PROCEEDINGS ON PROCURING, MANAGING AND FINANCING URBAN INFRASTRUCTURE: TOWARDS

AN INTEGRATED APPROACH

BY

PROF. T. G. NUBICONFERENCE PAPER PRESENTED AT A NATIONAL WORKSHOP

ORGANISED BY THEDEPARTMENT OF ESTATE MANAGEMENT

UNIVERSITY OF LAGOS, AKOKA, LAGOS, NIGERIA.

INTRODUCTION• The urban population of the developing world more than doubled in the

past 20 years; it is now 1.7 billion.• The most striking evidence of urban growth is the mushrooming of large

cities in the developing nations; most of them tripled in size between 1950 and 1990.

• Most urban growth in the developing world occurred in settlements where investment in services – roads, water and sanitation, drainage, garbage collection – is negligible or non-existent.

• It is expected that Nigeria’s former capital, Lagos, will become the third largest city by the year 2015 with 25 million people, after Tokyo and Bombay. Two reasons has been given for this growth:– Large movement of people from rural to urban areas.– The mismatch between economic growth within sectors and demographic

growth.

INTRODUCTION... CONT’D

• There seems to be a general consensus that the number of slums in Nigerian cities is generally on the increase; most disturbing is the case of Lagos metropolis. Aluko and Adebayo (2002).

• It is to be noted that inadequate provision or acute shortage of infrastructure constitute a major index in slum measurement.

• The objective of this presentation is to highlight urban infrastructural problems and finance, and suggest alternative solution.

• The recommendation should be seen more as strategies and the principal ideas as contribution to debate, than type of solution to be applied uncritically.

THE CONCEPT OF INFRASTRUCTURE• Infrastructure has been described as the aggregate of all facilities

that allow a society to function effectively.• By its very nature, physical infrastructure must be responsive to

social objectives such as health, safety, economics, employment and recreation.

• The salient characteristics of physical infrastructure are that:I. It involve such lumpsumness of expenditure that are usually

beyond the reach of ordinary citizens;II. They are durable and capital intensive stocks that yield future

incomes;III. They have external effects and economies of scale;IV. They require regular maintenance and their provision cuts across

disciplines. Above all, if improperly managed, they can limit urban economic development in several ways. Okuboejo (1995).

ROLE OF GOVERNMENT IN SERVICE DELIVERY

• Nigerian cities are largely characterized by the public provision of urban infrastructure service.

• Constitutionally, some of the services fall within the statutory function of one tier of government or another.

• In practice, however, the state government sometimes steps in to complement the efforts of municipal councils, particularly in those cities that are state capitals.

• Funding of urban infrastructure has always been a major concern to all tiers of government. Procurement has always been limited by available fund.

• The depression of the late eighties and nineties led to substantial reduction in local, state and federal government revenue.

• This led to abandoned projects, delay and total neglect of infrastructure .

PRIVATIZATION OF URBAN INFRASTRUCTURE

• Efficiency in management should generate profit, a good return on investment for the benefit of asset owners and proper pricing of the assets.

• Subsidies, constraints and barriers have been used to protect public enterprises and have resulted in poor productivity and low return on investment. NEPA & NITEL are living examples.

• There is virtually no public enterprise in Nigeria today with a good report sheet. NEPA & NITEL at federal level and other parastatals at the state level have nothing to show than loyalty to their employer rather than the general populace.

• Privatization is the altering of the status of a business or industry from public control or ownership to private.

• According to Savas, privatization is “more reliance on the private sector institutions and less on government to satisfy society need”.

• “In true privatization, the government’s role is only reduced: it does not disappear”. James Sundquist.

PRIVATIZATION OF URBAN INFRASTRUCTURE... CONT’D

• Privatization of public utilities has the singular advantage of introducing competition within the relevant industries.

• Competition:I. Helps individual countries to strengthen their economies and establish

formidable global trading positions;II. Enable global energy companies to keep their businesses growing by

expanding into markets with fuel requirements and energy efficient needs; and

III. Delivers attractive prices, innovative products and enhanced services that were slow to emerge in the rigid, regulated monopoly structure.

• It is clear that private ownership status need not be 100% for the process to be described as privatization. The government merely needs to reduce its holdings in the relevant public enterprises “without losing control”.

PARADIGM SHIFT IN PROCUREMENT SYSTEM

• Ostensibly new, the problems facing today’s generation of governments and infrastructure planners are, in reality, quite old. These problems include:

I. Starting or reinvigorating infrastructural development to improve economic efficiency and raise the standard of living;

II. Starting and sustaining private sector entities such as architectural and engineering consulting firms, manufacturers and suppliers of equipment and developers of new technology;

III. Building public sector institutions that facilitate economic activity, encourage competition and increase transparency of government regulation and legislation;

IV. Producing steady technological refreshment of infrastructure, including replacing “dumb” with “smart” systems, “dirty” with “green” systems; and

V. Attracting both public and private sector investment of capital.• Government continues to search for stable procurement of capital, which let

new ideas, new technology, new capital and new firms in, while allowing existing firms to grow and evolve.

DELIVERY OPTION

IV Direct I

Parallel Prime (PP) Turnkey (TKY) Pure operate and maintainDesign-Bid-Build (DBB) Design-build (DB) Turnkey with finance (super TKY)Construction management (CM) Fast track (FT) Design-build-operate (DBO)Design-build-operate-maintain (DBOM)

Segmented Combined deliveryBuild-operate-transfer (BOT)Build-own-operate (BOO) Design-build-operate-transfer (DBOT) Build-own-operate-transfer (BOOT) III Indirect II

A STABLE PROCUREMENT STRATEGY

Direct

CombinedSegmented

Indirect

I

IIIII

IV

PARADIGM SHIFT IN PROCUREMENT SYSTEM... CONT’D

• The new wave in the world of public infrastructure procurement is the rebirth of project delivery and finance, which departs from the traditional practice, this is facilitated by globalization and development in Information Technology (IT).

• Over the past decade, the engineering-procurement –construction (EPC) sector throughout the world has developed broad expertise in the full range of project delivery and finance methods, including design-bid-build (DBB).

• The literature confirms that, for each available delivery methods, substantial knowledge, experience and judgement are required for success.

• After one of these delivery methods is chosen, successful implementation of that method requires careful planning, detailed scheduling, timely materials and equipment acquisition and proper integration of all the design and construction elements.

• Choice of delivery method directly affects choice of technology, design approach, construction method, facility operation and project finance.

• The emerging mix of project delivery and finance options necessarily implies new opportunities to package projects in order in order to optimize not just one but a portfolio of infrastructure.

PROCURENT THROUGH COMMUNITY-BASED PROGRAMME

• Residents of low-income settlements are increasingly less willing to adopt a passive role and accept the practices of a paternalistic style of governance.

• In low-income communities, there is a variety of institutions that can be engaged in participatory activities which might include their involvement in the provision of services.

• Although rare, “unconventional” experience have demonstrated that they present a viable alternative that can be implemented in low-income settlements: their cost can be borne by the residents and the end results produced are similar to those from conventional solutions.

• There are two basic approaches to community involvement:I. Community participation. Here, control of scheme remain with the relevant

government authorities.II. Community management. This is more radical and devolves power and

responsibilities to the community. It is harder to organize and requires a complete change in bureaucratic thinking, but this should be the preferred approach.

• A community-managed scheme does not, of course, mean that there is no role for government. Government will still be responsible for bringing infrastructure to the site, providing on-site secondary infrastructure, and providing loans to assist the community-led action groups to provide tertiary infrastructure.

PROCURENT THROUGH COMMUNITY-BASED PROGRAMME... CONT’D

• It should be added that the notion that poor urban dwellers can easily donate free labour is fallacious.

• The poor are fully occupied, the opportunity cost of their labour is high.• Community-managed project could, of course, provide new jobs in the locality

and make maximum use of local skills. This is empowerment; it is revolutionary.• Successful community involvement requires that the local authority be

committed to the idea.• There must be a demand for improvement in the community; and all information

must be shared between the community and government officials.• It is important that the limitations, weaknesses and strengths of the community

involved are well understood.• A programme of community management of service upgrading will not happen

automatically, especially if there is no local tradition of community action.

SIT-CRAWL-WALK APPROACH• Scarcely do the poor benefit from the high-cost-tech infrastructure and services

provided for the well-off citizens of the Third World cities.• And like the rich, the poor are good at evaluating and ordering their own needs

and priorities.• There is now a growing conviction that small groups of householders, whether

individually and collectively, can take significant responsibility for their own infrastructure and services. They should be involved in:

I. Planning and choosing of technologyII. Determining the rate at which improvements are madeIII. Managing artisans and subcontractors to execute the job within a time

frame that suits the community• Therefore, the starting point is to discard the approach that treats high-cost

traditional service standard as the objective.• Their objective is to raise the level of services incrementally, to secure benefits to

health, safety, social well-being and convenience.• It is part of the objective to let the community decide what is done, when it is

done and how it is done.

THE NON-GOVERNMENTAL ORGANIZATIONS (NGOs)

• NGOs in Nigeria have only been vocal on issues that relate to the constitution politics, human rights, etc.

• There is a need for more NGOs like Habitat International which build thousands of houses and provide services to several settlements all over the world.

• Funds can be channelled through them for infrastructure financing to regenerate degraded settlements.

• Town planners often act in this capacity as advocate planners. Unfortunately, planning has remained a civil service business in the country.

CONCLUSION• Political arrangement promotes concentration of power at the federal level, encourages

confrontation between federal and state governments and allows the subjugation of states to the federal.

• It is a general opinion that the nation will be better, if the three tiers if government are encouraged to perform their constitutional functions effectively.

• Poor performance or non-performance of the infrastructural services could be traced to state governments biting more than they can chew. Urban and Regional Planning Law (Decree 88) of 1992 defined this arrangement.

• Democracy an only thrive when there is transparency. The traditional procurement system which allowed close-door negotiation of contract should be discouraged.

• If the wealth is indeed “common wealth”, all should have a say on how it is spent• The growing acceptance of multiple project delivery and finance method necessarily

implies that government will be increasingly faced with strategic choice whether to use “public” or “private” mechanism in the provision of infrastructure.

• History teaches that purely public and purely private delivery mechanisms are unreliable, unstable and averse to innovation.

CONCLUSION... CONT’D• Steady, sustainable improvement in the infrastructure portfolio will be achieved

through a mixed and transparent strategy which encourages individuals and firms to innovate, which encourages technology developers and investors to enter and which is simple for participants to understand and use.

• A flexible, reliable, mixed public-private procurement strategy care is required if broader questions related to the economy and the environmental to be coherently addressed through procurement system.

• The choice of approach in dealing with upgrading and deficiencies should be left to the community members themselves, after they have had a chance to understand the alternatives and likely costs and benefits.

• Ideally, this should lead to community management of the programmes, provided strong NGO support is available.

• The community’s expressed needs and priorities should always determine the sequence in which work is done.

• Community managed programmes can take a long time. The approach should be for the municipality to provide primary and secondary infrastructure.

RECOMMENDATIONSI. A true federalism is an arrangement that operates under mutual respect for stakeholders

and all the tiers of government; therefore, stop the culture of federal might and state might and create opportunity for all tiers of government to carry out their constitutional duties.

II. Define possible scenarios to finance infrastructure improvement costs, including a definition of the responsibilities of each actor involved.

III. Set the cost of the services such that it is affordable to the user by way of a tariff that is proportionate to their income and thus less than that levied in areas with conventional standards of service.

IV. Clearly define targets for investment and coverage that will directly benefit low-income settlements.

V. Establish mechanism for evaluating and comparing bids, weighing up the different variables with each type , quality and time of installation, location and maintenance of the connections, and their corresponding current value.

VI. Prior to bidding, the target must be clearly established; specific and verifiable indicators must be set and it should be decided which aspect are negotiable and which are not. Fulfilment of minimum investment and coverage targets, as well as the upper limit for tariffs should not be subject to negotiation.

RECOMMENDATIONS... CONT’DI. Provide incentives to the operator to extend services into low-income

settlements.II. Define standards and procedures enabling the use of alternative

technologies prior to bidding and establish the required standards along with the method of weighing up the difference options.

III. Establish in advance the mechanism to ensure the participation of all interested parties in the selection of technical solutions, standards and cost options throughout the process.

IV. When a decision is taken to carry out projects in a series of stages in order to reach the required standards, insist that each of these stages be sustainable.

V. Establish a fund for non-conventional projects which, while serving to support pilot tests, would also enable low-income settlements to increase access to services. Once the feasibility of different options is demonstrated, the operator should incorporate these into its range of options.

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