PPP Projects in Nigeria: Current prospects in Telecoms

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

2. 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

3. 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.

4. 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 growthwww.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.

5. 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$15billion yearly for infrastructure development over the next five to six years – just to catch up!

6. 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, 2005 Models include: PO = Private Operator Source: Canadian Council for Public-Private Partnerships

7. 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

8. 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.

9. 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/ict A 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.

10. Recommended Action Points for Overcoming the Roadblocks

11. Recommended Action Points for Overcoming the Roadblocks (2)

12. 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.

13. Thank You