Thursday, June 18, 2009

Railways Concession and N114 billion Investment

After spending two precious years of ‘studying and planning’ the Federal Government announced that the long awaited concessioning of the national railways will happen next year. Unfortunately, due to President Yar’Adua’s track record of non-performance, Nigerians are now apathetic towards such announcements. And why wouldn’t they be? This is the same President who told us that he will declare an ‘emergency’ in the power sector within his first 100 days in office. However, 750 days on, he his still talking about his deluded vision and agenda – which ironically has also been criticised by the nation’s number banker Lamido Sanusi.

The need for the rehabilitation of the national railways cannot be overemphasised. You will struggle to find a nation with similar population as Nigeria that does not have a functioning railway system. There is however a growing consensus within and outside the government, that the National Railways Corporation - which owns the monopoly on rail development and operation - is no longer ‘fit for purpose’. Hence, if we want a functional rail system, the need for private sector participation is inevitable.

The challenge however being faced by the government will be role of the NRC in the railways sector post- concessioning. As I noted in my piece on the proposed Railways Act Bill, the inherent conflict of interest in the role of NRC as service provider and regulator remains unresolved. For me, it is important that these two roles do not lie within a single agency. The reasons for this are well articulated in my piece titled ‘Railways Act Bill 2008’.

But from the announcement made by the Transport Minister recently, it seems under the proposed changes to the institutional arrangement, NRC will remain a service provider. Whether this continues under the current management or a private investor company, will depend on how success of the proposed privatisation. However, one thing that struck me in the government announcement, was the approval of N114 billion ($76.250 million) for the purchase of 25 C25 EMPD diesel-powered locomotives for the moribund NRC in ‘preparation’ for its concessioning in June 2010.

The question is, why invest N114 billion of taxpayers’ money in company that will be put on sale next year? What happens if the government cannot recover this investment in the proposed sale? How much is NRC actually worth? There is saying that, “an item is only worth what the buyer is willing to pay”. The government should have undertaken a due diligence to ascertain the worth of NRC before investing anymore funds in the corporation.

The NRC has been transformed from been a strategic national asset to a national liability – thanks to corruption! Available records of a five year financial summary of the NRC reveal that in 1999, the Federal Government allocated as much as N900 million to the NRC and N1billion in 2000. That figure increased to N2billion in 2001, but in the following year, that allocated fell short to the tune of a billion naira only to be increased again to N3billion in 2003. Therefore, in less than five years, the NRC had received close to five billion naira, without commensurate income generated from that huge investment.

To this end, investing N114 billion into what can be described as a ‘depreciating’ asset is waste of taxpayers’ money. The NRC should be privatised ‘as is’. The privatisation could either be a total ‘sell-off’ to the private sector, or a concession over a period of time. It is up to the private to assess the financial benefits the NRC offers and tailor their business plan to suit. The government N114 billion might just be government money gone into the drain.

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