PPP Projects in Nigeria: Current prospects in Telecoms Akinwale Goodluck, Corporate Services Executive, MTN

Overview• Executive Summary

• The Growth of the Mobile Sector - Socio Economic Contributions to Nigeria

• The Infrastructure Challenge

• PPP Models to address the Challenges

• Meeting the Infrastructure Challenge through effective PPP

• Recommended Actions to Overcoming the Roadblocks

• Conclusion

Executive Summary• The Nigerian Telecommunications Sector has seen tremendous growth over the last decade and is an important

reference point for the country. Mobile subscriber base has grown from below 500,000 in 2001 to over 130 million. Contribution to Gross Domestic Product (GDP) has been on a steady increase over the years from below 1% in 2001 to a rebased level of about 8% in 2013.

• In 2012, the Nigerian Mobile Telecommunications Industry became the largest in Africa ahead of South Africa and remains among the fastest growing globally. These growth has been led by the Private sector led investments in the Telecommunications sector.

• Despite the unprecedented growth, the Telecommunications industry has experienced its own challenges. The dearth of infrastructure has long been an obstacle for the country’s fledging telecommunications industry. Power, Right of Way, Security and other network costs make network operating costs two to three times higher than other African countries.

• While telecommunications sector contribution to infrastructure development had been premised on the need to facilitate service delivery by focusing primarily on creating physical infrastructure (through self-owned/managed networks), it has also facilitated social infrastructure through Social Responsibility initiatives which aid capacity building for wealth creation.

• The telecommunications industry has continued to support Government’s objectives by empowering Nigerian citizens, showcasing Foreign Direct Investment, and improving governance through the provision of information communication & technology.

• Notwithstanding these remarkable achievements, the industry recognizes as a critical element for success the need to partner with Government at the Federal, State and Local Government’s in the development and protection of Critical Infrastructure required to support the delivery of best in class next generation services.

• This presentation will examine the contributions of the telecoms sub-sector in this regard and make suggestions for effective and sustainable Public-Private Sector Participation in infrastructure development.

The Growth of the Mobile Sector - Socio Economic Contributions to Nigeria

• Central Socio-economic Infrastructure• Mobile facilitates GDP growth by enabling increase in productivity: an increase of 10 mobile phones per 100 people boosts

GDP growth by 6% (Vodafone , 2005).• Contributes around 4% of the country’s federal tax collection receipts and 10% of federal taxes generated outside the oil

and gas sector• The telecoms sector contributions provide more than half of the country’s FDI. In this respect, the sector remains

unquestionably critical to Nigeria’s ability to attract foreign capital• Other contributions to the economy include corporate social responsibility programs running into billions of naira .

• Employment Generation• Over 12,000 Nigerians in direct employment; millions others gainfully engaged.• 3% to 5% of Nigerian telecoms services revenues are paid out in wages and benefits for some of the highest skilled jobs in

the economy.

• A Model for Growth • Growth has outstripped all projections, a model for other sectors.• The telecommunications Industry is now at the Broadband threshold: it is estimated that 10 % increase in broadband• penetration will yield an additional 1.38 in GDP growth www.itu.int/broadband • Submarine cable landings (Main-1, Glo-1 and MTN’s WACS) promise further growth, lower tariffs and better quality

services. • Industry is set to enable possibilities in telemedicine, m-finance, e-education and other life-enhancing services.

Growth has been enabled by conducive licensing/regulatory framework; but Infrastructure deficit has exerted a huge cost

on operations.

The Infrastructure Challenge• Telecoms Infrastructure Challenge – The Four In One Network, Paucity of infrastructure no longer news, operators

run parallel (1)transmission, (2)security, (3)power/diesel distribution and (4)telecom networks.

• Transport and Communications - Poor road, rail and port infrastructure adds about 40% to cost of goods. Shipping costs are about 50% higher than other low-income developing regions (International Commission for Africa)

• Costs - CAPEX/OPEX required to address infrastructure needs equals higher costs for consumers:

Average Nigerian operator monthly spend per BTS is $6,000 compared to $3,000 in Ghana.

MTN spent over N30bn on power generation in 2013. As an industry total cost on power is over N50bn a year accounting for about 60% of operators’ network costs.

Only 15% of over 20000 BTS sites in the country connected to National Electric Grid. MTN alone generates about 400MW combined output from thousands of generating sets

• Governance as a challenge - Lack of maintenance, corruption & waste further deplete available infrastructure.

• Multiple Taxation and Regulation also a major barrier to the roll out of infrastructure - cost of multiple taxation to industry which includes combination of increased operating costs and lost revenue costs is around N9bn each year to the telecoms industry, as more sites get targeted for taxation purposes, or about N20bn if most of the arbitrary fees in some key states are upheld.

• Funding as a challenge - But even if pledged/available funds are well utilised, the World Bank estimates a funding gap of US$31 billion, particularly for water and power infrastructure.

• Government Can’t do it Alone - For Nigeria, the ICRC estimates a budget of between US$12 billion and US$15 billion yearly for infrastructure development over the next five to six years – just to catch up!

Design-Build (DB):• PO designs and builds the

asset for a fixed price.

Operation & Maintenance Contract (O & M) • PO operates asset for a

specified term under contract.

Design-Build-Finance-Operate (DBFO)• PO designs, builds and operates

and transfers asset under a long-term contract.

Build-Own-Operate (BOO)• PO is in full ownership and

control, subject to regulatory oversight.

Build-Own-Operate-Transfer (BOOT)• PO builds and charges for

use then transfers ownership after agreed period.

Buy-Build-Operate (BBO)• Asset is transferred to PO,

improved and operated for an agreed term.

Operation License• PO is licensed to operate a

public service for an agreed term

Finance Only• Private participation limited

to arrangement of Finance.

PPP Models to address the Challenges Traditionally, PPPs are arrangement whereby “the project proponent or contractor undertakes the construction, including financing of any infrastructure, facility and the operation and maintenance thereof (including) the supply of any equipment and machinery for any infrastructure and the provision of any services” S.36, Infrastructure Concession Regulatory Commission Act, 2005Models include:

PO = Private OperatorSource: Canadian Council for Public-Private Partnerships

Meeting the Infrastructure Challenge through Effective PPP

Current realities • “Four-in-one” networks are telecoms‘ contribution to overcoming the infrastructure challenge.

• Telecoms investment in Physical Infrastructure has not followed the traditional PPP model (consortia, funding, build-operate-transfer, etc) because telecommunications itself is a key physical infrastructure which relies on others (power, transmission, etc) to deliver service.

• Operators however partner with the NCC using the traditional model (through USPF, SABI, etc.) to either • take basic telecoms service infrastructure to the underserved in remote communities, or• make broadband and other innovative services available to the otherwise disadvantaged.

• Our “PPP” model is multi-dimensional, with both physical, social and economic elements.

Key Success Factors for PPP Collaboration• Transparency & trust; independence

• Certainty, consistency/stability

• Adequate information sharing (equal access to information)

• Participatory representation, active/contributory roles respectively

• Resource pooling & incentivization

• A comprehensive impact assessment mechanism

Current Industry approach to building Capacity in the Industry

To effectively address operational exigencies prevalent in Nigeria, the Telecoms industry has explored the following initiatives:

Managed Services• Managed Services has also become necessary to address the persisting ecosystem challenges which have in recent

months escalated to levels prejudicial to our core ICT business.

• 3rd Party vendors Build and maintenance of passive network infrastructure at BTS sites, they also provide network optimisation services in addition to the supply of radio and active network components.

• They are also responsible for the Monitoring and Field Engineering Services – which involves day to day monitoring, preventive and corrective maintenance of active network elements. in line with industry best practices.

Infrastructure Service Provision by Licensed 3rd Parties• NCC licensed infrastructure service providers are now actively engaged in the roll out, building operation and

maintenance of BTS and other network infrastructure.

Outsourcing of Support Services such as Call Centers• Indigenous Nigerian companies have now built extensive capacity to support the establishment and operation of

call center facilities to support.

• These companies have developed extensive ICT and employed thousands of young Nigerians in support of the Telecoms industry.

Meeting the Infrastructure Challenge - A Comparative Analysis

Source Broadband for Development in East Asia & Pacific GSMA Mobile Asia Expo: Public Policy Forum on Market Drivers to Encourage Mobile Broadband Investment in Asia Pacific, Shanghai, June 21, 2012. Natasha Beschorner, The World Bank. www.worldbank.org/ictA bespoke or combination of these approaches which takes into consideration the needs and

exigencies of the subjective Nigerian landscape should be considered to encourage PPPs in the Telecoms Industry.

Approach Country Examples Comment

1 Infrastructure: Competitive tender &/or Government initiative to build new backbone &/or access infrastructure, including use of universal services funds or similar.

Canada, Chile, India, Pakistan, Sri Lanka,Singapore, Malaysia, other USF countries

Addressing Infrastructure: Use of Universal Service Funds to provide physical infrastructure. USPF facility in Nigeria may be leveraged and business-friendly models for allocation advanced

2 Ensuring Return of Investment (RoI): Create / Underwrite Demand

Malaysia, Singapore, OECD countries

Addressing Content/Demand: Advance strategy & policy to drive adoption of e-governance, e-health and education (bring Government online)

3 Access as a way to ensure RoI: Stimulate Private Demand in the ICT Sector – e.g., PC initiatives, industry & educational initiatives, local services

Korea, China, Egypt, Thailand, OECD countries

Addressing access to Broadband:Government may consider proposals to ensure supply/discount affordable access devices through duty waivers, subsidies etc

4 Enabling Environment: Regulatory Reform, liberalisation, competitive fixed & unified licensing, creative spectrum policies

Pakistan, India, S. Africa, Chile, Brazil, Peru, NewZealand, Germany, UK, USA, some ASEAN

Addressing Regulatory issues: Review of spectrum policy/pricing and regime of allocation to provide adequate affordable bandwidth for broadband/ unbundling of existing NITEL resources can be a key strategy hereunder

5 Securing Requisite Investments: Broadband investments as part of Economic Stimulus Packages

USA, UK, Canada, Japan, Finland, Singapore,Korea, Australia

Addressing Investment: NCC can be encouraged to incentivise broadband investments with reciprocal tax holidays (AOL), discount schemes, etc.

Issue Challenges Proposed OutcomeInfrastructure Protection

• Telecoms infrastructure not yet recognised as essential national infrastructure.

• Statutory protection for telecoms infrastructure against shutdowns, theft, and vandalisation.

PPP Policy framework

• Lack of Policy direction and Commitment from Government Public Sector

• Define policy objectives for PPPs• Due consideration of sector specific

issues/challenges• Strategic alignment with the policy

objectives and visions for ICT sectorExpectation/ Perception Management

• Misunderstanding of roles breeds distrust & impedes co-operation (excessive/multiple regulation).

• Establishment of sound legal framework based on (e.g.) the Lagos State Private Sector Participation Law and the Infrastructure Concession Regulatory Commission Act 2005

Defining Clear Roles

• Public sector as development leader, private sector as complementor.

• Equal commitment from public sector.• Avoidance of “punitive” taxes & charges, • Avoidance of taxation evaluated on the

basis of company profile, rather than measurable objective

• Avoid resistance to “big business” and provide minimum levels of protection.

Recommended Action Points for Overcoming the Roadblocks

Recommended Action Points for Overcoming the Roadblocks (2)

Issue Challenges Proposed OutcomeDearth in Public Infrastructure

• PHCN supplies less than 17% of sector’s needs; operators generate 83% at huge cost.

• The Four In One Network

• Power Sector Reform - implementation of reform will enhance much needed domestic manufacturing capacity

• Infrastructure development MoUs to support the roll of public utilities, shared facilities etc

Customs Reform

• Up to 95% of mobile telephony equipment is imported – delays compromise quality of service.

• Track success of ongoing Port Reforms - open reporting model required.

• Speed up shipment clearance processes.

Structured Incentives

• Pioneer status appreciated – measurable impact on economic growth; but

• reversal of progress possible if fiscal constraints are ignored.

• Encourage more capital inflow through relaxation of payment obligations (i.e. Annual operating levies, Number renewal and Spectrum fees..

Conclusion• The private sector has contributed its fair share – and more – to

the revamping of decaying infrastructure.

• But all stakeholders must still do more to empower and encourage PPPs.

• “Big business” should be encouraged; the governments should focus on providing conducive environment for businesses to thrive, regulatory competencies should be improved, and governments should not be afraid to allow the private sector to improvise.

Thank You