Concession is a Public-Private Partnership (PPP) that has been and continues to be widely employed by governments throughout the world to provide public infrastructure with the active engagement of the private sector. It is typically used as a catalyst to achieve substantial infrastructure development in order to drive economic growth. This sort of infrastructure is typically capital intensive, with a tangible asset to manage and maintain, and generates funds over time. Despite the fact that they are frequently issued for lengthy periods of time and concessionaires may be granted exclusive rights, a concession does not grant full ownership rights and the asset remains State owned.
For the duration of the concession term, a private sector entity (the “concession holder”) invests in, constructs, and operates a public infrastructure project, retaining ownership and cash flow rights until the asset is handed to the government. Highways, tunnels, mines, airports, ports, bridges, canals, railways, railway transport systems, electricity generation, transmission infrastructure, water supply infrastructure, and telecommunications infrastructure are all examples of major large-scale projects that are commonly implemented taking advantage of concessions where public funding is inaccessible.
Investors will only be interested if there is a solid economic rationale.
Governments and policymakers favor the approach because they allow them to reduce spending by passing the expense of investments onto private parties. They also make it possible for specialized firms to take on these projects, which may be conducted more efficiently, effectively, and under budget attributable to the corporations’ greater familiarity with technology and project management than the local government. However, private investors will only be interested in the project if there is a solid economic rationale indicating that the concession holder would recover its investment cost during the stipulated period.
In addition, the holder will take steps to reduce the possibility that customers may be worse off as a result of excessive pricing tactics employed by concessionary holders. The methodology used to reimburse the private partner can be based on availability or on toll revenues, and these are only two of the many options and variations that can be included in a concession contract. Besides these, concessions have been given for mining, ports, fishing, and tourism.
Nigeria has been using different privatization strategy.
As an alternative option, emerging nations take advantage of the approach to finance infrastructure development, as it benefits both the public and private sector. The government of Nigeria, for example, has been using a different privatization strategy to promote growth for quite some time now. The port, the mining industry, and construction of roads are only some of the areas in the country where these alternative methods have been put into practise. In order to improve safety measures, the National Public Safety and Communication System (NPSCS) subcontracted its operational functions, which cost around $490 million.
The Nigerian government recently began concessions cargo handling activities, an action that has increased productivity and offered other significant benefits to the country. Increases in cargo throughput have contributed to economic growth in the country since the port privatization programme was implemented in 2006. The port concession initiative initiated by the Federal Government reportedly helps the economy save $8.5 billion (N3.91 trillion). The Warri Old Port’s Terminal B also underwent privatization in 2018.
In Spite of debt stock Nigeria has use PPPs to promote development.
Process is also ongoing to the concession Ajaokuta Steel Plant and the National Iron Ore Mining Company on a Public Private Partnership model. Under the regulatory oversight of the ICRC, nine federal road corridor concessions were granted earlier this year as part of the HDMI. Together, they are projected to generate N11.54 trillion during the agreed period of 25 years. In spite of an immense debt stock and a deteriorating economy, Nigeria has benefited greatly from the use of PPPs to promote development.