The objective of this article is to highlight the procedure, assess and evaluate the legal framework required for implementing a Public Private Partnership (PPP) Project via Unsolicited Proposals.
2. LEGAL FRAMEWORK
One of the most important considerations by prospective participants in a PPP Project is whether there exists sufficient legal authority and flexibility to structure the PPP model to address the interests of all stakeholders. Without adequate legal authority and flexibility, PPPs cannot be used to expedite delivery of the concessioning program.
Section 1(1) of the Infrastructure Concession Regulatory Commission Act, 2005 (ICRC Act) provides a framework for Ministries, Departments and Agencies (MDA) of the Federal Government of Nigeria to enter into contracts or grant concessions to duly pre-qualified private sector participants for the financing, construction, operation or maintenance of any infrastructure that is financially viable or a development facility of the Federal Government of Nigeria. The ICRC Act establishes the Infrastructure Concession Regulatory Commission (ICRC) which is saddled with the responsibility of providing the regulatory and institutional framework by which MDAs of the Federal Government of Nigeria effectively enter into PPPs for infrastructure development.
3. PROCUREMENT AND PPP LAWS:
■ ICRC Act
■ National Policy on Public Private Partnership (“NP4”)
■ Public Procurement Act 2007
■ ICRC’s Guide on Implementing Unsolicited Proposals
4. KEY STAKEHOLDERS AND THEIR REQUIREMENTS
Concessioning of an infrastructure project involves many parties, including the Government, Investor, Engineering, Procurement & Construction (EPC) Firm, financiers and other parties. The main stakeholders are – Government; Promoter/Concessionaire; Users, Lenders/Financiers and the public.
The Government’s vision to encourage private partnership for infrastructure projects is to ensure that money has been spent economically, efficiently, and effectively. The overarching objective of the project should be to use private sector’s innovation and skills in asset design, construction techniques and operational practices and also to transfer key risks in upgrading, construction delays, cost overruns, finance and insurance to private sector entities for them to manage.
4.2 Private Investor
Private investor will focus on structuring the project to achieve stable revenues from the project to cover the operating costs, financing charges and an appropriate return for the capital employed.
4.3 Lenders / Financial Institutions
The key principle for PPP projects is to achieve a structure that provides the necessary comfort to the lenders with respect to the credit risks. The lenders will assess the relevant guarantees that ensure project cash flows to cover their risks in addition to the collateral that the promoter would offer.
4.4 The Public
Across the entire project execution spectrum, the biggest beneficiary of these projects will be the public. They will have access to improved infrastructure at affordable costs.
4.5 The ICRC
The Board of ICRC has been appointed with a mandate to develop and issue guidelines on PPP policies, processes and procedures (including those for concessions), and to act as a national centre of expertise in PPP. It will work closely with relevant Federal Government Ministries, Departments and Agencies (MDAs) to identify potential PPP projects, and will act as the interface with the private sector to promote communication on national policies and programmes. It will provide an opinion to the Federal Executive Council (FEC) on whether projects submitted for FEC approval meet the requirements of the regulations.
Although the management of PPP agreements will be for the relevant MDA, as the contracting party on behalf of government, the Contract Monitoring Unit within ICRC will monitor compliance with the contractual terms and conditions by both parties. The ICRC will maintain a PPP project database and will retain custody of all PPP agreements as required by the legislation.
5. CONSIDERATION FOR UNSOLICITED APPROVAL
A PPP refers to a project with meaningful private sector involvement in at least 4 ( four) of the following 5 ( five) structural elements: design, build, operate, maintain or finance, 3 (three) of which must include operate, maintain and finance.
For the purposes of the unsolicited bid review process, “meaningful private sector involvement” will be interpreted as follows for each of the five structural elements:
i. Design: The private sector will be responsible for all or almost all design activities.
ii. Build: The private sector will be responsible for all or almost all construction related activities.
iii. Operate: The private sector will be responsible for all or almost all activities related to the operation of the infrastructure asset.
iv. Maintain: The private sector will be responsible for all or almost all maintenance of the infrastructure asset.
v. Finance: The private sector will be responsible for arranging private financing that will be used to ensure performance during the construction and/or maintaining/operating period of the project.
For clarity, the preferred PPP model should be identified as the one that creates optimal Value for Money (VfM) taking into account qualitative and quantitative factors. Generally, these will be projects with the most private sector involvement (e.g. DBFOM).
6. DEFINITION AND GUIDELINES FOR ADDRESSING UNSOLICITED PROPOSALS An unsolicited proposal refers to any proposal received by a government agency that was not requested by the government, which usually originates from the private sector. Typically, the private sector assumes responsibility for project preparation costs such as pre-feasibility and feasibility studies, design specifications and other such related assessments.
The major factors to be addressed in considering unsolicited proposals are:
i. Private proponents commonly argue they have intellectual property rights to project concepts or are the only developer interested in the project.
ii. Alternately, some unsolicited proposals suggest that the private sector can save the government time and money by sole-source negotiating project details.
iii. In some cases, government grants exclusive development rights to private proponents without a transparent tendering process, in response to an unsolicited proposal.
iv. Consequently, unsolicited projects are typically associated with a lack of competition and transparency.
The ICRC has come to the realisation that Unsolicited Proposals may contribute to the overall infrastructure goals of Nigeria by identifying and implementing critical projects in alignment with the strategic objectives of the MDAs.
The over-arching principle is that “ALL unsolicited proposals are channelled into a transparent, competitive process where challengers have a fair chance of winning the tender.”
The Swiss Challenge System will be applied to allow submission of competing bids, to all qualifying unsolicited proposals, by other potential proponents, via a transparent process. This system however recognises the investments made by the Project Proponent (PP) in preparing the proposal to the requisite O u t l i n e B u s i n e s s C a s e ( OBC) standard, as such the original proponent is granted the right to counter-match the best offer and secure the contract.
7. The PPP Process for Unsolicited Proposals
The PPP process for Unsolicited Proposals as stipulated in the ICRC Guide for Implementation of Unsolicited Proposals for PPPs in Nigeria is outlined below:
7.1 The unsolicited proposal is submitted to and reviewed by the supervising MDA with oversight for the respective sector to ensure that the project meets the criteria below AND that the proposal is up to the OBC standard.
7.2 The MDA will be required to perform a review of the proposal to determine if the proposal meets with the following criteria:
Does the project serve a credible public interest?
Is the project in line with the national development goals of the relevant MDA?
Does the project fall under the category of critical infrastructure?
Is the project viable i.e. without need for Viability Gap Funding (VGF)?
Does the project proponent possess the requisite competence and profile to implement the project?
7.3 Following the review of the proposal by the MDA, the unsolicited proposal is then forwarded to ICRC for its review and issuance of “No Objection” if the proposal is satisfactory. All proposals submitted to ICRC for review will attract a Service Fee (SF) in accordance with the scale below:
SERVICE FEE (%)
1% of Project Value
N500m – N10bn
N10bn – N50bn
N50bn – N200bn
There may be need to revise the proposal in line with OBC standard, as specified by the National Policy on Public Private Partnership (“NP4”) and other related documents. The cost of such revision will be borne by the “Project Proponent” (“PP”).
7.4 Technical and financial due diligence will then be carried out to ascertain the capability of the Project Proponent in implementing the project, if selected.
7.5 Following issuance of No Objection” from ICRC AND success of the Project Proponent from the due diligence exercise; the proposal may then be approved at ministerial level.
7.6 The Project Proponent is then issued formal acknowledgement as the Project Author and the project commences to a competitive bidding stage.
7.7 Following the competitive procurement process (Expression of Interest (EOI), Request for Proposals (RFP), etc.) the Project Proponent is then requested to submit a Best and Final Offer, along with the preferred bidder. The successful bidder is thus determined by the most economically and financially viable submission.
7.3 “Swiss challenge”
The Swiss Challenge is a procurement method whereby a public authority, having received an unsolicited bid and found some technical merit in it, publishes the technical component of the original bid and asks for counter financial proposals.
Where a new bidder bids lower for the same technical content, the original bidder is given a chance to match this new bid, in which case he is awarded the contract; but if he declines, the contract goes to the new lowest bidder. This formula actually works as a market test to ascertain the cost/quality ratio of unsolicited proposals.
The successful Bidder is awarded Full Business Case (FBC) and details forwarded for the approval of the Federal Executive Council (FEC).
8. EVALUATION OF UNSOLICITED PROPOSALS IN NIGERIA
Based on the guiding principle outlined above, the following guidelines are provided to support MDAs and private proponents t o successfully embark on competitive unsolicited proposal processes.
8.1 Proposal Submission
8.1.1 Where to present their proposals
All unsolicited proposals should be submitted to the relevant MDA that bears direct ownership of the infrastructure asset or responsibility for the delivery of the service being proposed.
8.1.2 What information is required?
All unsolicited proposals should include: a detailed project description that demonstrates the project serves a public interest. The proposal should be presented in the form of an Outline Business Case (OBC) that thoroughly evaluates the legal and regulatory, technical, economic, financial, environmental and social parameters of the project as stipulated by the NP4. The submission should also specify:
i. technical feasibility studies conducted;
ii. financial Analysis including estimates of total project cost including lifecycle costs and financing plan, Income and Expenditure plan for operation such as user fee revenues;
iii. justification of the project need; and
iv. environmental and social impact studies.
Experts have projected that for Nigeria to meet its infrastructure deficit, it requires an annual investment of $30bn for the next 20 (Twenty) years to attain its potentialities as it concerns provision of infrastructure in the country.
The critical infrastructure gap cuts across all segments of the economy and the environment, with the most glaring being transport, power, education, agriculture, health and telecommunication.
Interested investors may wish to leverage these opportunities by identifying critical projects in alignment with the strategic objectives of the MDAs and submitting Unsolicited Proposals, not only to jump-start Nigeria’s infrastructure development, but also to ensure projects are operated and delivered successfully to maximise efficiency and project success.