FM IN PPP – The Nigerian Experience

• FM IN PPP – The Nigerian Experience

  Presentation by Dr. MKO Balogun at the

• World Engineering Conference on
• Sustainable Infrastructure,
  November 2014,
  Abuja-Nigeria
• TABLE OF CONTENT
• GLOBAL AFRICAN & NIGERIAN ECONOMIC OUTLOOK 2014-2020

• INFRASTRUCTURAL DEFICIT

• GLOBAL AFRICA & NIGERIA FACILITY MANAGEMENT OUTLOOK

• PPP- TRENDS, OPPORTUNITY & CHALLENGES

• FM & PPP IN THE NIGERIAN ENVIROMENT

• FM IN A PPP – LAGOS MM2 EXPERIENCE.

• INTRODUCTION

In discussing the topic, I have taken the liberty to think the topic and the theme “FM Beyond Buildings”.

Linking economics/growth to infrastructure and linking sustainability infrastructure to FM.

I hope you will find it useful, beneficial and will lead to further discussion on the topic and increase in FM participation in PPP

• WORLD ECONOMY OUTLOOK 2014 – 2025
• WORLD ECONOMY OUTLOOK
• Global growth of Gross Domestic Product (GDP), adjusted for inflation, will rebound from 2.9 percent in 2013 to 3.5 percent in
• Across mature economies, the 2014 growth outlook has improved significantly to 2.2 percent growth in 2014, compared to 1.3 percent in 2013.
• The uptick is primarily due to the United States, which is expected to increase its growth by more than 1 percent, from 1.9 percent in 2013 to 3 percent in 2014

WORLD ECONOMY OUTLOOK

• The recovery of Eurozone from its negative growth of -0.3 percent in 2013 to 1 percent in 2014 also contributes to this improvement in mature economies.
• GDP growth in emerging and developing economies as a whole is projected to improve slightly by 0.3 percentage point to 4.8 percent in 2014. The slower increase is primarily driven by China, which will continue to slow down from 7.5 percent in 2013 to 7 percent in 2014, when based on official growth rates, as structural and policy challenges continue to weigh on China’s economic transformation

WORLD ECONOMY OUTLOOK

• Among the other emerging markets, India, Latin America and other developing Asia are to witness a slight growth improvement in 2014, up from a weaker growth performance over 2013.
• The world’s major economies still face many structural flaws and policy constraints that hinder more investment and faster productivity growth, making the medium-term outlook for a significantly faster path of global growth more uncertain.

WORLD ECONOMY OUTLOOK

• The medium term slowdown in the growth trend of emerging and developing markets is more dramatic. As China, India, Brazil, and others mature from rapid, investment-intensive ‘catch-up’ growth to a more balanced growth model, the structural ‘speed limits’ of their economies are likely to decline, reducing emerging market growth from 4.3 percent, on average per year, from 2014-2019 to 3.2 percent from 2020-2025.
• Emerging markets constituted just below half of world GDP in 2012, when converted to US$ at purchasing power parities, up from about one third in 2000. In the next decade this shift will continue at a much slower speed. By 2025, emerging markets will capture just over half of world GDP, with China clearly being the largest economy in the world.

• The upsides for the medium term growth outlook for the global economy are a significant faster increase in public and private investment and an acceleration in the economies’ reform agenda to accelerate productivity growth
• Global Outlook for Growth of Gross Domestic Product, 2013-2025
• Global Outlook for Growth of Gross Domestic Product, 2014-2025
• AFRICA & NIGERIA
• Increase in FDI to Africa
• Political stability with some security concerns
• Huge investment in infrastructure directly through FDI and BOT
• Sub – Saharan Africa group with oil discovery in almost all the countries
• Focus on partnerships for development
• Nigeria, SA still top economics
• Lagos state surpassing some countries in economic growth.

INFRASTRUCTURE DEFICIT

INFRASTRUCTURE

• Around the world, many countries are experiencing severe infrastructure needs, owing to growing populations, economic growth, increasing urbanization and ageing legacy assets. While demands are skyrocketing, supply is impeded by various factors, resulting in a global investment gap of about US$ 1 trillion per year.
• INFRACSTRUCTURE
• Economic infrastructure: assets that enable society and the economy to function, such as transport (airports, ports, roads and railroads), energy (gas and electricity), water and waste, and telecommunications facilities
• Social infrastructure: assets to support the provision of public services, such as government buildings, police and military facilities, social housing, health facilities, and educational and community establishments

• To bridge the gap, most governments emphasize constructing new assets, but this strategy is not a “silver-bullet” solution; after all, public-budget constraints exist, as do multiple difficulties in getting projects from idea to implementation in a reasonable time frame.
• A complementary and potentially more cost-effective approach is to improve the utilization, efficiency and longevity of the existing infrastructure stock – in short, to make the most of existing assets by means of optimal O&M.
• Infrastructure is an important driver of economic competitiveness in the present globalized investment landscape.

• Yet the divergence between the need for infrastructure and the ability of governments to deliver continues to widen, creating a bottleneck for growth and diversification.

• These gaps have widened in certain developed markets owing to limits imposed by public indebtedness and, in emerging markets, by the underestimation of the growing need for infrastructure due to population growth and urbanization. In both cases, more effective delivery mechanisms are needed.
• Increasingly, political leaders around the world share a common vision of regional integration – to open up regional markets, link production clusters in different countries, facilitate the free movement of goods, services and people, and foster political stability and peace
• Accordingly, a further common ambition is to promote transnational infrastructure as a physical backbone of this regional integration, and initiatives are underway to give greater priority to cross-border programmes.
• In Africa, for example, the Priority Action Plan of the Programme for Infrastructure Development in Africa (PIDA PAP) encompasses 51 programmes of regional importance in the transportation, water, energy, and information and communications technology (ICT) sectors, with an investment need of $68 billion.
• AFRICA SECTORAL REQUIREMENT
• AFRICA REGIONAL REQUIREMENT
• INTEGRATING O&M IN PPP
• The programme sponsors should also ensure that the operation and maintenance (O&M) of the infrastructure facility is properly coordinated across borders.

• This coordination is particularly pressing in cases where consumption and production are located in different countries, as necessary repair works will affect the supply of water, oil or electricity abroad.
• PPP IN NIGERIA
• Concessioned International Conference Centre Abuja
• PPP IN NIGERIA

In Nigeria, Government focus on infrastructure is increasing with both states & federal government investing heavily in infrastructure. This is geared towards bridging the deficit estimated at about $50b yearly for the next 10 years.

It has become imperative now more than ever before that O&M is an important component of PPP. Now bidders for PPP in Nigeria look for FM companies to work with.

It is also a requirement for multi-million dollar project to include LCC and O & M, I am sure multi-lateral finance institutions and banks will not provide funding for such project without a guarantee of payback backed by adequate O&M strategy and plan.

• TOLLED ROAD IN NIGERIA
• PPP IN NIGERIA

Nigeria has agencies and policies for PPP such as:

• National policy on PPP
• Infrastructural Bank established in 1992
• ICRC established in 2008- an agency saddled with infrastructural regulations

• PPP IN NIGERIA

The PP framework in Nigeria is designed to cover the following areas, some are already implemented most are in pipeline, the model of operation are:

• BOT – Build Operate & Transfer
• DBOT – Design Build, Operate & Transfer
• RBOT – Redesign, Build, Operate & Transfer
• OMT – Operate, Manage & Transfer

• FMs have opportunity for direct partication in the OMT model and can participate with an operator on all the other models
• FMs can also work with financial institutions to get into PPPs as the FM adviser and eventual O&M provider.

• PPP IN NIGERIA

The areas of focus for PPP in Nigeria are as follows:

• Power Sector
• Railway, mono and light rail systems
• Ports – Sea & Air
• Gas Pipeline
• Education
• Housing
• Health care- Abuja Medical City
• Mono Rail
• City Infrastructure Project
• Water Supply
• Sports Complexes
• Cable car
• Conference Centers

GLOBAL FM OUTLOOK

• GLOBAL FM OUTLOOK

EUROPE & AMERICA

• FM at maturity
• Focus on integration with business
• Driving value beyond O & M
• Standard of FM service delivery very high
• Growth expected
• Global industry players
• Government influencing growth and standard
• Private & Public driven with most major buildings and infrastructures under FM
• Estimated industry size of over $500b
• Industry clearly segmented

GLOBAL FM OUTLOOK

ASIA & MIDDLE EAST

• Growing with growing Economic development
• High standard of FM provision
• Influenced by Europe & American FM standards
• Growth Stage
• Private & Public FM growing
• Government role critical and influencing FM industry growth and standard
• Strong regional industry association
• Segmentation on the rise
• Estimated market size is $400b

• GLOBAL FM OUTLOOK

AFRICA

• Awareness and growth stages
• FM only strong in SA, Nigeria, Kenya, Egypt and now Ghana.
• Opportunity for growth very strong
• More focus on Private with opportunities in Public not fully explored
• Need to open up for Europe & America Influence
• No – in FM that will aid development and growth of the
• Estimated Market size is $350b and rising
• No major events to bring FMs in Africa together to share experience like
• EUROFM,
• IFMA World Work Place
• World Work Place ASIA,
• Middle East FM Association’s WORLD FM Congress
• GLOBAL FM OUTLOOK

NIGERIA FM ENVIROMENT

• Awareness and growth stages
• Size
• Major Players- 3 Locals with 2 Foreign companies
• Industry comprising of with:
• Construction companies doing FMs
• M & E Installation companies doing FMs
• Estate/property Managers in FM
• FM Companies
• Fragmented & Lack of strong industry association
• Focus mainly on private with few public projects
• Huge opportunities for FM in Africa’s biggest economy FM getting into PPP’s
• No industry data
• FM IN PPP MY PERSONAL EXPERIENCE
• INTRODUCTION

In Africa, PPP has not been well accepted and this has led to a lot of resentment in the acceptance of the concept as the best way to ensure quicker and faster development and infrastructure development across the continent, we have seen legal cases on the Lagos Lekki concession, termination of various concessions by MDAs in Nigeria, refusal of the public to accept the tolling of roads built through PPP among others.

• FM IN PPP-THE LAGOS MM2 EXPERIENCE

In 2003, Nigeria joined the league of developed world with the signing of the agreement for the first PPP Concession agreement, a Build Operate and Transfer (BOT) project for the re-construction of the burnt local wing of the Murtala Muhammed Airport, Ikeja Lagos, popularly called MM2, which was commissioned in November 2007. Since then there has been quite a number of PPP projects both at the federal and state levels in Nigeria

• In developing, operating and managing PPP, it is important to focus on the importance of facilities management in the life cycle of the project. This paper will discuss:
• The various PPP models,
• The role of facilities management in each of the model,
• The various opportunities in PPP in Nigeria and Africa,
• The challenges that current operators are facing based on the experience of the speaker in participating in the operation of one of the PPP projects,
• The ways to overcome the challenges.

• MM2

The various models exists in the implementation of PPPs in Nigeria from concession to BOT, to redevelop, operate and transfer with a long pipeline of projects as stated earlier.

In Nigeria, the international conference center in Abuja is being managed by an FM company as a concessionaire on a O, M & T model. FMs are involved in various other infrastructure projects like Lagos cable car, Lagos rail, MM2 among others as a sub to the concessionaire.

NIGERIA MM2 AIRPORT STORY

Federal Government made a decision to redevelop the Airport using private sector investment under a Public-Private Partnership Scheme. The plan completely transferred all development and operating risks to the private sector specifically on a Build-Operate-Transfer (BOT) arrangement. Bi-Courtney Limited, the parent company of Bi-Courtney Aviation Services Limited, was in 2003 awarded the concession by the Federal Government of Nigeria to design, build and operate the Murtala Muhammed Airport, Lagos Domestic Terminal and ancillary facilities on a land area of 20,000m2.

NIGERIA MM2 AIRPOTY STORY

The project comprises an Airport Terminal Building, a multi-storey car park and an apron. Bi-Courtney Limited set out to work promptly with the goal of building a world class Airport Terminal that will be the pride of Nigerians and promote Lagos as a major hub in Africa.

MM2 is a model for PPPs in Africa.

FM of MM2 AIRPORT IN NIGERIA

As the FM of MM2 in 2008/2009, the following were the major learning for FMs

• Understanding regulatory environment
• Understanding the concession agreement
• Public influence on your project ( share experience)
• Understanding the influence FM has on creating value for the project
• Understanding your principals objective, knowledge and your role as FM
• Understanding the impact of political environment on the project

THE STORY BEHIND THE LEARNINGS

• Public Influence Stories
• Virgin saga

LESSONS

• Highest level of knowledge and linking FM to business value creation
• Implement solutions that takes into account the regulatory and political environment
• Delivering FM services / solutions that will surpasses the expectation of all stakeholders
• Business knowledge that will generate value is critical

CLOSING THOUGHTS

• PPP is the driver of development and economic prosperity
• FMs in Africa needs to do more and collaborate
• FM needs to understand industry needs and key into PPP projects either directly as concessionaire or through being a sub- contractor to the concession
• FMs needs to develop their capacity to deliver PPPs

CREDIT

• The following discussions are from various reports of the World Economic Forum on World Economy and Infrastructure namely:

• African Strategic Infrastructure Initiative Managing Transnational Infrastructure Programmes in Africa – Challenges and Best Practices Prepared in collaboration with The Boston Consulting Group May 2014

• Global Economic Outlook 2014 http://www.weforum.org/sessions/summary/global-economic-outlook-2014

• Accelerating Infrastructure Delivery New Evidence from International Financial Institutions

• Strategic Infrastructure Steps to Operate and Maintain Infrastructure Efficiently and Effectively Prepared in collaboration with The Boston Consulting Group April 2014

• weforum.org
• icrc.org.ng
• infrastructurebankplc.com
• safma.org
• ifma.org
• bifm.org
• euroFM.org