LEADERSHIP ISSUES IN PUBLIC PRIVATE PARTNERSHIP

BY
CHUKWU1INDU E. CHUKWU1INDU


DEPARTMENT OF PUBLIC ADMINISTRATION, FACULTY OF MANAGEMENT
SCIENCES


NNAMDI AZIKIWE UNIVERSITY, AWKA



NOVEMBER, 2011







ABSTRACT

This paper has reviewed the past and present literature relating to business collaboration and
partnerships, with particular reIerence to public-private sector joint ventures, to gain an
insight into the barriers to success and an understanding oI what methods have been
recommended to overcome them. The evidence suggested that joint ventures partnerships,
whilst increasing in popularity, are complex organisations that Iace many obstacles and are
diIIicult to manage. The research strategy adopted a multi-method approach, through the use
oI survey and case study techniques and using a combination oI semi-structured interviews to
collect the qualitative data and a questionnaire to collect the quantitative data. Results
obtained Irom the data analysis indicated a range oII issues and opportunities evident within
the case study organisation and also provided additional characteristics that may also be
considered as important to the success oI such partnerships. As a result, a number oI
recommendations have been made to remedy the current situation and a checklist Ior Iuture
successIul joint venture partnerships has been proposed.










SECTION ONE
INTRODUCTION

Background of the Study
The concept oI Public-Private-Partnership originated Irom the USA, initially relating to joint
public-and private-sector Iunding Ior educational programmes, and then in the 1950s to
similar Iunding Ior utilities. It has come into wider use since the 1960s. It is reIerred to as
public-private joint ventures Ior urban renewal. It is also reIerred to as publicly-Iunded
provision oI social services by non-public sector bodies, oIten Irom the voluntary (not-Ior-
proIit) sector. PPP maybe used Ior public Iunding oI private sector research and development
in the Iield oI technology. PPP describes a government service in association with private
business venture which is Iunded and operated through a partnership with government and
one or more private sector companies. In some types oI PPP, the cost oI using the service is
borne exclusively by the users oI the service and not by the taxpayer. In other type, capital
investment is provided by the private sector on the strength oI a contract with government to
provide agreed services. The cost oI providing the service is borne wholly or in part by the
government. Government contributions to a PPP may also be in kind.

The objectives oI PPP is to contribute to the economic integration, accelerates economic
growth and sustainable development, engenders and sustain private sector participation (PSP)
in traditionally public sector projects, and expand local access to international markets. In
order to achieve a sustainable PPP Ior ensuring most eIIective, productive, compassionate,
result-oriented and eIIicient use oI resources, it is imperative that the partners should adopt a
single Iramework oI action that provide the basis Ior co-ordinating the work oI all partners;
put in place and maximally utilize a single national, community or coordinating body with a
mandate Irom various sectors or stakeholders. They must agree on a single national
monitoring and evaluation mechanism to ascertain and maintain acceptable standards. It
should be noted, however, that greater output shall be realized iI PPP agreements or contracts
are structured in ways that do not place the poor majority in any social, economic and or
political disadvantage. Combining the partnership with credible and group-accepted
innovative approaches to Iunding and mobilization has the potential oI increasing the overall
access to essential services based on PPP structures. In order Ior government to maximize the
merits oI PPP, there is need to put in place adequate legislative Iramework and enabling
environment Ior private sector participation (PSP). Stakeholders` commitment to the PPP
would be accomplished by Iocusing on micro, small and medium-sized operations, involve
community leadership, like community development associations, town unions, non-
governmental organizations, local, state and/or regional governmental authorities including
private company operators.

In 1960 when Nigeria became independent, the dominant economic policy direction thinking
was to expand the government`s role through direct intervention and ownership in the
economy. With support oI international donor agencies, the government gained the
commanding heights and dominated economic activity in the country.

Sharply increased public revenues Irom the oil boom oI the 1970s Iurther cemented
government`s dominance and thwarted the growth oI the emerging private sector. During
this era, government invested heavily in inIrastructure, agricultural and industrial production.
The boom also caused a Iundamental shiIt in private sector activity away Irom agricultural
and industrial production to government contracting and trade.

By the late 1980s, a shiIt in economic thinking was beginning to recognize the role oI the
private sector in development; the Nigerian government began to open up to a more private
sector-led economy. There was then the need to engage the private sector in dialogue on
economic policy making. However, the private sector had been weakened and lacked the
capacity to constructively prioritize and implement reIorms. The resumption oI military rule
Iorestalled the limited economic progress made in the early 1990`s; but with the return to
democracy in 1999 economic policy again shiIted in Iavor oI a more open, private sector led
economy. At this time eIIective representation by the private sector became critical to
national economic policy deliberations.
Statement of the Problem
Public private partnerships are sometime pursued where it is not likely to deliver the better
value Ior money than conventional procurement. It is thereIore necessary to make an
indicative assessment at the outset on whether a project is suitable. The aIIordability,
commercial viability and value Ior money potential should then be Iurther tested during the
development and submitted to the appropriate quarter Ior review beIore the Iormal
commencement. This puts leadership test. The need to ensure impeachable judgment in the
choice oI sustainable projects in terms oI beneIits to both the public users and the private
partners pose serious challenges to leadership. The asymmetric nature oI the possible
outcome oI PPP projects seem to be one major source oI several problems. A PPP project
will only be really successIul iI it is able to generate net proIits Ior the private sector
participants. When the project results in losses, the private sector will ultimately withdraw,
leading to a termination oI the project unless the public sector steps in and increases the
payments to the private partner or reclaims the responsibility to Iinish the project. ThereIore,
private sector partners rarely Iind themselves locked-in, while this is a common outcome Ior
the public partner. The government and the people have not maximized the beneIits oI public
private partnerships in Nigeria. This study thereIore wants to examine to what extent public
private partnership is practiced in Nigeria and to determine the degree oI success.

Research Questions

Objectives of the Study
The general objective oI this study is to Iind out whether the government has availed itselI oI
the beneIits oI public private partnerships a pragmatic policy. Other objectives include:
1. To determine how eIIective public private partnerships are in Nigeria
2. To Iind out the place oI public private partnerships in government policies and
programmes.
3. To Iind out to what extent the government and the people have reaped the beneIits oI
public private partnerships.
4. Investigate other characteristics that may contribute towards a successIul joint venture
(Public private Partnership).

Significance of the Study
This work is signiIicant in many aspects. It will expose diverse and varied perspectives the
public leadership can partner with the organized private sector Ior the overall beneIit oI the
masses and the development oI the economy. In other words it will expose and explore
avenues oI possible co-operative ventures. Entrepreneurs will it very beneIicial and
challenging. Exploration oI the discoveries herein will, inevitably will would boost
entrepreneurship, investment and development. Besides, it will serve as a reIerence to
researchers, academics, and students in the management and social sciences.

Scope/Limitations of the study

SECTION TWO

Literature Review
PPPs reIer to contractual agreements Iormed between a public agency and private sector
entity that allow Ior greater private sector participation in the provision oI a public service.
There are numerous ways to categorise PPP projects. While some scholars argue that 'true
PPPs always involve private inIrastructure investment and ownership, Benett, Grohman and
Gentry (1999) describe PPPs as a spectrum oI cooperative relations between private and
public organizations directed towards the supply oI inIrastructural services. Some PPP
projects maybe long-term, including inIrastructural investments as in concessions in Build-
Operate-TransIer project. While others may be short-term, and sometimes even limited to the
task oI operating a Iinished construction. Estache and Serebrisky (2004) identiIy Iour
principal types oI PPP contracts:
(1) Divestments oI public property or businesses to the private sector,
(2) GreenIield investments, Ior example the building oI a toll motorway,
(3) Service contracts that may include promises on investments, and
(4) Concessions, licenses and Iranchise agreements, which oIten have a liIe span oI 10-30
years and include detailed provisions on investments and service levels.

The overall goal oI PPP projects is to Iind solutions to problems in which the advantages oI
the private sector (such as Iinancial assets, eIIicient management, propensity to innovative
and entrepreneurship) are combined with the advantages oI the public sector (such as social
and environmental concern). To be economically sensible, a PPP project should generate a
combination oI allocative eIIiciency and productive eIIiciency that is superior to an entirely
public or entirely private project (Valila, 2005, p. 100).

Some PPP projects are categorized in terms oI the varying degree oI public and private sector
ownership and the commitments related to the projects. In a Design-Tender-Build project oI
public agency, a building project can be carried out by either public or private Iirms. A
tendering procedure Ior a service contract may lead to the entry oI a private Iirm that operates
a transport system that is publicly subsidized. In a Design-Build project the private Iirm
accepts the responsibility Ior the design, the construction and the operation oI the system. In a
Build-Operate-TransIer project a tendering procedure decides which company that will build
and then operate the system. AIter a long time-period, Ior example 30-50 years, the system is
handed over to the public sector. In a Design-Build-Finance-Operate project the private
sector accepts all responsibility Ior the project. This type oI transport project was tested in
Great Britain in the early 1990`s. Road projects that use shadow tolls or privately owned
roads Iinanced with user charges may use this model.

Theoretical Framework
The tie-level theory by KilduII & Tsai (2003) explain links between networks and their
implications. According to the theory, people are connected to each other through
organizations, while organizations are connected to each other through people. The network
do have inIluences on the success or Iailure oI projects (KilduII & Tsai, 2003).

There are beneIits to gain Irom networking such as the creation oI social capital, but it has to
be kept in mind that it also requires a substantial amount oI resources such as time, money,
trust, commitment, etc (Rotter & Ozbek, 2010).

PPP can be characterized as a networking, collaboration between at least two actors, and each
actor is subject to constraints and opportunities, which will depend on their position and roles
in the network and changes to same. (KilduII & Tsai, 2003 and Rotter & Ozbek, 2010). This
suggests that patterns oI transaction within and between Iirms may depart Irom what might be
expected Irom a pure economic perspective. By implication, organizations may preIer
collaborations with organizations that they have ties with rather than random alliances. The
tie-level concept is used to analyse social network and encompasses three core concepts:
Strength, Reciprocity and Multiplexity.

The strength oI a network tie has been deIined by the level oI emotional intensity, intimacy
and time spent. The range is Irom weak to strong, where the weak tie hypothesis argues that
more diverse inIormation is likely to derive Irom weak than Irom strong ties (KilduII & Tsai,
2003). There is a trend in research that claims that certain types oI strong ties may Iacilitate
the transmission oI complex knowledge (KilduII & Tsai, 2003). Weak ties are characterized
as inIrequent and distant, whereas strong ties are Irequent and long lasting. Reciprocity is a
core characteristic when it comes to networking and is part oI the balance theory that is
concerned with how people arrange their relationship in order to reduce Ieelings oI imbalance
(KilduII & Tsai, 2003).

Reciprocity can either be asymmetric, as between non-reciprocating partners or symmetric
where the relationship is based on mutual reciprocity. Multiplexity is related to the strength
oI tie and is deIined as the extent to which two actors are connected by more than one type oI
tie. Multiple relationships are thought to have higher tie and strength. Multiplexity involves
understanding thoroughly individual ties in a collective context, which is complicated to
measure considering the limited timeIrame.

Challenges and Prospects of PPP Projects

However, to ensure eIIiciency and eIIectiveness towards a successIul PPP project, the Iederal
government should address the critical challenges Iaced by power sector reIorm and
investment in Nigeria. The PPP approach will also aIIect the quality oI power in Nigeria
through special customer service arrangements. This is imperative iI the country will meet its
target on Vision 2020 oI the Iederal government.

Macroeconomic Challenges
The macro-economic policy oI the government determines the risk oI the country, inIluences
the enabling Iramework Ior power sector development and enhances sustained economic
development. It could be challenging Ior an industry to develop when the economy is oIten
hit by macroeconomic shocks and Iinancial crises. Table 1 shows the macroeconomic trend in
Nigeria Ior selected years between 1980 and 2010.

Table 1: Some macroeconomic indicators for selected years
Year GDP Growth
Rate ()
Exchange Rate
N to US$
Inflation Index

Per Capital
income (as
of USD)
1980 -.27 0.78 9.9 7.22
1985 9.5 2.83 5.5 1.87
1990 13 8.94 7.5 1.49
1995 2.2 54.36 72.8 1.28
2000 5.4 102.24 6.9 1.11
2005 6.1 131.01 17.9 1.96
2010 5.8 149.2 13.4 1.32
Source: CIA Word fact book, Aigeria Country Report, Clobal Finance. Estimates

The GDP growth rate increased sharply Irom 2.7 percent in 1980 to 9.5 percent in 1985 and
13.0 percent in 1990. In 1995, it declined to 2.2 percent and increases to 5.4 percent in 2000.
In 2005 and 2010, diversiIication initiatives Iinally took eIIect and the growth was restored to
6.01 and 5.8 percents respectively. Due to inIlation, per capita GDP in 2010 remained lower
than in 1980. Nigeria`s goal is to reduce inIlation considerably. The exchange rate stood at
N0.78 to US Dollar in 1980, depreciates steadily to N2.83 in 1985, N8.94 in 1990, N54.36 in
1995, N102.24 in 2000, N131.01 in 2005 and N149 in 2010. It should be noted that volatility
in the inIlation rate and exchange rates increases the cost oI capital and causes uncertainty in
a way that makes it diIIicult Ior investors to undertake long-term projects or keep to long-
term obligations as required by long-term projects. The Iederal government needs to
understand the Iactors that may inIluence would-be-investor in his choice oI investments in
Nigeria including the power sector.

Political and Governance Factors
Nigeria has changed its leaders many times but the social, economic and political problems
remain unsolved. The country depicts a case study in oil-based wealth being squandered by
poor governance and internal striIe. Given Nigeria`s location, the country could be an
economic hub Ior western and central AIrica especially in the power sector. Out oI 50 years
oI Ilag independence, the military has ruled Ior about 30 years while democratic regimes
have intervened Ior about 20 years. The unstable political arrangement and weak economic
management have taken its tolls on all sectors oI the economy. The Index oI Economic
Freedom ranks Nigeria as a mostly un-Iree economy due to high trade barriers, heavy
regulation, and excessive government intervention. Consequently, Ioreign investment outside
the oil sector has been impaired. EIIorts to address the political and governance challenges in
Nigeria through proper resources management, transparency and accountability, security, rule
oI law, honesty among others require strategies that will strengthen the country`s underlying
power sector problems.
SECTION THREE

METHODOLOGY




SECTION FOUR

FINDINGS AND DISCUSSION


SECTION FIVE

CONCLUSION AND RECOMMENDATION
Conclusions
Ideally, governments in developing countries where capacity is lacking in both public and
private sectors could exploit the synergistic eIIect oI collaboration to decide on priorities,
policy guidelines and all maters related to growth and development. Dialogue should be a
permanent mechanism Ior channeling issues relating to private sector to the government and
vice versa.

When carried out successIully, PPP projects can be very powerIul tools to quickly inject new
capital into the public sector, construct new inIrastructures, and operate them eIIiciently.
However, experience has shown that they may sometimes go wrong, Ior example creating in
some states transportation systems that are ineIIicient, under-utilized and having loss
contribution. The possibility Ior an earlier launch and completion oI a project is one
advantage with a PPP arrangement that is explicitly or implicitly recognized by researchers.

From experience, we have developed the timing issue in some detail, seeking to trace all the
relevant public advantages (disadvantages) oI initiating an investment earlier. When all these
issues and arguments are combined, the organization oI a project as a PPP arrangement
appears to be a very Iavourable one Ior inIrastructural investments. The asymmetric nature oI
the possible outcome oI PPP projects seem to be one major source oI several problems in
these types oI projects. A PPP project will only be really successIul iI it is able to generate
net proIits Ior the private sector participants. When the project results in losses, the private
sector will ultimately withdraw, leading to a termination oI the project unless the public
sector steps in and increases the payments to the private partner or reclaims the responsibility
to Iinish the project. ThereIore, private sector partners rarely Iind themselves locked-in, while
this is a common outcome Ior the public partner. PPPs have been used or tried in a couple oI
high-speed projects in Europe. The most Iamous example is the Channel Tunnel that connects
the French high-speed railway network with the British high-speed railway to London.

Recommendations
The Iollowing may Iorm a starting point Ior meaningIul public private partnershipS
especially at the state level.
O Establishment of dialogue framework: there is the need Ior clear understanding oI
purpose, direction and priorities oI the dialogue process. The state level Investment
Climate Programme (ICP) Technical Committee or other relevant bodies with
representation Irom both sectors could be strengthened or empowered to set the
agenda Ior the State level dialogue process. The membership oI the Committee could
be permanent or ad hoc depending on the wishes oI the parties.
O Regular contact with key public officials: dialogue should not be on-oII or a
ceremonial event. Regular meetings to discuss progress and matters arising should be
made to be part oI parcel oI the process. Business Membership Association must build
alliances and work as a Iormidable team. Secretariat and logistical support should be
provided
O Conferences and workshop- to review progress and to discuss wide range oI issues
which could serve as an input Ior Iurther dialogue.
O Website and Regular publications: Ior the dissemination oI dialogue activities and
receiving Ieed back Irom the larger community. This would boost transparency and
build credibility oI the process
O Monitoring and evaluation: it is in the best interest oI the government to review
progress on growth issues and initiate Iresh dialogues on lagging areas. It is also
beneIicial Ior the private sector to monitor progress on whether the dialogue has been
reducing the cost oI doing business.
O Best management practices- Private sector should undertake eIIort to learn best
practices in management, modern production and service delivery in order to enhance
their relevance in the process.
O Development partners- Collaborate with development partners to assist in capacity
building required Ior moving the process.
O Academic and research institutions - should be brought on board to assist in data
gathering and analysis required Ior an inIormed dialogue process.



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