PM World Journal Challenges of PPP Projects in a Developing Country

Vol. V, Issue X – October 2016 by Christian Azuka Olele

www.pmworldjournal.net Featured Paper

The Challenges of Public Private Partnership (PPP) Projects in a

Developing Country: The Case Study of the Lekki Toll Road
Infrastructure Project in Lagos, Nigeria

Christian Azuka Olele, MSc.

ABSTRACT

In developed and developing countries, government has significant constraints in their ability to
make investment in the provision of public infrastructure. This has brought about the
involvement of private sector participants in the provision of such services.

Nigeria as a developing country, since the embracement of democracy in 1999 the civilian
democratic government took up the application of PPP framework as a medium to providing
important infrastructure through the involvement of the organized private sector. In other to
make PPP attractive to the private sector in Nigeria, the government set up attractive investment
opportunities for PPP investors and also provide fair legal framework where the private sector
investor will be allowed to come up with concession companies, have guarantee that
compensation will be paid by the government if she defaults.

In the development of PPP infrastructure projects, the private sector participants are exposed to
risks associated with assets investment in public projects. As a result, the private sectors
generally are inspired to ask for soaring investment guarantees, special considerations and other
investment enticements so as to guard their investments.

This paper is aimed at looking at the recent PPP infrastructural developments in Nigeria where
the government has clinched the PPP framework policy since the passing of the PPP act 20. And
secondly, to look at the benefits associated with the investment of the private sectors in the
development of infrastructure.

Keywords: Project Management, Public Private Partnership, PPP, Nigeria, Lekki Toll Road
Infrastructure Project, Lekki Concession Company, LCC, LASG,

Introduction

This paper looks at the challenges of Public Private Partnerships (PPPs). First it looks at the
demand for PPP infrastructure and the expected benefits to stakeholders. This is then followed
by the following sections: the overview of Lekki Toll Road Infrastructure Project, the demand
for PPP Infrastructure and the expected benefits to stakeholders, the regulatory and political
context, the environmental and social implications, the stakeholder’s interest, involvement and
how their needs were managed and overcome.

In many countries, implementing infrastructure development projects have always been an issue
because the projects are not always completed, and it results in failure on government or the
public sector. Failures in these projects gave way for the formation of PPP Models that making
the private sector organizations to synchronize with the public sector to see how project can be

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PM World Journal Challenges of PPP Projects in a Developing Country
Vol. V, Issue X – October 2016 by Christian Azuka Olele
www.pmworldjournal.net Featured Paper

embarked upon and be delivered effectively. Today, the government of many countries (both
developed and developing) are involved in public-private partnership. Adebanjo & Mann (2000)
explained that regardless of its enormous advantages, the concept of public-private partnership
concept is on the increase, and a report by Jamali (2004) has also listed the following reasons
why PPP Projects in many countries are not successful

 Lack of Government Commitment

 Poor Risk Management Policies
 Poor Banking Policies and Unavailability of Loans
 Poorly drafted Regulatory and Legal Framework
 Inadequate Mechanism to Attract Foreign Investors and the Local Private Sector
Participants.
 Lack of Transparency and Competition

On the political dimension, Mewu (2009) for example suggested that some projects being
conceived under the PPP model had encountered several problems due to political instability in
Thailand. Levy (1996) also noted that in the U.S Highway projects under the PPP Model in
Washington State and Arizona had encountered problems due to political opposition from
congress.

In the PPP Concession model, a separate company is set up for each project and the services are
provided as specified in, for example, Design, Build, Operate and Maintain (DBOM) contract.

The concession company does not carry out the works by itself, but it subcontracts the design
and construction, as well as the operations and maintenance work. Funding for the project is
provided by its own equity and external capital. Wolmer (2002) concluded that PPP models vary
from short-term to long-term contract and the variation to these models are identified as follows:

 The duration of Contract

 The Capital Assets Ownership
 Risks Allocation and Responsibilities
 The Value on Return of Investment (ROI)

Hayford (2004) explained that in PPP policies and guidance materials, there are some common
principles binding them and are listed as follows:

 Private Sector Confidence: This is an objective of fostering private sector confidence in

the ability of government to facilitate PPP projects and properly assess PPP proposals,
with a view to encouraging private sector investment by ensuring that enough players are
invited for the bidding process especially for smaller social infrastructure projects.

 Safeguarding the Public and Stakeholders Interest: The Public and Stakeholders are
interested in their security whereby their interest is protected and this is done by
measuring PPP proposals against public interest criteria relating to efficiency,

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PM World Journal Challenges of PPP Projects in a Developing Country
Vol. V, Issue X – October 2016 by Christian Azuka Olele
www.pmworldjournal.net Featured Paper

accountability, fairness, public admittance, end user rights, security, confidentiality and
right of representation and appeal at the planning stages by affected individuals and the
project host communities.

 Competitive Tendering and Probity: There should be assurance that the project will be
subject to a tendering process that will be competitive with probity and fairness
maintained in the procedure.

The Lekki Toll Road Infrastructure Project – Overview

The Lekki Toll Road Infrastructure Project came into being when Lekki Concession Company
(LCC) was incorporated specially to design, finance, rehabilitate, upgrade, operate and maintain
the Lekki Toll Road, under a 30-year Concession mandate from the Lagos State Government.

LCC’s Concession is the first ever Toll Road Public Private Partnership (PPP) scheme and is
designed to deliver high quality road infrastructure and related services along 49.4KM of the
Eti- Osa Lekki-Epe axis of Lagos. The Project is in two phases: Phase 1 is the construction of
the Lekki-Epe Expressway which extends between the intersection of Falomo Bridge (0.15 Km -
49.36Km). The Works include the construction of a new access onto the existing Falomo
Bridge, widening of certain parts of the existing road, construction of three new toll plazas and
rehabilitation of about 30Km of existing highway. Phase 2 of the project entails construction of
20Km of coastal road from Lagos Bar Beach to Ogomgbo Beach. The works includes
construction of new highway, culvert structures, provision of street lightings, and construction of
two new toll plazas. The environmental impact assessment of the project has been published; the
gazetted road alignment is approved and published.

Fig 1: Admiralty Circle Toll Plaza at CH 3+000 of the Lekki –Epe Toll Road.
Source: Author (2010)

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PM World Journal Challenges of PPP Projects in a Developing Country
Vol. V, Issue X – October 2016 by Christian Azuka Olele
www.pmworldjournal.net Featured Paper

Under an Abridged Works Contract dated February 2007, the first twenty Kilometres of road
construction has been successfully completed but only twelve Kilometres has been handed back
to the Concessionaire (LCC Monthly Report, 2011b).

The Employer’s Requirements in the LCC Monthly Reports (2010) and LCC Monthly Report
(2011a) describes the Works as being divided into five sections as follows:

 Section1 (Km 0.2 to 0.4) Falomo. New access onto Falomo bridge;
 Section 2 (Km -0.15 to 3.8) Maroko. Widening to six lanes, including Mobil bridge,
Toll Plaza No 1;
 Section 3 (Km 3.8 to 15) Express. Widening of first 2.2Km to six lanes, Toll Plaza No 2
(at Km 13.64);
 Section 4 (Km 15 to 20) Ajah. Widening to six lanes at roundabouts only, two new
roundabouts;
 Section 5 (Km 20 to 49.36) Eleko. Widening to six lanes to proposed Toll Plaza No 3 (at
Km 23). The Toll Plaza at Km 23 which was designed to be located at the vicinity of Pan
African University (Lagos Business School) was cancelled as a result of multiple
consultations with stakeholders from the host communities.

The first 20Km up to Ajah is characterised by very heavy traffic with significant encroachment
of the Right of Way (Row) by numerous small and medium scale businesses. Most, if not all of
these businesses, may be occupying the Row without legal ownership of the land. Another key
feature of the first 20Km is the significant difficulty associated with relocation or removal of
existing services. In particular, the overhead power lines represent a major issue and it is
understood that toll plaza 2 may be repositioned to mitigate problems with moving some of the
overhead lines. LASG is responsible for providing to LCC land which is free of occupation and
services.

Fig 2: Rehabilitated & Upgraded Section of the Lekki-Epe Toll Road. Source:
Author (2011)

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PM World Journal Challenges of PPP Projects in a Developing Country
Vol. V, Issue X – October 2016 by Christian Azuka Olele
www.pmworldjournal.net Featured Paper

The Demand for PPP Infrastructure and the Expected Benefits to Stakeholders

According to Dulaimi (2010), the idea of the private sectors being involved in the provision of
basic infrastructures has been identified as an important approach for the government of many
countries. Garvin (2009) concluded that PPP refers to the contractual arrangement where the
private sector participates in infrastructural development services that could have been provided
by the government. A wide range of projects such as hospitals, schools, roads, bridges, prisons,
and light rail, water and sewage plants could be implemented using the PPP models. Shen
(2006) explained that there is a worldwide trend towards PPP’s in providing infrastructural
development aimed at generating greater efficiencies and synergies, increased revenues and
reduced debts, open doors for foreign investors, enhanced market opportunities and increase in
competition.

Bamgbelu (2004) described the advantages of PPP to stakeholders as follows:

 Value for Money: it was imagined that the private sector novelty of combining all
construction phases will eventually gain synergies. Current proof recommend that this is
actually happening on contracts established under the PPP/PFI platform already, and for
this reason contributing to a lessening of costs of operation, improved level of services
and the benefits gained from the transfer of risks to the private sector.
 Innovation and Spread of Best Practice: modernization of the private sector is one of the
foremost factors of the development of the PPP scheme as the government has come to
realise that proficiency and skill does not exist within the sector.
 Flexibility: PPP’s have the integral flexibility to be established successfully to different
types of infrastructure, and the theory that strengthens PPP can be adapted to many
circumstances (Robinson et al, 2011)

The Regulatory and Political Context

The principles of governance are examined to show how it affects processes, decision-makers
and the general population of the country. Robinson et al. (2011) explained that the laws
governing PPP Projects includes the agendas for controlling, managing and influencing the
deployment of financial, staff and physical resources in an effective and fiscal affordable way.

These laws and regulations are bound to protect processes such as

 Value for Money, Financial Accountability Processes

 Appraisal and Evaluation Process

In a sustainable PPP project, permitting regulatory, legal, and policy environment are
particularly essential. From the bottom level, a legal atmosphere that can provide support for the
private sector participants involved in essential services is required. The Lekki Toll Road
Infrastructure Project encountered some legal battles from stakeholders such as property owners
and small & large scale business owners. The legal issues where as a result of engineering
design of the project which took out some access roads, effect of the new gazette Row and
introduction of clear vu fence which was also used to demarcate the Row. However, Cramps and

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PM World Journal Challenges of PPP Projects in a Developing Country
Vol. V, Issue X – October 2016 by Christian Azuka Olele
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Estache (1998) stated that the aim of the legal environment is to lessen the chances of dishonesty
and must be adequately consistent so as to give confidence to private participation and interested
investors will be confident that the laws and the contract terms will be valued and if there are
issues it can be imposed in the courts or resolved through an arbitration panel. Zhou, Cheng and
Yang (2008) opined that the structure for economic law is useful to insert regulatory values
inside the contract, involving extremely detailed contract terms with the aim of establishing the
following:

 Duties
 Performance Targets
 Tariff Level and Structure
 Rules for Changing Tariffs, and
 Disputes Resolution Procedures

These factors will permit the private sector to envisage the project’s profitability and make a
decision whether the contract is valuable to bid. Clive (2003) is of the view that if the legal and
judicial environment is not well classified, investors and project participants will see the project
as volatile and extremely risky and run away.

The Environmental and Social Implications

Infrastructure development has in recent time’s assumed a central importance in Nigeria’s fight
to attain social and economic stability. Both the federal government and state government are
using infrastructure as the focal point of their administrations and policy enactments.
Infrastructure generally has to do with the fixed provision of tangible assets on which other
intangibles can be built on. Environmental impacts on the location of the project and in related
areas with example (ground water condition, flowing rivers, streams, lakes, or the atmosphere)
include consequences on environmental resources attributed to pollutants. Emecheta (2009)
explained that infrastructure projects will always have consequential environmental and social
impacts during construction and operation of projects. These impacts can be either positive or
negative and may consists of continuous effects which is beyond the project at hand or the case
of secondary impacts occurs where the effects goes beyond the projects stakeholders.

Stakeholders' Interest, Involvement and How their needs were Assessed

The diagram below shows the key stakeholders in the Lekki Toll Road Infrastructure Project,
Lagos, Nigeria which is based on the BOT (PPP) Model.

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 PM World Journal Challenges of PPP Projects in a Developing Country
Vol. V, Issue X – October 2016 by Christian Azuka Olele
www.pmworldjournal.net Featured Paper

ARM Investment
Managers

Financing
Agreements

Lekki Concession Co AFDB,

Lagos State Govt Shareholders Financing
Agreement Ltd Standard Bank
(LASG) Agreements
FBN Capital

Operate and Maintain

D&C
Contract
Contract

Hitech Construction Co Toll Infrastructure

AURECON/BKS Service (TIS)

Figure 1: Key Stakeholders in the Lekki Toll Road Infrastructure Project

Source: Author (2012)

 Lekki Concession Co Ltd (‘’LCC’’)

Private Sector Stakeholder Group:

 Hitech Construction Co Ltd (‘’Hitech’’)

 High Point Rendel (‘’HPR’’)

 Provision of Quality Road Infrastructure

The interest of the private sector stakeholder group as follows:

 Provision of Safety & Security Improvement Measures on Roads

 Job Creation and Poverty Reduction Measures
 Increase in Cost of Property Rental, Sales and Lease

 Lagos State Government (‘’LASG’’)

Public Sector Stakeholder Group:

 Eti-Osa Lekki Local Government Council

 The Lekki Toll Road Users / Local Community

 Decrease in Traffic Congestion

The interest of the public sector stakeholder group as follows:

 Crime Reduction and Increase in Safety as a Result of Reviewed Municipality Scenery

 Rejuvenated Vicinity and Industrial Districts
 Increase in Lease and Other Development Revenues

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PM World Journal Challenges of PPP Projects in a Developing Country
Vol. V, Issue X – October 2016 by Christian Azuka Olele
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How Challenges Encountered were Managed and Overcome

For PPP projects be successful, there would be challenges along the line of each phase.
Bamgbelu (2004) stated that successful PPPs require sound transaction skills on the part of the
public sector, as well as the experienced private sector service provider whom has the interest of
the project at heart due to his better understanding and skills. Mittal and Kalampukah (2009)
listed the following points as partnership challenges:

 Conflict of interest of partner organizations

 Diversity of underlying goals among partner organizations
 Insurance of Power Balance
 Communication barriers among partner organizations
 Difficulty in Resource Commitment
 Ambiguous Definition of Contracts and Agreements

Also Edwards (2010) explained that PPP projects are faced with challenges like the following:

 High Upfront Cost

 High Procurement Cost
 Inadequate Expert Knowledge
 Citizenry Rejection and Public Opposition

Mittal & Kalampukah (2009) suggested the following measures to overcome the challenges in
PPP infrastructure projects:

 Establishment of Open and Informal Communication channel amongst partner

Organizations
 Clear Definition of Project Charter
 Develop an Exhausting Risk Management Sharing Plan & Proper Definition of Roles
and Responsibilities
 Ensure Proper Commitment of Resources by Partners.

In the Lekki Toll Road Infrastructure Project, high upfront cost, high procurement cost, and
engaging & managing stakeholders were the basic challenges encountered. The high cost of
materials was discussed with the Engineering, Procurement, Construction and Maintenance
(‘’EPCM’’) contractor and she informed Lekki Concession Company (LCC) that the amount
fixed for procurement of materials was submitted in the Bill of Quantities (BOQ) during the
bidding process stating that inflation is also the major factor looking at the period at which the
priced BOQ was submitted and the contract awarded.

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PM World Journal Challenges of PPP Projects in a Developing Country
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Summary

The paper tackles the comprehensive idea of developing infrastructure through the use of PPPs
as an opportunity for enhanced service and investment to achieve profit in return. In the
implementation of PPP concepts; one has to understand the need for accelerated infrastructure
development; proper constitutional, legislative, and institutional frameworks; also how to
develop a PPP through lessons learnt from local and international PPP projects, knowledge and
ideology behind funding of PPP projects; the conventional procurement systems and standard
contract methods used in PPP projects; the prospect and sustainability of PPPs worldwide, and
recent developments in PPP investments in developing countries.

This also provided an overview of the Lekki Toll Road Infrastructure Project starting with the
present state of decaying infrastructure in Nigeria, and a vision to improving better fiscal growth
in the 55 years of Nigeria’s existence, it is expected that the public and private sectors of
Nigerian economy would grab hold of the opportunities offered by sprouting universal
affiliations to build stable infrastructures and development in Nigeria. In summary, if the wrong
model is chosen or the risk management for each model is inaccurately evaluated there will be a
high impact consequences on the parties involved in the Public-Private Partnership Scheme.
Therefore, it is clear that the Lekki Toll Road Infrastructure Project has come to stay despite its
challenges and many other PPP project are lined up in the country.

References

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The Fast Moving Consumer Goods Sector’, Benchmarking: An International Journal, 7(30), pp.
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Bamgbelu, O. (2004) the Management, Organization and Interface in Delivering the PPP
Obligation, Unpublished MSC Thesis, South Bank University, London

Clive, H., (2003) ’Private Participation in Infrastructure in Developing Countries: Trends,

Impacts and Policy Lessons’ World Bank Working Paper [Online]. (5) Available at:
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Crampes, C., & Estache, A. (1998).’ Regulatory Trade-Offs in Designing Concession Contracts
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Dulaimi , M.F. (2010) ‘The Execution of Public-Private Partnership Projects in the UAE’,
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(Accessed: 09 January 2012)

Edwards, S. (2010) Construction Management Ideologies, 2nd edn. New York: Chapman & Hall

Emecheta, G.N. (2009) ‘Public-Private Partnership: Challenges and Prospects’, [Lecture to

MBA Students]. University of Agriculture, Markurdi

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Vol. V, Issue X – October 2016 by Christian Azuka Olele
www.pmworldjournal.net Featured Paper

Garvin, M.J (2009) ‘Enabling Development of the Transportation Public-Private Partnership

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Jamali, D (2004) ‘Success and failure Mechanism of public private partnership (PPPs) in
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About the Author

Christian Azuka Olele

Lagos, Nigeria

Christian Azuka Olele is a registered Professional

Engineering Geologist with the Council of Nigerian Mining Engineers and Geoscientists
(COMEG) and an experienced project manager in the construction sector in Nigeria,
West Africa. He received his B.Sc. and PGdip degrees in Geology from the University
of Port Harcourt, Choba, Nigeria; and his M.Sc. degree in Project Management from the
University of Liverpool, Liverpool, U.K

Mr. Olele supervised several projects that had to do with Geotechnics on the Lekki Toll
Road Infrastructure Project which included: Pedestrian Bridges, Falomo Ramp Bridge
and Toll Booths & Plazas, Osborne Jetty Terminal, Ikoyi & several Road construction
Projects in Lagos, Nigeria.

He is Interested in managing projects in Nigeria and Africa. Currently he is heading the

construction management team of EdgeGold Concept Services Limited in Lagos.

He can be reached via email at [email protected]

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