Exclusives

Attracting private investors in rail transport

by Editor

April 8, 2013 | 12:31 pm
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  Transportation is the life-wire of developed economies with effective transport remaining critical to economic growth and development. Globally, rail transport provides the cost-effective affordable, energy-saving and environmentally-friendly form of transportation, when traffic densities are high. It offers services for high volumes of containerised cargo or bulk freight such as oil, coal, steel or agricultural produce.

While this mode of transport enjoys relative importance in terms of investment, growth and contribution to the economy of any nation, the fortunes of Nigeria’s rail transport declined due to the enormity of challenges confronting it. Effects of poor performance are being felt in the form of undue pressure on the road transport and attendant huge damage to roads and loss of lives among other negative impacts.

The motive behind constructing Nigeria’s railway was to enhance evacuation of mineral resources and agricultural products from the hinterland to the seaports for onward shipment to overseas markets in Europe. The flow of goods to the hinterland was also facilitated by the rail even as it provided a link between the northern and southern parts of the country.

During its heyday, railway transport contributed significantly to the export of products such as cotton, groundnut, hides and skin, tin and columbite, coal, etc. As a result of the oil boom in the early 1970s, the Nigerian Railway Corporation benefited from patronage of Peugeot Automobile of Nigeria, Inland Containers Limited, Steel Rolling Mills, West African Portland Cement (now Lafarge), Flour Mills, Nigerian National Petroleum Corporation, etc.

While the economy expanded over time (with occasional hiccups) and new centres of activities emerging, the nation’s railways failed to respond to potentially viable services and opportunities that existed.

The implication was that aside the concept principally designed to service the colonial transport needs of moving goods from hinterland to the ports for shipment to Europe, the thought of redesigning a rail system that would serve its economic purpose did not surface for a long time.

A large chunk of routes that witnessed increasing movement of goods and services were still left uncovered, thereby forcing commuters to rely entirely on roads.

Operational performance of the Nigerian Railway Corporation (NRC) reveal that the highest number of passengers carried was 15,555,200 in 1984 and the highest volume of freight was 2,375, 000 metric tonnes in 1977.

By 2000- 2001, traffic had fallen to 2,610,000 and 1,283,000 passengers respectively with tonnage of freight conveyed put at 116,000 and 132,000 metric tonnes. Between 2000 and 2010, the rail passengers carried annually were barely up to two million while tonnage of goods conveyed was not up to 170,000 tonnes every year.

With rail transport accounting for over 70 percent of freight tonnage in India, this form of transport constitutes less than two percent in Nigeria, a situation that portends great danger to the economy.

Current rail development

Currently, plans are ongoing to acquire new coaches, signal and communications, purchase of locomotive engines and rehabilitate of rail tracks across major railway districts in a bid to revitalise the transport sub-sector.

In an interview with Ademuiyiwa Adekanmbi, public relations officer, Nigerian Railway Corporation (NRC), Lagos District Headquarters, he said that rehabilitation of Lagos-Kano route is already being completed and opened to traffic.

Adekanmbi revealed that about eighteen trains that function within Lagos metropolis recording about 12,000 passengers daily.

“The Lagos-Kano and Lagos-Ilorin rail transport is fully on track, as the trains travel three times in a week. Most trains have conveniences such as bars, fans, beds amongst others to ensure comfortability of passengers. Rehabilitation of the east line that is the Port Harcourt, Jos, and Maiduguri is ongoing. As part of measures to ensure sustenance of the rail transport system, the federal government have recently provided 25 new locomotive engines from Brazil for the NRC,” Adekanmbi added.

The Corporation is rehabilitating the Zaria-Gusau-Kaura Namoda line, including modernisation project of Phase 1, Abuja (Idu)-Kaduna standard gauge line covering 187km. The Federal Government awarded contract for feasibility studies in new green field areas to further open up the railway routes. These include Lagos-Shagamu-Ijebu Ode-Ore-Bein City (300km).

A new standard gauge would run from Benin-Agbor-Onitsha- Nnewi-Owerri – Aba, with additional line to Onitsha-Enugu-Abakiliki (500km). Another is expected to run from Lagos-Ibadan-Oshogbo-Baro-Abuja (615km). Feasibility studies are ongoing for the new standard gauge from Ajaokuta (Eganyi)-Obajana-Jakura-Baro-Abuja, with additional line for the standard gauge from Zaria-Kaura Namoda-Sokoto-Illela- Birnin Kebbi(520km).

Interestingly, coastal railway line from Benin- Sapele-Warri-Yenagoa- Port Harcourt-Aba- Uyo-Calabar-Akampa-Ikom-Obudu Cattle Ranch (673km) are ongoing. A line is expected to run from Ajaokuta-Eagnyi-Lokoja-Abaji-Abuja (280km) with construction expected to be done through Public Private Partnership (PPP).

With concessioning envisioned by the Federal Ministry of Transport in 2006, under the arrangement, railway infrastructure remains the property of the Federal Government, while the concessionaires are expected to lease the rolling stock and/or bring in additional rolling stock for their operations.

Adesoji Adesanya, head, Policy Engagement Division, Nigeria Institute of Social and Economic Research (NISER), Ibadan in a paper titled “Bringing the Nigerian railways back on track: Challenges and Options, said that the concessionaires are expected to participate in the rehabilitation and maintenance of relevant infrastructure.

“The planned concessioning in the rail transport sub-sector is aimed at injecting private sector investment and expertise to rehabilitate the existing line and also expand the rail network to cover other parts of the country in line with the 25-Year strategic rail development vision,” Adesanya

The Light Rail project linking Orile-Badagry is sponsored by the Lagos State Government. The project, for which seven lines are being planned (Red, Blue, Green, Yellow, Purple, Brown and Orange), is to be under a concession contract to the private sector under a PPP arrangement.

The concessionaire is expected to provide railway equipment including electric power, signalling, rolling stock and fare collection equipment among other things. LAMATA is presently focussing on the 27 km Blue Line (Okokomaiko-Marina) and the 30 km Red Line (Agbado-Marina).

Despite current developments, Nigerians are skeptical of the inability of NRC to overcome enormous problems confronting its desire to build a modern and efficient rail network. The present cost of rehabilitating the existing 1,126km of track lines has been put at N24billion.With Nigeria aiming to become one of the 20 leading economies by 2020, the nation’s railway system pales in comparison with those of South Africa and Egypt.

The Egyptian National Railways (ENR) employs more than 70,000 people and transports more than one million passengers on 1,300 daily services on modern standard gauge. And with a network of 25,000 route kilometres, the South African railway network is the largest in Africa and tenth largest in the world.

Global experiences

With government policy in respect of rail transport innovation and development fairly consistent, railway infrastructure and provision of services in some developed nations were left in the hands of private enterprises.

Novel management approaches such as Build-Operate and Transfer (BOT) as well as design–build–operate–transfer (DBOT) made it easier to fund railway rehabilitation from various sources (both local and international). Examples of such initiatives include Bangkok’s Skytrain elevated rail system and the Great Belt Fixed Link in Denmark.

Adesanya explained that several countries introduced several reformatory measures in order to improve the operation of their railways across the globe. 

 “For instance, the former national Romanian Railways was restructured into four companies: Rail Infrastructure Company (CFR), Passenger Rail Transport Company (Calatori), Freight Rail Transport Company (Marfa) and Railway Information Systems (IRIS).

“Interestingly, these companies are fully owned by the state. The main income source of the CFR is the Track Access Charge (TAC) levied on all operating companies. The passenger company provides extensive passenger service at low tariffs, which is supported by the state through Public Service Obligation (PSO),” Adesanya explained.

The freight railway company, Marfa, is managed commercially and receives no subsidies. Therefore, it has the freedom to set its fees and tariffs with private operators having an appreciable percent of the rail freight market.

In 1987, the government of Japan took steps to divide and privatise Japanese National Rail (JNR). With the government initially retaining ownership of the companies, by 2006, the shares of JR East, JR Central and JR West had been offered to the market and are now publicly traded.

By taking necessary steps to set up a system with clear demarcation of responsibilities, the freight railway was separated from the passenger railways as an independent company. Its success factors included dividing the business into appropriate sizes for each company, creating mutual competitive consciousness among all operators, elimination  

 

of interference or reduction of government involvement, business diversification for improved corporate profits and flexibility in the business activities.

The privatisation of JNR is a good example of how to transform a heavily subsidised, loss making company into a profitable modern service provider transporting more passengers than ever before and competing on cost and service with other modes of transport.

Addressing bottlenecks

Passing the Railway Bill into law has been identified as the first step towards attracting investors and investment into the sector. Adesanya said that a Railway Act that meets the current reality of the country is long overdue.

According to NISER top brass, “The Railways Bill that had been sent to the National Assembly for over five years has not been given the expeditious passage that it requires. This situation is considerably preventing interested stakeholders (apart from the NRC) from participating in running a system that is in need a new lease of life by way of additional funds from other stakeholders, including state governments, private investors and concessionaires.

“There is also the need to implement existing plans for developing the rail sector and promote intra-urban rail transport services. There is the need to emphasise the need to extend the existing rail network to connect major seaports and the Inland Container Depots (ICDs) and Container Freight Stations (CFS) when completed. The East-West rail connection, which is long overdue, should be given priority attention. These steps would make rail transport services to be modern and more vibrant in Nigeria.”

For Rowland Ataguba, in an interview with the British Broadcasting Corporation (BBC), “Policy flip-flops were the main reasons for the delays in sorting out the railways. As governments changed, their approaches to the same problem were sometimes markedly different and were not decisive. The last six years have witnessed the most concerted capital investment in the railways by the government in decades. Over $10 billion has been committed to the railways in this period.”

 

ALEXANDER CHIEJINA and GODFREY JUSTICE.


by Editor

April 8, 2013 | 12:31 pm
  |     |     |   Start Conversation

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