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.
Showing posts with label NRC. Show all posts
Showing posts with label NRC. Show all posts
Thursday, June 18, 2009
Thursday, April 2, 2009
Railways Act Bill 2008 - Who is winning?
The current review of the Railways Act aimed at encouraging private sector participation in the nation’s rail system is unlikely to achieve much in terms of private investment. The proposals contained in the bill are totally at odds with the original intent of the Bureau of Public Enterprise (BPE) to remove the ‘inherent conflict of interest’ in the current Railways Act 1955 - which vests regulation and provision of rail services solely on Nigeria Railway Corporation (NRC). As part of the privatization programme started by the Obasanjo regime, BPE did propose to separate the railway function into three separate entities, National Rail Development Authority; Rail Regulator, and Concessionaire (operations).
However, except for the amendment to the legislation with regards to, granting of track access to private operators through concessions, everything else in the proposed bill promotes the ‘status quo’. Although NRC will not continue to remain a monopoly service provider, it will still be solely responsible for rail development and regulation.
Under the proposed legislation, NRC will be the rail regulator, a service operator, grant concessions to private companies, retain ownership of the rail infrastructure and also be responsible for strategic rail development. This arrangement known as ‘vertical integration concession’ model, creates a conflict of interest and unlikely to yield any positive result.
What makes anyone think the NRC can perform these functions effectively considering its current deficiency in skills and history of mismanagement? How can the same organisation responsible for providing services regulate itself? Let’s assume the proposed change to the legislation achieves its objective and we have private operators competing with NRC. Are you telling me that NRC will certify its locomotives to be unsafe but certify that of its competitor to be safe? What skills does the NRC have in strategic railway planning? I think Honourable members of the Senate need to be educated in the difference between rail engineering and rail planning. You need to have identified the need for a rail line through rigorous planning techniques (demand forecasting, patronage modelling, origin/destination analysis, cost benefit analysis) before you start the ‘engineering’.
In Australia, the Queensland railway network is also managed through a ‘vertical integration concession model. Queensland Rail (govt-owned agency, similar to NRC) is responsible for the operation of services and ownership/maintenance of tracks. However, the regulation of rail services in terms of fares/subsidy and safety is undertaken by the State Government through the Department of Transport. The Dept of Transport is also responsible for all aspects of rail planning, and preservation of future rail corridors.
The Australian model is slightly different because the provision of passenger services is regulated by the state government. Whereas, passenger service operations is proposed to be deregulated in Nigeria. The Nigeria government will however need to subsidise these services because, if the actual cost is charged by the concessionaire it will be unbearable for commuters.
In the Nigerian context, there are two options available under the ‘vertical integration model’. The first option is, NRC to retain ownership of rail tracks, maintain rail tracks and set up delivery mechanism for new rail lines. Private companies to be responsible for provision rail services. Under this option, NRC will not be involved in operation of rail services. The Ministry of Transport will be responsible for negotiating rail concession contracts, and payment of subsidies to private rail operators.
The second option is, NRC continues to operate rail services but will have to compete with other private sector operators. It will also retain ownership of all tracks and maintain tracks on which it runs its services. Private sector operators will also be responsible for maintaining tracks in their concession areas. The govt through the Ministry of Transport will still be responsible for negotiating concession contracts/subsidies.
Under the two scenarios, the strategic long term planning for railways should either by undertaken the Ministry of Transport or a Strategic Rail Authority, but not NRC. The safety regulation of railways should also be undertaken by the MoT. NRC cannot be the safety regulator due to its interest in the ownership and maintenance of tracks. To have NRC undertake inspection or issue licence for rail inspectors on the rail track it owns will be a serious conflict of interest.
I’m sceptical about the intent of the proposed changes to Railways Act. It wouldn’t surprise me that the cabals that have profited from the inefficiencies and failure of the rail system are still at work. I also don’t think the Senate President was telling us anything new when you said “there are all sorts of interest groups that have now found themselves in the railway system. People who did not want the railway to work because they are benefitting from the failure of the railway at the moment”.
In actual fact, we can say the same about all sectors of our economy. As I wrote in my last piece, we are now a nation of Oligarchs. You will agree with me that, there are few individuals in Nigeria who have made colossal amount of money from the inefficiencies of the government. Where should we start, is it the failed railways, and road haulage cartel? or power generation and generator importers? or failed refineries and the petroleum products importers?. The list is endless. And when government-owned corporations that are set up to provide such services are put up for sale, they are sold to these same individuals under the guise of ‘privatisation’. Unfortunately, this is the product of ‘government failure’.
So tell me, who is winning?
However, except for the amendment to the legislation with regards to, granting of track access to private operators through concessions, everything else in the proposed bill promotes the ‘status quo’. Although NRC will not continue to remain a monopoly service provider, it will still be solely responsible for rail development and regulation.
Under the proposed legislation, NRC will be the rail regulator, a service operator, grant concessions to private companies, retain ownership of the rail infrastructure and also be responsible for strategic rail development. This arrangement known as ‘vertical integration concession’ model, creates a conflict of interest and unlikely to yield any positive result.
What makes anyone think the NRC can perform these functions effectively considering its current deficiency in skills and history of mismanagement? How can the same organisation responsible for providing services regulate itself? Let’s assume the proposed change to the legislation achieves its objective and we have private operators competing with NRC. Are you telling me that NRC will certify its locomotives to be unsafe but certify that of its competitor to be safe? What skills does the NRC have in strategic railway planning? I think Honourable members of the Senate need to be educated in the difference between rail engineering and rail planning. You need to have identified the need for a rail line through rigorous planning techniques (demand forecasting, patronage modelling, origin/destination analysis, cost benefit analysis) before you start the ‘engineering’.
In Australia, the Queensland railway network is also managed through a ‘vertical integration concession model. Queensland Rail (govt-owned agency, similar to NRC) is responsible for the operation of services and ownership/maintenance of tracks. However, the regulation of rail services in terms of fares/subsidy and safety is undertaken by the State Government through the Department of Transport. The Dept of Transport is also responsible for all aspects of rail planning, and preservation of future rail corridors.
The Australian model is slightly different because the provision of passenger services is regulated by the state government. Whereas, passenger service operations is proposed to be deregulated in Nigeria. The Nigeria government will however need to subsidise these services because, if the actual cost is charged by the concessionaire it will be unbearable for commuters.
In the Nigerian context, there are two options available under the ‘vertical integration model’. The first option is, NRC to retain ownership of rail tracks, maintain rail tracks and set up delivery mechanism for new rail lines. Private companies to be responsible for provision rail services. Under this option, NRC will not be involved in operation of rail services. The Ministry of Transport will be responsible for negotiating rail concession contracts, and payment of subsidies to private rail operators.
The second option is, NRC continues to operate rail services but will have to compete with other private sector operators. It will also retain ownership of all tracks and maintain tracks on which it runs its services. Private sector operators will also be responsible for maintaining tracks in their concession areas. The govt through the Ministry of Transport will still be responsible for negotiating concession contracts/subsidies.
Under the two scenarios, the strategic long term planning for railways should either by undertaken the Ministry of Transport or a Strategic Rail Authority, but not NRC. The safety regulation of railways should also be undertaken by the MoT. NRC cannot be the safety regulator due to its interest in the ownership and maintenance of tracks. To have NRC undertake inspection or issue licence for rail inspectors on the rail track it owns will be a serious conflict of interest.
I’m sceptical about the intent of the proposed changes to Railways Act. It wouldn’t surprise me that the cabals that have profited from the inefficiencies and failure of the rail system are still at work. I also don’t think the Senate President was telling us anything new when you said “there are all sorts of interest groups that have now found themselves in the railway system. People who did not want the railway to work because they are benefitting from the failure of the railway at the moment”.
In actual fact, we can say the same about all sectors of our economy. As I wrote in my last piece, we are now a nation of Oligarchs. You will agree with me that, there are few individuals in Nigeria who have made colossal amount of money from the inefficiencies of the government. Where should we start, is it the failed railways, and road haulage cartel? or power generation and generator importers? or failed refineries and the petroleum products importers?. The list is endless. And when government-owned corporations that are set up to provide such services are put up for sale, they are sold to these same individuals under the guise of ‘privatisation’. Unfortunately, this is the product of ‘government failure’.
So tell me, who is winning?
Saturday, March 14, 2009
This is Criminal!
That former President Obasanjo has not been charged for corruption and misappropriation of public funds beggars belief.
Firstly, it was series of allegations on corrupt practices on the power projects. And as if that was not enough, another bombshell was dropped at the ongoing Public Hearing on the $8.5 billion Lagos-Kano Rail Modernisation Project.
The Nigerian government entered into a loan agreement with the Chinese government in order to finance the rail project. In return, the contract was awarded to the Chinese firm CECCC. Under the arrangement, $1.2 billion was dedicated as soft loan to Nigeria for the execution of the first phase of the double track Lagos-Kano rail project covering 1,315 kilometres. However, the Chinese government decided this year to commit only $500 million concessionary loan instead of the $2.5 billion it has earlier agreed with Nigerian under the past Nigerian government. The $2.5 billion was to have attracted an almost zero percent interest rate spread over about twenty years. But, according the Minister, the Chinese government changed its mind advising that that Federal Government may obtain the balance of $2 billion from Chinese Banks at prevailing interest rates. And to add salt to injury, the Federal Government is under obligations to pay between $1.1 billion and $1.4 billion for the cancellation of the project.
I have previously queried the need for upgrading the 1,315km of rail track between Lagos and Kano at a phenomenal cost of $8.5 billion. As far as I am concerned the rail upgrade will serve no useful purpose, and the money could be better spent on developing transport infrastructure in our major cities. The proposed Light Rail in Lagos is only costing a fraction of the Lagos-Kano project and it offers more benefit to commuters in a city of 17 million people.
The way and manner this project has been handled by the Obasanjo government is nothing short of being ‘criminal’. There are two key facts that emerged from the hearing which I consider very serious.
Firstly, it came to light that the project was awarded to the Chinese firm without any regard for the ‘competitive tendering’. It was alleged that President Obasanjo was in a hurry to the give the contract to CCECC as a 'thank you' project for the promised loan concession.
Secondly, it was confirmed that the rail contracts were awarded by the administration of Obasanjo without feasibility study and initial engineering design preparatory for the bill of quantity as required for a contract of such magnitude.
I find it hard to believe that a government will award a contract for $8.5bn without undertaking a feasibility study on its economic viability and also not bother to undertake a competitive tendering process. Why all the rhetoric about ‘due process’? How does the government know that it is getting ‘value for money’? I have once queried the reason behind procuring rail expertise from China, when the Chinese themselves import rail expertise from Europe. What is the track record of the Chinese firm in handling multi-billion dollar infrastructure projects?
It is plausible to argue that we wouldn’t be where we are if a feasibility study was undertaken in the first place. As a rail planner, decisions on whether to construct railways are not taken lightly. Railway infrastructure can be very expensive takes years from concept to implementation. Rail projects are subject to feasibility studies, which include rigorous cost-benefit analysis. I’m positive that if a cost-benefit analysis is undertaken on the Lagos-Kano project, the numbers will never stack up. What sort of patronage level will the rail corridor attract to justify the $8.5 billion cost. The govt should not be investing in long-distance railways at this point, until the transport infrastructures in our major cities are developed. Nigeria is not France, Japan, or Italy. If you check the history of these countries, they have developed a good network local transport infrastructure prior to building long-distance railways. .
Anyway, for Obasanjo to have entered into this contract without following ‘due process’ and undertaking proper ‘due diligence’ is a national tragedy and at the least, he should be prosecuted for misappropriation of public funds.
Firstly, it was series of allegations on corrupt practices on the power projects. And as if that was not enough, another bombshell was dropped at the ongoing Public Hearing on the $8.5 billion Lagos-Kano Rail Modernisation Project.
The Nigerian government entered into a loan agreement with the Chinese government in order to finance the rail project. In return, the contract was awarded to the Chinese firm CECCC. Under the arrangement, $1.2 billion was dedicated as soft loan to Nigeria for the execution of the first phase of the double track Lagos-Kano rail project covering 1,315 kilometres. However, the Chinese government decided this year to commit only $500 million concessionary loan instead of the $2.5 billion it has earlier agreed with Nigerian under the past Nigerian government. The $2.5 billion was to have attracted an almost zero percent interest rate spread over about twenty years. But, according the Minister, the Chinese government changed its mind advising that that Federal Government may obtain the balance of $2 billion from Chinese Banks at prevailing interest rates. And to add salt to injury, the Federal Government is under obligations to pay between $1.1 billion and $1.4 billion for the cancellation of the project.
I have previously queried the need for upgrading the 1,315km of rail track between Lagos and Kano at a phenomenal cost of $8.5 billion. As far as I am concerned the rail upgrade will serve no useful purpose, and the money could be better spent on developing transport infrastructure in our major cities. The proposed Light Rail in Lagos is only costing a fraction of the Lagos-Kano project and it offers more benefit to commuters in a city of 17 million people.
The way and manner this project has been handled by the Obasanjo government is nothing short of being ‘criminal’. There are two key facts that emerged from the hearing which I consider very serious.
Firstly, it came to light that the project was awarded to the Chinese firm without any regard for the ‘competitive tendering’. It was alleged that President Obasanjo was in a hurry to the give the contract to CCECC as a 'thank you' project for the promised loan concession.
Secondly, it was confirmed that the rail contracts were awarded by the administration of Obasanjo without feasibility study and initial engineering design preparatory for the bill of quantity as required for a contract of such magnitude.
I find it hard to believe that a government will award a contract for $8.5bn without undertaking a feasibility study on its economic viability and also not bother to undertake a competitive tendering process. Why all the rhetoric about ‘due process’? How does the government know that it is getting ‘value for money’? I have once queried the reason behind procuring rail expertise from China, when the Chinese themselves import rail expertise from Europe. What is the track record of the Chinese firm in handling multi-billion dollar infrastructure projects?
It is plausible to argue that we wouldn’t be where we are if a feasibility study was undertaken in the first place. As a rail planner, decisions on whether to construct railways are not taken lightly. Railway infrastructure can be very expensive takes years from concept to implementation. Rail projects are subject to feasibility studies, which include rigorous cost-benefit analysis. I’m positive that if a cost-benefit analysis is undertaken on the Lagos-Kano project, the numbers will never stack up. What sort of patronage level will the rail corridor attract to justify the $8.5 billion cost. The govt should not be investing in long-distance railways at this point, until the transport infrastructures in our major cities are developed. Nigeria is not France, Japan, or Italy. If you check the history of these countries, they have developed a good network local transport infrastructure prior to building long-distance railways. .
Anyway, for Obasanjo to have entered into this contract without following ‘due process’ and undertaking proper ‘due diligence’ is a national tragedy and at the least, he should be prosecuted for misappropriation of public funds.
Monday, March 9, 2009
Reforming the Nation's Transport Sector
There seems to be growing interest in the development and rehabilitation of the Nigeria’s transport infrastructure. The railway sector for example, has in someway come to the fore of public debate. Stakeholders in the transport industry (both private and public) have being drumming up support for rail development in the country. The Lagos State Government is also currently pursuing the development first Light Rail Transit system in Africa. The challenge that will be faced by Lagos Government will be how to attract private investors in the face of the current global economic recession. Whatever happens, history will judge the State Governor by the passion and the zeal he has demonstrated in terms of solving the traffic menace in Lagos.
What is happening in Lagos can only be seen as positive development for Nigeria. However, it gives a cause for concern that the Federal Government has lost its way in terms of setting up the right framework for the development of a sustainable transport agenda. Proactive state governments such as Lagos are beginning to set the benchmark in the absence of the proper transport leadership from the Federal Govt. This laissez-faire attitude has now resulted ad-hoc transport policies and schemes being propagated across the country. An example is the recent announcement by a private firm Oracle Nigeria Limited that it intends to develop a High-Speed Rail system between Lagos and the Niger Delta at an estimated cost of $7.5bn. This project is expected to be funded through a mix of private capital/equity and public funding/guarantees. The proposed corridor for the HSR is Lagos, Ondo, Edo, Delta, Bayelsa, Rivers, Abia, Imo, Akwa Ibom and Cross River states. According the CEO of Oracle, “this mode of transportation will create relief in a country fraught by road accidents, which according to the World Health Organisation account for over 32,000 deaths in Nigeria every year.” I sometimes wonder if these proposals are well thought through before being put in the public realm. What is the rationale for spending such a colossal amount on developing a HSR between Lagos and Cross River? For what purpose? If it is to cut accident rates on the highway, then what is the function of the Federal Road Safety Corps? Why can’t money be spent on rehabilitating the major highways and make them safer? And also, who says that railway is safer than road transport? A badly maintained railway system can cause as much havoc, if not worse. Ask the Brits about the Paddington train crash of 1995, which killed thirty one and injured over 520 people.
We have also seen the recent ‘flip flops’ by the Federal Government on the proposed Lagos-Kano rail modernisation project. This comes under review once there is a change of Minister. This attitude demonstrates a government that lacks vision and does know what it wants. More importantly, it sends a message to foreign investors about the risk of doing business with the government. And in this current climate of credit crunch, confidence is vital to private sector participation.
It is important now than ever before that the government through the Federal Ministry of Transport assumes its leadership role in terms of re-focusing of our nation’s transport system if President Yar’Adua (and big IF!) wants to achieve is Vision 2020 and Seven Point Agenda. The nation is in the dire need of a Strategic Transport Plan. The plan needs to set out the long term vision of how all sectors (ie rail, road, air, and water) of the nation’s transport system will be developed. I appreciate that there are current challenges been faced in the energy sector, which in someway has a role to play in transport infrastructure development (ie use of electric trains etc). However, the government needs to articulate how the current transport assets will be managed, whilst looking into the future. In fact, such as a strategic plan could inform the debate on power generation because of their interdependencies. There is need for ‘joined up’ thinking across of sectors of government in developing an integrated transport vision.
It beats my imagination that Private Sector Participation has now become a buzz word in government circles. As soon as a government owned corporation has been ‘wrecked’ by corrupt government official and politicians, Ministers start talking about ‘concessioning’, PPP etc. While I’m total support of Private-Public Partnerships because sometimes it is only way you can get things done, the government needs to realise that the private sector, who fundamental aim is to maximize their profit will not set up a vision for state. Instead, the private sector should be engaged and stirred towards helping the nation achieve its vision through proper regulatory mechanisms.
Without being a purist, I will suggest the part-privatization of the Nigeria Railway Corporation. The maintenance and operations of the rail network should be separated. The government should still be tasked with the responsibility of track maintenance, which either can be undertaken in house or out sourced to private companies. The operation of services should however be fully privatized. The existing non-rail assets of the NRC could be used as incentive to attract private investors. There will also need to be a major overhaul of the NRC workforce, which currently consists of unmotivated and ageing staff, who lack skills in modern railway operations and maintenance. The government will need to develop a rail network strategy which will sets out the function and role of existing and proposed rail lines. At present there seems to be no clear distinction commuter rail lines and long distance. Development of commuter rail lines in our growth cities should be a matter of priority. Focus should be on developing corridors along Lagos-Ogun-Oyo, Niger-Kaduna-Kano, Warri-Port Harcourt, rather than high speed rail between Lagos and Kano or Lagos and Niger Delta.
The government also needs to set out a plan for the development and funding of major highways and trunk roads. The ineptitude of the federal government in this area has seen state government taking responsibility for managing federal highways. Maintenance of federal roads should not be politicized. The federal government should handover roads which it considers are not of national significance to state governments. As an example, I will suggest an alternative corridor for the Lagos-Benin expressway. The proliferation of vehicular access by churches and residential development along this corridor has undermined its role and function. The corridor is also a major growth area and intensification of vehicular access will only make it worse.
To be continued……………..
What is happening in Lagos can only be seen as positive development for Nigeria. However, it gives a cause for concern that the Federal Government has lost its way in terms of setting up the right framework for the development of a sustainable transport agenda. Proactive state governments such as Lagos are beginning to set the benchmark in the absence of the proper transport leadership from the Federal Govt. This laissez-faire attitude has now resulted ad-hoc transport policies and schemes being propagated across the country. An example is the recent announcement by a private firm Oracle Nigeria Limited that it intends to develop a High-Speed Rail system between Lagos and the Niger Delta at an estimated cost of $7.5bn. This project is expected to be funded through a mix of private capital/equity and public funding/guarantees. The proposed corridor for the HSR is Lagos, Ondo, Edo, Delta, Bayelsa, Rivers, Abia, Imo, Akwa Ibom and Cross River states. According the CEO of Oracle, “this mode of transportation will create relief in a country fraught by road accidents, which according to the World Health Organisation account for over 32,000 deaths in Nigeria every year.” I sometimes wonder if these proposals are well thought through before being put in the public realm. What is the rationale for spending such a colossal amount on developing a HSR between Lagos and Cross River? For what purpose? If it is to cut accident rates on the highway, then what is the function of the Federal Road Safety Corps? Why can’t money be spent on rehabilitating the major highways and make them safer? And also, who says that railway is safer than road transport? A badly maintained railway system can cause as much havoc, if not worse. Ask the Brits about the Paddington train crash of 1995, which killed thirty one and injured over 520 people.
We have also seen the recent ‘flip flops’ by the Federal Government on the proposed Lagos-Kano rail modernisation project. This comes under review once there is a change of Minister. This attitude demonstrates a government that lacks vision and does know what it wants. More importantly, it sends a message to foreign investors about the risk of doing business with the government. And in this current climate of credit crunch, confidence is vital to private sector participation.
It is important now than ever before that the government through the Federal Ministry of Transport assumes its leadership role in terms of re-focusing of our nation’s transport system if President Yar’Adua (and big IF!) wants to achieve is Vision 2020 and Seven Point Agenda. The nation is in the dire need of a Strategic Transport Plan. The plan needs to set out the long term vision of how all sectors (ie rail, road, air, and water) of the nation’s transport system will be developed. I appreciate that there are current challenges been faced in the energy sector, which in someway has a role to play in transport infrastructure development (ie use of electric trains etc). However, the government needs to articulate how the current transport assets will be managed, whilst looking into the future. In fact, such as a strategic plan could inform the debate on power generation because of their interdependencies. There is need for ‘joined up’ thinking across of sectors of government in developing an integrated transport vision.
It beats my imagination that Private Sector Participation has now become a buzz word in government circles. As soon as a government owned corporation has been ‘wrecked’ by corrupt government official and politicians, Ministers start talking about ‘concessioning’, PPP etc. While I’m total support of Private-Public Partnerships because sometimes it is only way you can get things done, the government needs to realise that the private sector, who fundamental aim is to maximize their profit will not set up a vision for state. Instead, the private sector should be engaged and stirred towards helping the nation achieve its vision through proper regulatory mechanisms.
Without being a purist, I will suggest the part-privatization of the Nigeria Railway Corporation. The maintenance and operations of the rail network should be separated. The government should still be tasked with the responsibility of track maintenance, which either can be undertaken in house or out sourced to private companies. The operation of services should however be fully privatized. The existing non-rail assets of the NRC could be used as incentive to attract private investors. There will also need to be a major overhaul of the NRC workforce, which currently consists of unmotivated and ageing staff, who lack skills in modern railway operations and maintenance. The government will need to develop a rail network strategy which will sets out the function and role of existing and proposed rail lines. At present there seems to be no clear distinction commuter rail lines and long distance. Development of commuter rail lines in our growth cities should be a matter of priority. Focus should be on developing corridors along Lagos-Ogun-Oyo, Niger-Kaduna-Kano, Warri-Port Harcourt, rather than high speed rail between Lagos and Kano or Lagos and Niger Delta.
The government also needs to set out a plan for the development and funding of major highways and trunk roads. The ineptitude of the federal government in this area has seen state government taking responsibility for managing federal highways. Maintenance of federal roads should not be politicized. The federal government should handover roads which it considers are not of national significance to state governments. As an example, I will suggest an alternative corridor for the Lagos-Benin expressway. The proliferation of vehicular access by churches and residential development along this corridor has undermined its role and function. The corridor is also a major growth area and intensification of vehicular access will only make it worse.
To be continued……………..
Monday, December 29, 2008
Lagos-Kano Rail Modernisation Project
The Federal Government recently suspended the proposed $8.3 billion Lagos to Kano railway modernisation project awarded to the China Civil Engineering Construction Corporation (CCECC) by the administration of former President Olusegun Obasanjo. This decision – one of many ‘reversals’ of Yar’Adua government – is seen as regrettable by the punter, however it might be a blessing in disguise as it offers an opportunity for a rethink. I’m however not under any illusion about why the project was cancelled.
Mr. Tanimu Yakubu, chief economic adviser to President Umaru Yar'Adua, told the committee probing the $8.3 billion proposed Lagos-Kano standard gauge rail line that the Chinese firm was in contravention of Section 54 of the Companies and Allied Matters Act (Cama), which prohibits foreign companies from doing business in the country without being legally registered in Nigeria. He said the President Yar'Adua-led administration considers the contract to be illegal because it was not presented to the National Assembly for ratification. While the official status of the project is yet to be disclosed, the status of the contract however needs to be clarified because the body language of Yakubu indicates that the contract is as good as dead.
My concern with the project has nothing to do with budget appropriation or registration of CCECC with the Corporate Affairs Commission (CAC). I consider the basis, need and justification for such a huge financial investment in upgrading a rail line between Lagos-Kano to be fundamentally flawed for various reasons.
Firstly, why do we have to procure rail engineering expertise from China? There is a fundamental difference between ‘human resources’ and ‘human capacity’. With its population size, there is no doubt in my mind that the Chinese have the resources to undertake any project (as seen in recently concluded Olympics). However, I’m not convinced that they have the capacity (in terms of skills) to design a ‘world class’ rail system. When you mention rail projects, we are not just talking about construction workers, but technical expertise in terms of planning, design and engineering. It is worth noting that the planning, design and engineering expertise for the recently constructed Beijing-Tianjing Intercity Rail was sourced from mainland Europe. Only contracts for civil construction and engineering supervision were limited to local Chinese firms. That says a lot about how much faith the Chinese have in its own expertise. I don’t think Nigerians are interested in ‘Made in China’ railways, or train parts from ‘Chinatown’.
Secondly, why spend such a huge amount of money on upgrading an existing rail line – converting narrow gauge track to standard gauge?
The Lagos-Kano rail line stretches to 11,315 kilometres and would run on double track. The speed limit will be pegged at 150 kilometres per hour. After the upgrade, it would take less than four hours to travel from Lagos to Kano. The project will also include construction of 39 stations and two workshops and would be run through independent power supply system. The Chinese also offered a five-year maintenance period. The entire project would cost $8.3 billion. Even though the Federal Government only paid the Chinese company a paltry sum of $250 million being three per cent of the entire total cost, instead of $1.356 billion, being the 10 per cent mobilisation fee promised, the company immediately moved to site, armed with the due process certificate for the payment made.
While this might look good on paper, the question needs to be asked about how many people will be travelling daily between Lagos-Kano to justify this investment. With a travel time of four hours, are we constructing a commuter or tourist rail network? For me, the rail line will only be useful for long distance travel. This in itself raises more questions than answers. How many people travel daily on this route? How many times a day is it expected to operate? Has there been any cost-benefit analysis undertaken for the project? I’m sure that if a cost-benefit analysis is undertaken, the numbers will definitely not stack up. Does the time savings to be achieved by converting narrow gauge to standard gauge worth $8.3 billion dollars in real terms?While I’m not totally against upgrading Nigerian railway infrastructure, I’m of the opinion that $8 billion earmarked for this project can be better spent. For starters, let me point out that there is nothing wrong with ‘narrow gauge’ rail tracks. While standard gauge is modern and used in most parts of the world, there are still many developed nations with narrow gauge rail tracks. While it might be better to build new rail tracks as standard gauge, the conversion cost is too expensive for most countries, hence the reason why it is still widely in use.
The Federal Ministry of Transport should be setting a strategic policy for rail development in the country, starting with a cleansing of the Nigerian Railway Corporation. Railway transport in Nigeria is inefficient and has hardly developed at all over the past 100 years compared to railways in the developed world. This is due both to maladministration by successive governments and to the lack of a functional transport policy ensuring a constant pattern of railway development.
In developed countries, transport policy is dynamic and changes responsively accordingly to technological trends in the transport sector. Efforts should be focussed on developing rail network in sub-regional areas. There is likely to be more patronage demand along Lagos-Ogun-Oyo, PH-Warri-Enugu and Minna-Kaduna-Abuja corridors. The Lagos Rail Mass Transit project should be supported by the FG with funds and be extended to Ogun State as part of the Lagos Mega City Project. The transport infrastructure in our major cities should be fixed as a matter of priority.
Even if the FG decides to go ahead with the project as it is, who will be responsible for operation and maintenance? Is it the ‘paralysed’ Nigerian Railway Corporation? Only God knows what goes on in the NRC nowadays. The organisation has proven beyond every reasonable doubt that it is incompetent to move the nation rail system to the next level.Until the government comes out in the open to tell us its official position on the project, we can only keep asking ourselves, where to from here…, ?
Mr. Tanimu Yakubu, chief economic adviser to President Umaru Yar'Adua, told the committee probing the $8.3 billion proposed Lagos-Kano standard gauge rail line that the Chinese firm was in contravention of Section 54 of the Companies and Allied Matters Act (Cama), which prohibits foreign companies from doing business in the country without being legally registered in Nigeria. He said the President Yar'Adua-led administration considers the contract to be illegal because it was not presented to the National Assembly for ratification. While the official status of the project is yet to be disclosed, the status of the contract however needs to be clarified because the body language of Yakubu indicates that the contract is as good as dead.
My concern with the project has nothing to do with budget appropriation or registration of CCECC with the Corporate Affairs Commission (CAC). I consider the basis, need and justification for such a huge financial investment in upgrading a rail line between Lagos-Kano to be fundamentally flawed for various reasons.
Firstly, why do we have to procure rail engineering expertise from China? There is a fundamental difference between ‘human resources’ and ‘human capacity’. With its population size, there is no doubt in my mind that the Chinese have the resources to undertake any project (as seen in recently concluded Olympics). However, I’m not convinced that they have the capacity (in terms of skills) to design a ‘world class’ rail system. When you mention rail projects, we are not just talking about construction workers, but technical expertise in terms of planning, design and engineering. It is worth noting that the planning, design and engineering expertise for the recently constructed Beijing-Tianjing Intercity Rail was sourced from mainland Europe. Only contracts for civil construction and engineering supervision were limited to local Chinese firms. That says a lot about how much faith the Chinese have in its own expertise. I don’t think Nigerians are interested in ‘Made in China’ railways, or train parts from ‘Chinatown’.
Secondly, why spend such a huge amount of money on upgrading an existing rail line – converting narrow gauge track to standard gauge?
The Lagos-Kano rail line stretches to 11,315 kilometres and would run on double track. The speed limit will be pegged at 150 kilometres per hour. After the upgrade, it would take less than four hours to travel from Lagos to Kano. The project will also include construction of 39 stations and two workshops and would be run through independent power supply system. The Chinese also offered a five-year maintenance period. The entire project would cost $8.3 billion. Even though the Federal Government only paid the Chinese company a paltry sum of $250 million being three per cent of the entire total cost, instead of $1.356 billion, being the 10 per cent mobilisation fee promised, the company immediately moved to site, armed with the due process certificate for the payment made.
While this might look good on paper, the question needs to be asked about how many people will be travelling daily between Lagos-Kano to justify this investment. With a travel time of four hours, are we constructing a commuter or tourist rail network? For me, the rail line will only be useful for long distance travel. This in itself raises more questions than answers. How many people travel daily on this route? How many times a day is it expected to operate? Has there been any cost-benefit analysis undertaken for the project? I’m sure that if a cost-benefit analysis is undertaken, the numbers will definitely not stack up. Does the time savings to be achieved by converting narrow gauge to standard gauge worth $8.3 billion dollars in real terms?While I’m not totally against upgrading Nigerian railway infrastructure, I’m of the opinion that $8 billion earmarked for this project can be better spent. For starters, let me point out that there is nothing wrong with ‘narrow gauge’ rail tracks. While standard gauge is modern and used in most parts of the world, there are still many developed nations with narrow gauge rail tracks. While it might be better to build new rail tracks as standard gauge, the conversion cost is too expensive for most countries, hence the reason why it is still widely in use.
The Federal Ministry of Transport should be setting a strategic policy for rail development in the country, starting with a cleansing of the Nigerian Railway Corporation. Railway transport in Nigeria is inefficient and has hardly developed at all over the past 100 years compared to railways in the developed world. This is due both to maladministration by successive governments and to the lack of a functional transport policy ensuring a constant pattern of railway development.
In developed countries, transport policy is dynamic and changes responsively accordingly to technological trends in the transport sector. Efforts should be focussed on developing rail network in sub-regional areas. There is likely to be more patronage demand along Lagos-Ogun-Oyo, PH-Warri-Enugu and Minna-Kaduna-Abuja corridors. The Lagos Rail Mass Transit project should be supported by the FG with funds and be extended to Ogun State as part of the Lagos Mega City Project. The transport infrastructure in our major cities should be fixed as a matter of priority.
Even if the FG decides to go ahead with the project as it is, who will be responsible for operation and maintenance? Is it the ‘paralysed’ Nigerian Railway Corporation? Only God knows what goes on in the NRC nowadays. The organisation has proven beyond every reasonable doubt that it is incompetent to move the nation rail system to the next level.Until the government comes out in the open to tell us its official position on the project, we can only keep asking ourselves, where to from here…, ?
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