Finance

How FG can harness private financing for $1trn NDP projects

How FG can harness private financing for $1trn NDP projects

The National Development Plan (NDP) 2021-2025, which is expected to succeed the Economic Recovery and Growth Plan (ERGP) document is projected to have an investment of N348trillion, equivalent to $850 billion.

To ensure the NDP implementation does not suffer typical setbacks associated with government plans, finance experts at the just concluded Nigeria Public-Private Partnership Network (NPPPN) Forum 2021 in Lagos, said that for government to unlock the barriers to private sector funding, it must put in place appropriate legal and institutional framework, build capacity, inject skills set across sectors and strengthen regulatory institutions.

The experts concluded that the basics must be right and all necessary due diligence done before the country will be able to leverage Public-Private Partnership (PPP) as an alternative way of infrastructure and social amenities procurement to meet the 2021 – 2025 NDP.

National Development Plan
The new plan structured on economic growth and development, infrastructure, public administration, human capital, social and regional development has an investment size of N348.7trillion to be contributed by the federal and state governments as well as the private sector.

The plan envisages that the public sector will contribute N49.7 trillion (14.5% of total N348.7 trillion), while the private sector is expected to contribute the bulk of the sum amounting to N298.3 trillion (85.5% of the total). Among funding strategies that the government has identified are broadening the tax base, domestic and concession financing sources, and setting up financial investments vehicles and public-private partnerships.

It is against this background that the Lagos State government hosted a three-day conference with the theme: “The Role of PPP in the 2021-2025 National Development Plan” where niche players in infrastructure project finance, public finance management, PPP, and investment banking brainstormed to unlock barriers to attracting private sector funding for the NDP projects.

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Unlocking Private Sector Funding
Chief Finance Officer, Heyden Petroleum Limited, Dr. Jerry Igwilo, who is project finance and PPP expert, highlighted the critical barriers that government and all stakeholders have to deal with for government to harness private sector financing for the 2021-2025 NDP.

He noted that the country lacks adequate capacity to deliver on the size of projects envisioned in the NDP through PPP projects financing, and therefore urged the government to build capacity across key stakeholders so that bankable projects can be initiated. He stated that the NDP proposes an investment of approximately $850 billion in infrastructure, this in his words is the equivalent of 800 mega projects of $1 billion each.

“Do we, as a country, have the local technical capacity to deliver on such huge projects in five years? It will be counterintuitive for these projects to be delivered by foreign companies. Therefore, we must continue to build PPP and technical capacity to deliver these projects by Nigerians, otherwise we will change our naira to dollars and ship it abroad to foreign companies,” Igwilo warned.

He pointed out that the reason most PPP projects in the country are not working is that they are not bankable. “We need to de-risk most of the factors that discourage investors from investing in PPP projects,” Igwilo advised.

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Addressing the risks to focus on and some of the limiting factors, the investment banker identified “Keyman Risk” as one of the key risks.

He said: “The sponsors of the projects must be bankable themselves because, at the end of the day, they assume the face of the projects. The investors and the funds that need to be raised for the projects are driven by their worldview. Over time, most of the projects are long-term in nature (20 to 30 years). The question must be asked if we are dealing with individuals who can commit to that long-term view?”
According to him, another important risk that has to be addressed from inception is “Currency Risk”.

He explained that: “This must be derisked from inception. There is no point you want to build a rural road and you fly to London to raise the funds in the dollar. What for? You are only compounding your problem.

“What it means is that the project won’t be bankable unless there is a way you can generate foreign currency-denominated revenue from that project. In the absence of that, localizing the source of funding your project is very important.”

To create local liquidity, the project finance expert has this to say: “The country has many dormant assets which I believe we can liquidate or create liquidity around. It all requires financial thinkers to sit down and proffer optimal ways of liquidating those assets and creating local liquidity. Once that is done, the NDP will become a plan that will succeed.”

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On how government can initiate bankable projects, he said; “We need to have the local capacity as Nigerians, the regulators, PPP institutions, and also in the private sector, the capacity to deliver on these projects. If we can put these together, I believe, the NDP will be a successful plan.”

The Managing Partner and Chief Executive Officer, G. A Capital Limited, Mr. Ayo Gbeleyi pointed out that government needs to embrace pathfinder projects that will be quicker, easier to deliver, and shovel-ready transactions.

He added that best practices must be followed in developing the projects and that projects must be based on fundamentals and underpinnings, not on a catchment basis. In other words, “is the project sustainable and viable?”

Above all, the Chartered Accountant advises that before government launches a PPP project, it has to conduct a feasibility study to determine if the private sector can embrace the project and also sound the market out to elicit interest.

Another panelist, Mr. Dolu Olugbenjo, pointed out that delays in completing government projects also pose a barrier to private sector funding because such delay hampers returns on investments, contrary to the expectations of investors.

Dolu who is the Chief Investment Officer of the Stanbic IBTC Infrastructure Fund advised that the only way government can correct that impression and catalyze investors’ interest is to “give over everything in partnership,” and maintain a “Deal Book Framework” as well as maintaining policy consistency.
In his view, the “Deal Book” will outline every detail and expectation about the PPP projects.

Thisday

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