Tuesday, June 04, 2013

Lagos metro draws on international expertise

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Construction is underway on the initial 8km section of Lagos' first metro line. Doing business in Nigeria has traditionally been a difficult proposition for foreign companies, but as Kevin Smith discovers, by enacting an effective PPP financing structure the Lagos Area Metropolitan Transport Authority has attracted the international project management expertise required to get the Blue Line up-and-running.

WITH a population of 20 million, which is growing by an estimated 3.2% every year, Lagos is one of the largest cities in Africa. It is also one of the most congested cities in the world.

Despite the Lagos Area Metropolitan Transport Authority (Lamata) successfully introducing a rapid bus network in 2008 which now carries 200,000 passengers per day, relying on bus transit alone is simply inadequate for a city of this size. As a result this service is currently supplemented by a large fleet of minibuses, known locally as danfos, which are designed to carry 10 to 15 passengers. However, the demand for their services is so high that it is not uncommon to see 20 to 30 people squeezed in for their morning commute.

The danfos are not the only element of the transport system which is overcrowded. The streets themselves are clogged with cars which means that cross-city journeys take hours, much to the frustration of residents.

While Nigeria Railways Corporation (NRC) does operate a limited commuter service, it is inadequate to meet current demand. Expanding rail transit in Lagos has been discussed in numerous transport studies dating back to the late 1970s and early 1980s with the existing line as well as several city streets frequently touted for a new public transport corridor, but all of these proposals ultimately came to nothing.

This dire situation is, though, about to improve through the launch of the 27km east-west Blue Line of Lagos' new metro, with construction of the first 8km phase now underway.

The Blue Line was suggested as long ago as 1980 when it was included in the Transport Master Plan, and was initially conceived as a single project. However, following the financial crisis of 2008 it was decided to split the project into two phases; the first 8km phase from Mile 2 to National Theatre is projected to open in 2016, and the line from National Theatre west to Okokomaiko, and east across a bridge to Marina on Lagos Island is projected to open one to two years after that.

The line is being built to standard gauge and will have 600V dc third rail electrification. Trains will operate at 5-minute headways during the peak and at 10-minute intervals at other times, and once fully operational the line will have sufficient capacity to carry 60,000 passengers per hour, per direction. Several of the planned 13 stations will be located in the central reservation of the new 10-lane Badagry Expressway toll road where the line will run west of Eric Moore Road close to Ignamu station. On the stretch east of the new road to Marina the line will be elevated.

LagosThe Blue Line is part of plans for a comprehensive network for the city which could eventually span seven lines. An extension of the Blue Line west to Ojo is envisaged as the next phase of the Lagos rail network which also includes the Red Line, a 35km north-south route from Agbado to Marina which will connect with the extension of the Blue Line to Marina on Lagos Island and share existing NRC infrastructure going north. It will serve 14 stations and early projections show the service carrying up to 500,000 passengers per day. The Red Line sponsors are currently trying to negotiate access to the right-of-way.

PPP venture

Lamata, which was formed in 2003 as a semi-autonomous agency of Lagos' state government, was keen to explore the use of public-private partnerships (PPPs) for the implementation of its rail projects following the success of a similar PPP venture for the bus scheme.

In addition to conceptual design, Canadian consultancy CPCS was appointed under a contract in 2006 to undertake a pre-feasibility study and conceptual design for the Blue Line.

Rail projects, and in particular passenger rail projects, are inevitably capital intensive and require large amounts of up-front investment. Mr Derrick Lichti, a principal consultant and head of the modelling and urban transport practices at CPCS, who was the team leader of the demand study for the Lagos project, says that the preliminary analysis clearly showed that the capital investment for all fixed infrastructure could not be borne by the private sector alone. As a result he says the project was structured in a manner that required infrastructure investment by both the government and private parties.

On a rail project such as the Blue Line, Lichti says two major upfront capital investments are required:

• the fixed infrastructure - track, bridges, stations, railway systems, and

• the moveable assets - rolling stock.

Although rail vehicles can be transported and re-deployed elsewhere, fixed infrastructure by its very nature does not have this flexibility. As a result CPCS determined early on that this element of the project would be less attractive to private investors and public funds would be required from the start.

Lagos state government funds and well-subscribed bond sales were expected to provide the necessary funding to construct the fixed infrastructure. Although a major upside for the implementation of the project, Lichti says investor appetite for the operations and maintenance contract was still uncertain. As a result an extensive demand study and financial analysis was required to determine the parameters under which an operations and maintenance concession would operate.

"It is no big secret that passenger services are rarely profitable," Lichti says. "The demand study carried out for the Blue Line demonstrated what anyone who has ever driven in Lagos knows - there are a lot of people travelling throughout the city at all hours of the day. This was a critical finding because it was still undecided who would take revenue risk on the project. Given the government's major financial commitment to build the fixed infrastructure, it was preferable for the revenue risk to be allocated to the operator."

Lichti adds that one of the other key findings of the demand study was that Lagosians were spending a staggering amount of time transiting throughout the city. "This did not go unnoticed by the project team, who often experienced a three to five hour round-trip from National Theatre to Okokomaiko," he says. "The economic impact of the Blue Line will be incredible."

The study consequently found that a segregated rail mass transit system would cut this journey time to less than 30 minutes each way, regardless of the time of day, and estimated demand at 300,000 passengers per day by the end of the first year of full operation, which using a fixed tariff of approximately $US 1 (at 2008 prices), meant that revenue potential was strong.

To test the theory that demand would be sufficient to allocate revenue risk to the private sector, CPCS developed a full operating cost and financial model. The model assumed that the Lagos state government would fund most fixed infrastructure, and the concession for passenger rail service and infrastructure maintenance would be tendered. Lichti says this approach was beneficial for several reasons:

• the assets perceived to be the most risky - the rail and station infrastructure - would be built by the government, greatly reducing the capital requirement of the private operator - without this option, the likelihood of project success was very low and large operating subsidies would be required

• at expected levels of demand, the operations and maintenance concessionaire stands to make a profit and in addition pay a concession fee to the state government, and

• private capital could be used to fund other investments - for instance a purpose-built gas-fired power station has been proposed by the preferred bidder to power the trains with the potential to sell excess power into the public grid, generating additional revenue.

After the conceptual design was completed in 2008, tender documents were issued in an international RFP following an initial prequalification. Separate tenders were released for the construction of the fixed infrastructure and the operations and maintenance (O&M) concession. Multiple bids were received for both tenders, and following negotiations, a contract was awarded for the construction of the fixed infrastructure to China Civil Engineering Construction Company (CCECC).

In the case of the O&M tender, negative bids were permitted. However, both bids received included concession payments to be paid to the government over the course of the 25-year concession. This vote of confidence for the project structure solidified the objective to allocate revenue risk to the private sector, minimising the need for government involvement post-construction.

In 2010 the contract was awarded to preferred concessionaire, Eko Rail, a Nigerian company backed by emerging markets investment firm Verod Capital Management and supported by First Class Partnerships, Britain, which is providing technical and commercial assistance, Investec Bank, and several legal partners.

Mr Michael Schabas, a partner of First Class Partnerships, who is leading FCP's work in Nigeria, says that in its operation plans for the line, Eko Rail has emphasised developing strong links with other public transport modes by offering through-tickets for buses. He says the concessionaire is also encouraging developments in and around stations and they are working with the Lagos state government to improve paths and walkways to the stations to make Lagos a more pleasant place to be and travel.

"We are even looking at how cycling could be encouraged and reintroduced to Lagos," Schabas says. "People used to cycle in the city 50 years ago but now the traffic is so bad that it is almost impossible."

Eko Rail is also in the process of establishing its own 25MW gas-thermal power station to supply electricity to the line, which will be located at the depot in Okokomaiko. Schabas says the concessionaire is not interested in getting involved in the electricity business, but admits there is potential to sell excess power into the grid.

As the O&M concessionaire, Eko Rail is of course responsible for installing signalling and telecommunications systems and purchasing rolling stock. While Schabas says discussions about the signalling system are continuing, Eko Rail confirmed in September 2011 that it had purchased 255 subway cars from Toronto Transit Commission (TTC) for use on the line. Despite being 35-years-old, Schabas says the vehicles offer amazing value because apart from the first 10-15 years of their life, they were used only on peak services in Toronto clocking up around 70,000km per year.

Schabas says that the trains are formed of a steel frame and a riveted aluminium bodyshell with no welded joints. He adds that they were one of the first metro trains in the world to use regenerative electrical braking and are extremely energy efficient. As a result the brakes blocks are all in extremely good condition with TTC reporting that replacements are rarely required.

"We purchased these trains with the view that they will last the entirety of our 25-year term," Schabas says. "They are not likely to fail, or fall apart, but would require a midlife refurbishment to replace the usual things. We are starting to take delivery of the trains now and the abnormal track gauge in Toronto [1485mm] means that we are going to replace the bogies. We are still negotiating with potential companies which will carry out these upgrades, but GMI in the United States has dismantled and assessed two of the cars and they have found they that are in good condition. The nature of Toronto's system means that they are very clean, there is no graffiti, and if you ride the train there you do not see any litter. We think we have got a very good deal for some very good trains."

Eko Rail expects to use around a third of the trains on the Blue Line, but was obliged by TTC to buy the entire fleet. Initially it had hoped to use them if it was selected as the concessionaire for the Red Line project but if this does not happen, Eko Rail will look to sell approximately 124 cars which Schabas says are ideally suited to a new metro start-up, like Lagos.

In a city currently crippled by lack of infrastructure investment, the Blue Line will revolutionise travel along the east-west corridor and save millions of hours every year. Schabas says he and his partners' experience in Lagos has been very good, stating that contrary to reports it is a safe city that is getting cleaner with "what once were piles of garbage being replaced by parks every time I visit."

Of course the project is also a source of local jobs. And while there is an abundance of low-cost low-skilled labour, it has been more difficult to fill highly-skilled jobs with local professionals. But where Nigerians might have looked to London or New York for better paid jobs in the past, the commitment of the Lagos State Government to invest in local infrastructure and utilise a successful PPP hints at more attractive opportunities at home. And with a growing economy, and the most stable banking system in Africa, all spurred on by a visionary governor, Lagos appears to be emerging as a prosperous African destination.

"In 1960 Lagos was the Singapore of West Africa and there is no reason why it cannot be again," Schabas says.

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