The Public Private Partnership Financial Model Guide 2025; Key Takeaways

INTRODUCTION

Against the backdrop of limited public resources and Nigeria's rising infrastructure demand, Public-Private Partnerships (PPPs) have become integral to bridging the investment gap. In Nigeria, the Infrastructure Concession Regulatory Commission (ICRC or the "Commission") is responsible for establishing clear PPP frameworks for Federal Government projects.

The release of the PPP Project Financial Model Guide (the "Project Guide") by the ICRC in August 2025 marks a significant milestone in Nigeria's PPP regulatory landscape. The Project Guide outlines the minimum benchmark for the preparation, testing, and presentation of PPP financial models in Nigeria.

This newsletter reviews the Project Guide, highlighting its scope and structure, revenue and cost assumptions, financing structure, and other related matters.

Project Scope and Structure

The Project Guide requires that every PPP financial model must begin with a clear project overview setting out the purpose, scope, and objectives of the project. This requirement provides clarity, strengthens the model's credibility and gives regulators and investors a reliable basis for evaluating the viability of a project.

In addition, all principal stakeholders (government authorities, private financiers, contractors, and operators) in a project must be clearly identified and have their roles defined. The financial model should also specify the contractual structure of the project (e.g. Design-Build- Finance-Operate and Transfer, Build- Operate and Transfer etc) and define how risks, revenue, and responsibilities are distributed.

Finally, the Project Guide requires a complete project timeline, encompassing both the construction and operational aspects of the project. This is to ensure that the long-term financial obligations and service delivery goals can realistically be achieved.

Revenue Assumptions and Projections

The Project Guide underscores the critical importance of accurately identifying and projecting revenue assumptions, which is a core financial driver of any PPP project. The revenue assumptions should consider the following matters:

1. Revenue Sources – All Financial models must clearly set out all revenue sources and classifying them under user-pay, government-pay, or hybrid models.
2. Revenue Streams and Timing – Project sponsors must identify potential ancillary revenue streams, such as income from commercial facilities, advertising, or third-party activities to reflect the full revenue picture.
3. Growth Assumptions – The Project Guide mandates disclosure of the expected timing and frequency of revenue inflows. These revenue inflows should incorporate assumptions on inflation, GDP, and other macroeconomic indicators.
4. Sensitivity/Scenario Analyses – To improve project reliability, the Project Guide requires financial models to be tested under baseline, optimistic, and pessimistic scenarios. This helps show how robust the project is and supports better risk allocation.

Cost Assumptions and Projections

In a PPP project, carefully estimating costs is equally as important as projecting revenues. A good financial model should clearly show the capital and operational costs of building and maintaining the project. In this regard, the Project Guide lists the following matters which must be considered in any cost assumption and projection.

1. Capital Expenditure (CapEx) and Operating Expenditure (OpEx) – The Project Guide requires all PPP financial models to provide a comprehensive assessment of both CapEx and OpEx. These must include obligations such as design, construction, land acquisition, maintenance and personnel costs.
2. Fixed, Variable and Contingency Costs – All PPP financial models must distinguish fixed from variable costs and also include contingency cots to manage unexpected shocks or project overruns. This should be integrated into the financial models to mitigate against financial fluctuations and safeguard stability. These buffer mechanisms are designed to strengthen the financial resilience of PPP projects and provide certainty for public and private stakeholders.

Taxation and Accounting Assumptions

To ensure financial transparency, the Project Guide requires PPP financial models to detail how tax and accounting rules will apply to a project. This includes aligning asset depreciation with asset lifespan and factoring available tax incentives. The Project Guide requires all tax and accounting assumptions to reflect existing laws and be updated as regulations evolve.

Financing Structure

This section of the Project Guide makes detailed provisions on how the PPP project will be funded and the implications for risk allocation. The financial models of all PPP projects should integrate the following features;

1. Equity/Debt – The capital structure of the PPP project must be determined by calculating the proportion of equity (provided by private investors) to debt (raised through loans, bonds, or other instruments). All PPP projects should be funded with an appropriate mix of equity and debt. The financial model should also include a detailed debt amortization schedule, showing principal and interest repayments within the contract term.
2. Project Financing/ Corporate Financing – The PPP project must clarify whether the financing will be arranged with reference to the project's Special Purpose Vehicle (SPV) (project financing) or the project sponsors' balance sheet (corporate financing).
3. Government Contributions –The Project Guide recognizes the importance of government support through provision of grants, guarantees, and viability gap funding to make projects more bankable and financially sustainable. In the Nigerian context, the recognition of government support mechanisms is significant, as it improves the attractiveness of PPP projects to investors.

Financial Metrics and Key Performance Indicators (KPIs)

In measuring the financial metrics and key performance indicators of a PPP project, the Project Guide requires every PPP financial model to determine whether the project can fulfill its debt obligation using the Debt Service Coverage Ratio (DSCR).

It also mandates the computation of the Weighted Average Cost of Capital (WACC) – which measures the cost of equity and debt in the project. The project must also determine its Return on Equity (ROE) and Payback Period to estimate reasonable project expectations and ascertain the duration within which the invested capital is recovered.

Cumulatively, these financial metrics and key performance indicators set out predetermined triggers for evaluating the profitability of a PPP project. They also help to set expectations, guide investment decisions, and provide a basis to measure the viability of a PPP project.

Government Revenue and ICRC Fees

The Project Guide provides that in user pay of hybrid PPP arrangements, the Federal Government will receive an agreed share of the revenue generated from the project. However, in Government-pay PPPs, the Government will not be entitled to any revenue share. In addition, the ICRC charges regulatory fees on PPP projects. This fee includes a one-off charge of up to 5% of entry fees and a mandatory annual fee of 1% of the project's gross revenues.

Reporting and Documentation

The Project Guide reiterates the need for clarity and transparency in all PPP financial models. It requires the sensitivity and scenario analyses to be shown in a way that is easy to understand and gives stakeholders a clear view of all risks and possible safeguards.

Also, every PPP financial model must include an executive summary that summarises its viability, returns, risks, and basis of assumptions. Also, all financial models must undergo an independent audit to confirm that it is accurate, logically sound, and complete before submission to the Commission.

Conclusion

With the launch of the Project Guide, the ICRC has taken an important step towards strengthening Nigeria's PPP framework. By setting clear rules for how financial models should be prepared, tested, and reviewed, the Project Guide reduces uncertainty and builds trust among investors and lenders.

It also establishes a clear, reliable, and investment-ready framework for project development, underscoring the critical importance of PPP financial models in balancing public interest with private capital, and securing the sustainability of PPP projects. With consistent application and periodic updates, the Project Guide has the potential to deliver enhanced value to both public authorities and private stakeholders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.