PPP) in the development and maintenance of
transportation infrastructure
While there have been some success stories in the use of PPP, private financial
institutions still face sizeable challenges in funding transport infrastructure. The
absence of an enabling environment and lack of strategic support from the
government reduces the pool of projects that can be made bankable
A look at South Africas situation yields learning points and change imperatives for
Nigeria in her quest to develop an adequate, safe, environmentally sound, efficient,
affordable and integrated transport system
Key to this success is the governance framework - the structures, policies, institutions
etc are in place to procure, deliver and manage transportation infrastructure
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Executive Summary
Aside from the governance framework, the strategic approach of government to the
use of PPP is critical PPPs are a tool to enhance the quality of government spending,
and not just a channel to route private investments into public infrastructure projects
Key learning points for Nigeria include:
o Focus on procurement of services rather than assets
o Role of public sector should be on policy and strategy formulation, not asset operations
o Application of PPP in transport infrastructure development should be broadened beyond
concessions to private operators, to include government spending on public works
This presentation provides an overview of the Nigerian transportation system, theopportunities and challenges with financing transportation infrastructure and
recommendations to drive development of the sector
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Outline
Recap of 2009 Bankers Committee Retreat
Overview of the Nigerian Transportation System
Governance and an Enabling Framework in
Transportation Infrastructure Development
Case Study: South Africa
Appendix
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The 2009 Bankers Committee Retreat identified seven (7) key areas to address
to expedite reform of and investments in the Nigerian transport sector
Proposed
Intervention
Responsibility Progress to-date Status What else needs to be
done?
1. Articulate
framework and
guidelines for special
assets
CBN Done Creation of framework for
special assets
2. Tax relief and special
grants for project
development costs
Government Government has granted
sector pioneer status-new
industries in sector can
avail of tax holiday of up to
7 years
N/A
3. Approval of the ICRC
Act , National
Transportation
Commission Act and
other sub sector bills
Government NTC Act is still being
reviewed prior to
submission to Senate and
House of Reps
Passing of bill into law
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The 2009 Bankers Committee Retreat identified seven (7) key areas to address
to expedite reform of and investments in the Nigerian transport sector
Proposed
Intervention
Responsibility Progress to-date Status What else needs to be
done?
4. Support agencies
and governments with
clear integrated
strategies and plans by
fundingspecific projects
Financial
System
Projects to date include
LCC Lekki-Epe expressway
funded by a consortium of
local banks
Increase funding for
additional infrastructure
projects
5. Build capacity for
project delivery within
private and public
sectors
Financial
System
N/A N/A
6. Create a larger pool
of debt and equitycapital to achieve
Financial
System
Introduction of the
PENCOM policy to utilisePFA funds for
infrastructure finance
Explore debt raising from
multilateral institutions e.g.
World Bank
7. Articulate the
criteria required to
finance transport
infrastructure projects
Financial
System
Criteria has been
articulated N/A
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Outline
Recap of 2009 Bankers Committee Retreat
Overview of the Nigerian Transportation System
Governance and an Enabling Framework in
Transportation Infrastructure Development
Case Study: South Africa
Appendix
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Nigerias transportation infrastructure is insufficient to meet the aspirations of
Vision 20:2020 and the infrastructure is in a state of disrepair
Nigeria has 193,200 km of roads, made up of 34,123km of Federal roads, 30,500km
of state roads and 129,577km of local government roads
More than 50% of the roads are dilapidated based on the last review; almost 90%
of current inter-state movement are done by road
3500km of narrow gauge rail lines, with 827 km of narrow gauge sidings and loops;
306 km of standard gauge rail lines
Rail infrastructure comprises wagons, coaches, railcars, rail buses, cranes,
workshops, and station buildings, most of which are in a dilapidated state
Nigeria has a total of 23 airports distributed all over the country
Due to the high fixed costs and relatively low income involved in running these
airports, only three of the airports operate at a commercial self sufficiency, while
the others operate at a substantial loss
Nigeria has 13 major ports
Cost of doing business at the ports is high as a result of multiple taxes and levies
imposed on operators
This has resulted in diversion of cargo to other countries within the West African
sub-region
Low level penetration of inland waterways in most states of the country due to
lack of infrastructureSource: Dra t National Trans ort Polic : Au ust 2010
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Globally Nigeria ranks low in the quality of its infrastructure, which impacts the
ease of doing business
Criteria 2010 11 Ranking
/ 139
2009 - 10 Ranking
/ 133
Change (from
2009-10)
Quality of roads 128 112 -16
Quality of railroad infrastructure 104 104 0
Quality of port infrastructure 121 122 +1
Quality of air transport
infrastructure
101 78 -23
Overall Infrastructure Ranking 135 126 -9
Country Ranking on Global
Competitiveness Index
127 99 -28
Source: World Economic Forum: The Global Competitiveness Report 2010-11; 2009-2010
As part of the Global Competitiveness Report, a survey was conducted to determine the most
problematic factors for doing business in each country
Inadequate supply of infrastructure and access to financing were identified as the two most
problematic factors for doing business in Nigeria
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Sub-optimal investments in transportation have resulted in the current
infrastructure deficit
Nigerias infrastructure spend is low and largely sourced from government
0
2
4
6
8
10
12
US$
Private Investment in Transportation
(US$ per US$1,000 of GDP)
Nigeria Brazil South Africa Russia China
Source: Team Analysis, 2009 Bankers Committee Documents
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Key challenges include inadequate investment and poor management of
transport infrastructure - which have created a huge infrastructure deficit
Specific Infrastructure Challenges
Poor roads and road network
Weak regulatory environment
Inadequate strategic planning, oversight and
regulatory functions
Poor contracting procedures and quality control
High dependence on public sector subsidies
Highly dilapidated infrastructure and lack of
serviceable locomotives and rolling stock
Poor management of the Monopoly player,
National Railway Corporation
Inadequate visual and navigational
aids
High cost of air travel
Lack of a well-articulated national air
transport policy and weakenforcement of existing policies
General Infrastructure Challenges
Federal government is the
primary financier of
infrastructure projects
Annual budgetary allocation isinsufficient to meet the
countrys infrastructure
demands
Process of allocating budget to
rehabilitate existing
infrastructure is slow, opaqueand inefficient
Capacity gaps exist for project
development, management,
operations and maintenance
Source: Team Analysis
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Outline
Recap of 2009 Bankers Committee Retreat
Overview of the Nigerian Transportation System
Governance and an Enabling Framework in
Transportation Infrastructure Development
Case Study: South Africa
Appendix
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An estimated US$15b is required annually to adequately fund Nigerias
infrastructure deficits
Traditionally, government has been the
sole financier of road infrastructure
projects, often taking responsibility for
implementation, operations and
maintenance.
Capital infusion through the fiscal
budget to rehabilitate or replaceinfrastructure, instead of periodic
maintenance makes funding
increasingly difficult, thereby
accelerating infrastructure
deterioration.
There are gaps in capacity for project
development, management,operations and maintenance.
It is clear that Private sector
participation is imperative to transform
transportation sector and attain
national development aspirations
Source: Infrastructure Concession Regulatory Commission; Team Analysis; 2009 Bankers Committee Documents
Public-PrivatePartnership
Partnership between a public authority
and private sector organisation to fund or
operate a public service.
Project-BasedDebt
Financing
Long-term financing of projects, the debtof which is expected to be paid backusing cash flow generated by operationof the project
Such a debt is typical of funding forconcessions
Privatisation
Share issue or outright sale of assets
Part-owners/ managers of public assetsor full ownership transferred from publicauthorities to investors
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The government has adopted the use of Public Private Partnerships
A governance framework has been set to ensure success in the use of PPPs
Policy
PPP Policy Framework - Adoption of a Policy framework for theprivate sector to play an important role in providing investmentthrough Public Private Partnerships (PPPs)
Regulations
ICRC Act (2005)
PPP Policy Framework
National Transport Commission Bill (in progress)
Institutions
Infrastructure Concession Regulatory Commission
National Transport Commission (in progress)
Source: Draft National Transport Policy: August 2010; Corporate Nigeria: The Business, Trade and Investment Guide 2010/2011
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in alignment with global trends in transportation infrastructure development
Local Bus BRT Interchange
Guayaquil, Ecuador
Transmilenio, BRT/Local Bus,
Bogota, Colombia
Herndon-Monroe Transit Center,Virginia Dulles Corridor, USA
Metro/Local Bus/BRTInterface, Mexico City, Mexico
Lekki-Epe Expressway, Lagos
Nigeria
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Development of road infrastructure via PPP remains in the infant stages
Policy governing
Infrastructure
Financing
Execution Success
to Date
Current Status
Challenges
Experienced
Existing policies include:
oNational Transport policy (currently being reviewed)
oFederal Government of Nigeria's PPP framework; and
oInfrastructure Concession Regulatory and Commission Act of 2005 established
to promote opportunities for Public private partnership in the sector
The Government has made a few attempts to adopt the PPP model but yet to be
successfully completed
Lagos States and LCC - Lekki-Epe Expressway
Federal Government and Bicourtney Lagos Ibadan Expressway
Privately developed or commercially operated roads (with the exception of Lekki-
Epe expressway) are not in existence in Nigeria despite several attempts by the
government
Conflict in policy objectives between the State and F.G.
Absence of clear responsibilities
Non-transparent procurement process
Non- credible sponsors or promoters
Source: Draft National Transport Policy: August 2010
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Development of rail infrastructure via PPP is still in the conception/design
phase
Policy governing
Infrastructure
Financing
Execution Success
to Date
Current Status
Challenges
Experienced
Same as policy governing Road infrastructure
The Government has initiated the process of concessioning the two main lines of
the Nigerian Railway Corporation Lagos State is negotiating with bidders for operation and maintenance of Red &
Blue Railway Lines
None
Outcome of current exercise will indicate potential challenges
Source: Draft National Transport Policy: August 2010
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Only one successful example of concessioning exists in the Nigerian aviation
industry
Policy governing
Infrastructure
Financing
Execution Success
to Date
Current Status
Challenges
Experienced
Same as policy governing Road infrastructure
Efforts have been underway by agencies of Government to design a Concession
Model for the Airports, however, this is still inconclusive The recent governments have provided direct funding for Terminal Upgrades and
Runway Extensions in recent time in a bid to ramp up the quality of infrastructure
Only one successful example of concessioning Terminal II of Murtala
Muhammed Airport to Bicourtney Ltd
Policy inconsistency and uncertainty as a result of change in government
Key risk factor for investors
An example is the revocation of the Nnamdi Azikiwe Airport concession to Abuja
Gateway Consortium
Source: Draft National Transport Policy: August 2010
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Concession of seaports has been the most successful when compared to other
modes of transportation in Nigeria
Policy governing
Infrastructure
Financing
Execution Success
to Date
Current Status
Challenges
Experienced
National Inland Waterways Act
Same policies governing road transportation
Most of the seaports have been leased out to private sector operative under 2
models (the landlord model and the service port model) The landlord model seems to be the most preferred option
The concession of seaports is most successful when compared to other modes
of transportation
N/A
Source: Draft National Transport Policy: August 2010
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An enabling framework is critical to the success of PPP models in
transportation infrastructure financing and development
GOVERNMENT
Infrastructure Policy &
Objectives
Legislative Framework
Enabling Environment
Anti-Corruption Measures
REGULATORS
Industry Focus
Economics / Pricing
Standards
Levels of Service
Capital Investment
COURTS & TRIBUNALS
Judicial Independence
Rule of Law
Enforcement of Contract
Arbitration
Legal Redress & Protection
FINANCIAL
Diversity of Financing
Terms & Conditions
Liquidity & Credit
Risk Management & Mitigation
Source: Transportation Infrastructure , Institutions and Operations: Importance of Institutions
A presentation by Opuiyo Oforiokuma Managing Director/CEO, Lekki Concession Company at the 5th Lagos Economic Summit
INFRASTRUCTURE
INVESTMENT
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Outline
Background
Recap of 2009 Bankers Committee Retreat
Overview of the Nigerian Transportation System
Governance and an Enabling Framework in
Transportation Infrastructure Development
Case Study: South Africa
Appendix
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South Africas transport sector is a key contributor to her competitiveness
in global markets and is increasingly being seen as a crucial enabler of
economic growth and social development
Political Context
Increased racial segregation culminated in apartheid
in the early 20th century
Apartheid legislation and ban on political
organizations lifted in the early 90s
First universal elections held in 1994
Transportation
System
Infrastructure
Development
Colonized by Britain
Gained independence in 1960
Experienced prolonged military rule between 1966 &
1999, with a brief democratic interregnum
Return to democracy in 1999
Extensive, quality road and rail network
Rail networks connect to other countries in Southern
Africa
Sea ports serve as hubs for traffic to and from
Europe, Asia, the Americas
Roads are primary means of transportation but are
largely in a state of disrepair
Rail infrastructure remains in dilapidated state
Sea ports are currently concessioned to private
sector
Investment in infrastructure during the apartheid eralocalized around four economic centers
Key challenge for South Africa is spreading
infrastructure development to other regions of the
country
Significant investments in transport took place in
preparation for World Cup 2010
Overall investment in the economy paradoxicallyreduced following the discovery of oil in the 70s
Heavily dependent on government for financing
Decades of neglect have created a huge
infrastructure deficit
Nigeria South Africa
Source: CIA Factbook, Wikipedia
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South Africas transport infrastructure is considerably more developed than
Nigerias
Criteria
Land Area (sq. km) 1,214,470 910,770
GDP (2009) $ 285.9bn $ 168.9bn
GDP per Capita PPP (2009) $ 10,291.3 $ 2,150.1
Road Network (km) 362,099 193,200
Road Density (km of road per 100 sq. km of land area) 29.8 21.2
Rail Network (km) 20,872 3,505
Rail Density (km of rail per 100 sq. km of land area) 1.7 0.4
Number of Airports 85 22
Number of Seaports 8 13
Cargo Throughput (Million tonnes) - (2008) 185 65
Source: World Bank Development Indicators; CIA World Factbook; Transnet, Nigerian Ports Authority
Airports by International Civil Aviation Organization (ICAO) code - http://en.wikipedia.org/wiki/List_of_airports_by_ICAO_code:_F#FA_-_South_Africa
http://en.wikipedia.org/wiki/List_of_airports_by_ICAO_code:_D#DN_-_Nigeria
http://en.wikipedia.org/wiki/List_of_airports_by_ICAO_code:_Fhttp://en.wikipedia.org/wiki/List_of_airports_by_ICAO_code:_Fhttp://en.wikipedia.org/wiki/List_of_airports_by_ICAO_code:_Fhttp://en.wikipedia.org/wiki/List_of_airports_by_ICAO_code:_Fhttp://en.wikipedia.org/wiki/List_of_airports_by_ICAO_code:_F -
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The Apartheid Era
< 1995
Definition of a Public Transport Strategy(2007 2020)
Investment of R170 billion into thetransport system from 2005/06 to2009/10
Rail Network = 24487km
Road Network = 362099km
Passengers carried by air transport = 32.6m
Bus Rapid Transit (BRT) systems beginoperations
Construction of new Seaport at Ngqura
Launch of Gautrain rapid rail system King Shaka International airport begins
operations
More than 70 international airlines flyinginto the South Africa
World Class Transportation
Infrastructure
2005 - 2010
Review of 1980s National Transport Policy
Preparation of new White Paper on
National Transport Policy
Decision made to build more hub ports
and airports to maximize South Africa's
participation in the global economy
Rail network = 20319km
Road network = 264000 km Airports = 130
Seaports = 7
Passengers carried by air transport = 6.4m
Defining A New Beginning1995 - 1996
Sources: Green and White Papers on National Transport Policy, South AfricaPocket Guide to South Africa 2009/2010
SouthAfrica Info: http://www.southafrica.info/business/economy/infrastructure/transport.htm
Evolving over the years into what we see today
Transportation system inadequate to
meet basic accessibility needs in
developing rural and urban areas
Over dependence on roads for
internal passenger and freightmovement (three quarters of such
movement)
Only three national ports classified as
hub ports
Fewer than 12 international airlines
flying into South Africa
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A transport infrastructure that surpasses others within the African continent
Gautrain
OR Tambo International
Airport
Rea Vaya Bus Rapid Transit
System
Durban Port
Transports 16,000*
commuters every day
Exceeded 400,000passengers in first
month of operation
Achieved 1m passenger
after 4 months in
existence
Busiest seaport inAfrica
Handled 74,683,597
tonnesof cargo
during fiscal year
2008/09
Busiest airport in
Africa
Transported 17.56m
passengers in fiscal
year 2009/10
Source: Rea Vaya - http://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-day(*figures for 2009)http://www.engineeringnews.co.za/article/rail-2010-10-08; http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19;
ORTambo International Airport Total Passengers September 2010;
Ports & Ship, Durban: http://ports.co.za/durban-harbour.php
http://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.engineeringnews.co.za/article/rail-2010-10-08http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/tentative-joy-as-gautrain-numbers-exceed-expectations-by-two-thirds-2010-07-19http://www.engineeringnews.co.za/article/rail-2010-10-08http://www.engineeringnews.co.za/article/rail-2010-10-08http://www.engineeringnews.co.za/article/rail-2010-10-08http://www.engineeringnews.co.za/article/rail-2010-10-08http://www.engineeringnews.co.za/article/rail-2010-10-08http://www.engineeringnews.co.za/article/rail-2010-10-08http://www.engineeringnews.co.za/article/rail-2010-10-08http://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-dayhttp://www.reavaya.org.za/news-archive/march-2010/262-close-to-16-000-commuters-use-rea-vaya-every-day 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Although the public sector is still the primary source of funds, South Africa is
increasingly reliant on PPPs to finance transportation infrastructure development
PPPs constitute a
small percentage of
the capital
expenditure for
infrastructure build
Table 4.8 Public sector infrastructure expenditure and estimates, 2006/7 2012/13
2006/07 2007/08 2009/09 2009/10 2010/11 2011/12 2012/13
R million Outcome Revised
estimate
Medium-term estimates
National departments 4 631 5 712 6 318 6 382 6 847 7 758 10 703
Provincial departments 27 112 29 395 36 094 41 185 45 623 49 971 50 786
Municipalities 21 084 30 736 39 577 37 480 41 305 50 449 56 028
Extra-budgetary institutions 3 699 3 726 6 194 10 859 11 175 15 083 18 821Public-private partnerships 1 343 3 857 4 942 13 751 9 939 11 389 6 109
Non-financial public enterprises 25 736 56 765 103 322 125 504 147 025 148 665 157 970
Source: Budget Review 2010, National Treasury, Republic of South Africa; Infrastructure Finance: The Changing Landscape in South Africa, Deloitte
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with emphasis placed on private-sector based service delivery and utilization of
PPPs in procurement of infrastructure, even when government funding is required
Register Project
Appoint Advisors
InceptionFeasibility
StudyProcurement Development Delivery Exit
Public Institution
PPP AgreementDirect
Agreement
Private PartyShareholdersShareholders
AgreementLenders
Financing
Agreement
Construction
Subcontract
Operations
Subcontract
ConstructionSubcontractor
OperationsSubcontractor
South Africa employs a fairly standard PPP model, but prioritizes private service delivery in all government spending
Needs Analysis
Due Diligence
Valuation
Procurement Plan
Design fair, equitable, transparent, competitive
process
Prepare bid documents and draft PPP agreement
Conduct bid process
Select, negotiate and finalize management plan
Measure Output
Monitor Performance
Regulate Progress
Settle Disputes
Annual Reporting
Scrutiny by Auditor
General
Evaluate Status
Coordinate Exit
PPPs are utilized as a central government procurement and investment catalyzing tool
Source: Team Anal sis
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Despite the picture painted, South Africa is not without its transportation
challenges
Infrastructure expenditure has not historically kept pace with the rate of economic growth
Financial sustainability in the long run, arising from the twin goals of meeting customer goals and
national objectives over time
Transport operating models in a number of critical entities are behind international best practiceand exacerbate the lack of investment
Safety (particularly on road and rail) is a weak link that creates its own significant economic costs
Skill gap in the transport sector, including capacity to execute and project manage large scale
transport projects
Source: Importance and Shortcomings of Transport in Society by Dr. Meshack Kosha at National Public Consultation Workshop on Prioritising
the Thematic Areas in the Transport R&D Strategy
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The primary supports for infrastructure financing model include:
White Paper on National Transport
Policy
PPP Legislation
Policy & Legal
Framework
Department of Transport
PPP Unit
Public Entities of the Department of
Transport e.g. ACSA, SANRAL, SACAA,
PRASA etc
Stakeholders &
Institutions
Support South Africa Nigeria
Primary Sources
oNational & Provincial Governments
oMunicipalitiesoOperators, Developers or Contractors within
the transport sector
Secondary Sources
o Equity funds focused on infrastructure
investments
o Bilateral Institutions e.g. DBSA, IDC
oOther Financial Sponsors e.g. INCA
Sources of
Funding
Draft National Transport Policy
ICRC Act
PPP Policy Framework
Federal Ministry of Transport
Federal Ministry of Aviation
ICRC
Other agencies & parastatals e.g.
NPA, FAAN, NRC etc
Primary Sources
oNational & State Governments
oOperators, Developers or Contractors withinthe transport sector
Secondary Sources
oMultilateral Institutions e.g. World Bank
o Financial Institutions e.g. Banks
o Equity funds
Source: Draft National Transport Policy : August 2010; Green and White Papers on National Transport
Polic South A rica In rastructure Finance: The Chan in Landsca e in South A rica Deloitte
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Comparing Nigerias financing & procurement model to South Africa, we see
key differences
South Africa Nigeria
Funding
Approach
Rely on the government and private sector for
funding
Government exhaust all other alternative funding
sources before funding any project
Government in some instances provides seed
funding and leverage Governments financing with
private sector funding
Until now, relies heavily on the Federal Government
and State Government for funding
Awards contract directly to contractors who bears
little or no risk
Recently seeking to grow a diversified funding by
attracting private sector funding
Procurement
Policy
Has a transparent procurement policy that can
attract funding from International Financial
Institutions (IFI)
Procurement policy needs to be reviewed to attract
IFIs
Emphasis is now being placed on a transparent
procurement process using the ICRC and Bureau of
Public Procurement
PPP Approach The PPP approach as a procurement process hasbeen long adopted by South Africa
The PPP model is currently being adopted
The PPP approaches are similar, but there are fundamental differences in
the funding approach and procurement policy
Source: Team Analysis
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Public-Private
Risk Allocation
Service Delivery versus
Asset Procurement
Application of PPP
Beyond Concessions and
User Pay Projects
Hierarchy of
Government Recourse
for Financing Projects
Strategic Focus on
Creating a Private Sector
Service Industry
Gaps to Address Recommendations for ImprovementNigeria model focused on paying for physical
infrastructure roads, bridges, rail lines; ratherthan procuring service availability
Financial Planning in
Tandem with Project
Conception
And have identified gaps in the Nigerian model and recommendations to
improve sector performance
Risk allocation too heavily skewed towardsgovernment in Nigerian transport infrastructureprocurement (contract-to-build versus pay-for-
service)
PPP application tied too closely to concessions anduser-pay projects, as opposed to a broader tool ofgovernment procurement from a self-fundingprivate sector
Operating philosophy in Nigeria is to look first togovernment for funding, with private finance and
PPP options seen only as a side opportunity
PPP model requires an industry of serviceproviders, not just traditional contractorsreinvented as concessionaires
Project conception, prioritization and selectionmust be in tandem with a plan to source financing
Implement changes to payment model for transport capexprojects, require private operators to raise funding backedby government offtake contracts
Broaden application of PPP use beyond concession issuancefor existing road, rail and port assets, to service delivery onnew capex, and operations/maintenance projects
Institute additional planning element to annual transportbudgeting process that seeks to exhaust private financing
potential before public spending
Begin process of developing private infrastructure servicedelivery industry through use of annual budget spendingpower
Institute additional planning element to budget process thatanalyzes extra-budgetary funding options for every proposed
transport project
Institute service procurement approach to annual transportcapital expenditure budget, issuing service purchaseguarantees not construction contracts
Source: Team Analysis
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In summary, the primary learning points for Nigeria include:
Focus on procurement of services rather than assets
Role of public sector should be on policy and strategy formulation, not asset operations
Broaden the application of PPP use beyond concessions this has implications for the
current framework of ICRC
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What goals should Nigeria set for its transportation infrastructure?
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Outline
Background
Recap of 2009 Bankers Committee Retreat
Overview of the Nigerian Transportation System
Governance and an Enabling Framework in
Transportation Infrastructure Development
Case Study: South Africa
Appendix
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The future state transport system is expected to have the following envisioned
characteristics
Adequate
Safe
EnvironmentallySound
Integrated
Efficient
Affordable
Nigerias
Transport
System
Meets the needs of all
Nigerians for access to the
market, place of
employment and to basic
social services
All reasonable standards are
set and actions taken to
prevent accidents andminimize the number of
potential victims and the
destruction of property
Reasonable, effectiveactions will be taken to
diminish atmospheric,
water and other pollution
Transport services are
provided in a way that ensures
resources are used efficiently
- achieving sustainable gains in
productivity, reduced costs
and improved service quality
Adequate transport
services can be enjoyed
by all classes of Nigeriansat reasonable cost
Effective connectivity
between ports, rail, road,
inland waterways and air
Source: Draft National Transport Policy: August 2010
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In alignment with this vision, specific goals have been set for each transport
mode (1/2)
Source: Nigerias Vision 2020 Economic Transformation Blueprint : Mid-Term Review of the National Technical Working Group Reports June 2009
The overall target for the aviation industry is to meet the ICAO standards
There is also a target of achieving full capacity utilization in the sub-sector; this will
mean the generation of increased demand for air transportation
Modern Railway of 1435mm Standard gauge; High speed Train of at least 250km/hr
passenger and 200km/hr freight travel
Double line network of up to 9,000km total route kilometre in addition to the existing
narrow gauge track
Develop Railway at the rate of 800km per year of new line; rehabilitation of the existing
narrow gauge to 50% of its installed capacity Reduction by 6% per year of Road dependent traffic so that by year 2020 Railway should
carry 40% of total national traffic generated
Funding target towards railway expansion should be at the rate of US$ 3 billion per
annum with at least 40% expected from private investment
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AirWaterLand
Federal Ministry of Transport
Rail Road Local Intl
Federal Ministry of Aviation
Nigerian Railway
Corporation (NRC)
Nigerian Institute of
Transport Technology
(NITT )
Ministry of
Agriculture
Ministry of Works
Nigerian Inland
Waterways
Authority (NIWA)
Maritime Academy
of Nigeria (MAN)
Nigerian Ports Authority
(NPA)
Nigerian Maritime
Academy (NMA)
Nigerian Shippers Council
(NSC)
Joint Maritime Labour
Industrial Council
(JOMALIC)
Nigerian Clearing and
Forwarding Agency
(NACFA)
Finance and
Supplies (FS)
Federal Road
Maintenance
Agency (FERMA)
Roles:
Regulatory
Supervisory
Execution (Investment, Ownership,
Operation, etc.)
Local and Intl
(Nigerian Civil Aviation
Authority (NCAA)
Federal Airports
Authority of Nigeria
(FAAN)
Nigerian Airspace
Management Agency
(NAMA)
Nigerian Meteorological
Agency (NIMET)
Nigerian College of
Aviation Technology
(NCAT)
Skypower Aviation
Handling Company
(SACHOL)
Transportation Sector Policy & Regulatory Framework
Source: Bankers Committee 2009 Documents
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Project Summary Owner Estimated
Cost
Financing Structure Start Date /
Duration
Current Status
Lekki-Ikoyi
Bridge
Link bridge from Lekki Phase I
to Ikoyi across the Lagoon
When completed, will help
decongest traffic on the Lekki-
Epe expressway
Lagos
State
Govern
ment
$ 200m SPV will be created for financing
the project
LASG N5 billion expenditure is
converted to equity capital in
the SPV
SPV will raise 36-month bridge
facilities of N20 billion from
Financial Institutions
SPV to be sold to interestedinvestors under the States PPP
programme
36 months Construction -
Foundation of
pier, abutment
and steel piling
in progress
Murtala
Mohd
Airport
Road
Expansion
Expansion and tolling of
existing 2-lane road into 8-lane
divided carriageway inclusive
of 2-service lanes and an
elevated ramp from Ajao
Estate
Road length is approximately4km
Lagos
State
Govern
ment
$ 70 - 100m Optimal mix of State and Private
Sector Financing
18 24
months
Pre-feasibility
Study and
Preliminary
Drawings have
been completed
Selective tender
process inprogress
Berger-
Isawo-Ita
Oluwo Toll
Road
An alternative route to Lagos-
Ikorodu Road being proposed
The project will increase the
real estate potential along that
axis and reduce man-hours
spent commuting considerably
The project will be in 4phases
The road will be tolled andinclude a bridge
Lagos
State
Govern
ment
$ 400m State to concession tolled road
Concessionaire to recoup
investment from toll fees
Terms of concession will be
subject to negotiation with the
State
TBD Traffic and
preliminary
feasibility
studies have
been
undertaken
Feasibility study
and EIA to beundertaken
Investment Opportunities Road (1/3)
Source: LAGOS STATEINFRASTRUCTURE DEVELOPMENT PLAN: Presentation to the Bankers Committee
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Project Summary Owner Estimated
Cost
Financing Structure Start Date /
Duration
Current Status
Lagos-
Badagry
Expressway
10-lane dual carriage
expressway project that
will provide modern
transportation as well as
access for people coming
to Nigeria from the West
African sub-region
Lot 1 Orile to Mile 2
LagosState
Government
$ 270m
(Lot 1)
Optimal mix of
State and Private
Sector Financing
36 months (Lot
1)
Work has
commenced
on Phase 1 of
Lot 1
Lagos-IbadanExpressway
105-kilometre roadgranted to Bi-Courtney on
as a concession contract
Entails redesign,
reconstruction, expansion,
modernisation and
maintenance for 25 years
Federal Ministryof Works $ 600m
PPP, concession Concessionedi nMay 2009
Operator yetto begin work
at site
Abuja-Kaduna
Carriageway
166km dual carriageway Federal Ministry
of Works
$ 138.3m TBD, owner leaning
towards PPP,
concessioning
Immediate
Prospect
Pre-feasibility/
OBC study
Kaduna-Kano
Carriageway
212km dual carriageway Federal Ministry
of Works
$ 176.7m TBD, owner leaning
towards PPP,
concessioning
Immediate
Prospect
Pre-feasibility/
OBC study
Shagamu-
Benin
Carriageway
268km dual carriageway Federal Ministry
of Works
$ 422.7m TBD, owner leaning
towards PPP,
concessioning
Immediate
Prospect
Pre-feasibility/
OBC study
Benin-Asaba
Carriageway
139km dual carriageway Federal Ministry
of Works
$ 139m TBD, owner leaning
towards PPP,concessioning
Immediate
Prospect
Pre-feasibility/
OBC study
Investment Opportunities Road (2/3)
Source: LAGOS STATEINFRASTRUCTURE DEVELOPMENT PLAN: Presentation to the Bankers Committee World Bank
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Project Summary Owner EstimatedCost
Financing Structure Start Date /Duration
Current Status
Niger River
Bridge at
Nupeko
1.2km, 11m wide
single carriageway,
greenfield
Federal Ministry
of Works
$ 44m TBD, owner leaning
towards PPP,
concessioning
Short-Medium
Term Prospect
RFP issued for
pre-feasibility
River Katsina Ala
Bridge at Buruku
0.8km, 11m wide
single carriageway,
greenfield
Federal Ministry
of Works
$ 29.3m TBD, owner leaning
towards PPP,
concessioning
Short-Medium
Term Prospect
RFP issued for
pre-feasibility
Ibadan-Ilorin
Road
150km, completion of
middle segment
Federal Ministry
of Works
$ 250m TBD, owner leaning
towards PPP,
concessioning
Short-Medium
Term Prospect
RFP issued for
pre-feasibility
Lagos-Iseyin-
Kishi-Kaiama
375km, construction &
rehab
Federal Ministry
of Works
$ 500m TBD, owner leaning
towards PPP,
concessioning
Short-Medium
Term Prospect
RFP issued for
pre-feasibility
Kaiama-
Konkweso-
Kanje-TugarGwambe
410km , extension of
Lagos-Kaimacorridor,
Involves greenfieldconstruction
Federal Ministry
of Works
$ 547m TBD, owner leaning
towards PPP,
concessioning
Short-Medium
Term Prospect
RFP issued for
pre-feasibility
Onitsha-Enugu
Road
122km, rehabilitation
and upgrade
Federal Ministry
of Works
$ 122m TBD, owner leaning
towards PPP,
concessioning
Short-Medium
Term Prospect
RFP issued for
pre-feasibility
Enugu-Port
Harcourt Road
215km, upgrade and
modernization
Federal Ministry
of Works
$ 148.3m TBD, owner leaning
towards PPP,
concessioning
Short-Medium
Term Prospect
RFP issued for
pre-feasibility
Investment Opportunities Road (3/3)
Source: World Bank
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Project Summary Owner Estimated
Cost
Financing Structure Start Date
/ Duration
Current Status
Light Rail
Mass
Transit
Network of seven intra-
city rail lines
Two are to be developed
as a matter of priority
o Red Line - a 37 kilometer
rail road from Alagbado
to Marina
o Blue Line - a 27
kilometer rail road from
Okokomaiko to Marina
Lagos State
Government
Total =
$2,554 bn
Red Line =
$1,019 bn
Blue Line =
$1,535 bn
Combination of Debt,
Equity & Export Credit
Financing
LASG, the preferred bidder
and other core investors
to invest equity via a
Special Purpose Vehicle
(SPV) which will be
created specifically for
financing the project
2010 Preferred Bidders
for both Red and
Blue Lines have
been selected
Negotiations with
the Preferred
Bidders have
commenced
Abuja
Light Rail,
Lot II
Represents third of the
first three of six lines that
are planned for a light rail
system in Abuja
Federal
Capital
Territory
Admin
$ 1.2bn TBD, owner leaning
towards PPP,
concessioning
Short-
Medium
Term
Prospect
Conceptual design
stage
Lots I, III ongoing
Investment Opportunities - Rail
Source: LAGOS STATEINFRASTRUCTURE DEVELOPMENT PLAN: Presentation to the Bankers Committee; World Bank
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Project Summary Owner Estimated
Cost
Financing Structure Duration Current Status
Lekki Airport International Airport
located in Lekki
Circa 5 million passengers
per year (Phase1)
Modular Terminal for easy
expansion
Future use by the AirbusA380 aircraft
Modern architecture
Lagos State
Government
TBD Optimal mix of State and
Private Sector Financing
TBD Master plan and
EIA completed
Geotechnical,
topographical
and perimeter
roadongoing
Investment Opportunities - Air
Source: LAGOS STATEINFRASTRUCTURE DEVELOPMENT PLAN: Presentation to the Bankers Committee
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Project Summary Owner Estimated
Cost
Financing
Structure
Duration Current Status
Kiri-Kiri
Terminal,
Phases I & II
Ministry of
Transport / NPA
TBD TBD, owner leaning
towards PPP,
concessioning
Short-Medium
Term Prospect
Early project
preparation, steering
committee formed
Onitsha River
Port
Ministry of
Transport /
NIWA
TBD TBD, owner leaning
towards PPP,
concessioning
Short-Medium
Term Prospect
First concession
attempt cancelled
Investment Opportunities Seaports & Waterways