ASSESSMENT OF PROJECT FINANCE INITIATIVES FOR PUBLIC INFRASTRUCTURE PROJECTS IN LAGOS STATE, NIGERIA

Abstract

Project Finance (PF) is a specialized funding structure in which the lender principally looks to the assets and project cash flows as a primary source to secure and service the loan and have nonrecourse to the sponsor’s balance sheet. The PF models have been relatively mature for developed countries while still in the exploration stage for developing countries. This research investigated PF in the procurement of public infrastructure projects with a view to suggesting means of enhancing its use to bridge infrastructural gaps in the country. Also, identified the infrastructures best suited for PF, evaluated the various PF models in use for public infrastructure projects, and examined the success factors and barriers to the adoption of PF. The primary data used consists of survey questionnaires, drawn based on the reviews of existing literature. The structured questionnaires were administered on purposively selected respondents who have been involved in public infrastructure projects executed under the PF funding mechanism within Lagos State. The Mean Item Score (MIS), Standard Deviation (SD), Chi-Square Goodness-Fit-Test were adopted to rank and classify the infrastructures best suited for PF and as well PF models in use for the public infrastructure projects. While Relative Importance Index (RII) was used to examine the PF success factors and barriers. The viability and reliability of the data were examined using Cronbach’s alpha (α) coefficient. The results revealed that PF deals strife better under some selected economic and social infrastructures. For economic infrastructures, only infrastructures under the transportation sector (roads, bridges, railroads, parking, tunnels, urban rails, bus rapid transit, airports, navigation aid system, inland, and seaports) and energy sector (electric power supply, gas supply, oil supply, and petrochemicals) are best suited for PF deals. For social infrastructures, infrastructures such as university buildings and facilities (education sector), healthcare facilities and hospitals (public health), housing and community development (government buildings), amusement parks, and recreation facilities (civic and cultural building) are best suited for PF transactions. The research further ranked the most critical Success Sub Factors (SSFs) under each identified Critical Success Factors (CSFs) of the PF deals. Under the CSF of appropriate risk allocation through reliable contractual arrangements, the most critical SSFs are concession agreements, loan agreements, and shareholder agreements. Under the CSF of the sound financial package, the most critical SSFs are sound financial analysis, sources and structure of main loans and standby facilities, high equity/ debt ratio, long-term debt financing that minimizes refinancing risks, stable currencies of debts and equity finance, and abilities to deal with fluctuations in interest/exchange rates. Under the CSF of economic viability, the most critical SSFs are long-term demand for the products, a long-term cash flow that is attractive to a lender, and sufficient profitability of the project to attract investors. Under the CSF of reliable concessionaire consortium with strong technical strength, the most critical SSFs are cost-effective technical solutions, innovative technical solutions, sound technical solutions, partnering skills, multidisciplinary participation, public safety and health considerations, strong and capable project team, and good relationship with host government authorities. Under the CSF of favourable investment environment, the most critical SSFs are a stable political system, favourable economic system, government support, supportive and understanding community, promising economy, the project is in the public interest, predictable currency exchange risk, predictable risk scenarios, and predictable and reasonable legal framework. Likewise, the critical impediments to PF adoption are poor risk management, poorly defined sector, lack of finance, lack of mechanisms to attract longterm finance from private sources at affordable rates, and change in government. Based upon these findings, the research recommends that for PF deals to be successful, the PF stakeholders i.e. the government, developer/ concessionaire, consulting, contracting, and financiers should ensure the selected infrastructures, models, success factors, and barriers are well incorporated while initiating PF deals for optimal benefit.