FRESHLY painted coaches that greet passengers travelling from Kano, northern Nigeria, to the southern metropolis of Lagos project a revitalised image of the country's railway network. They are also indicative of the government's belief that investing in its crumbling colonial infrastructure is key to boosting the economy.
Following a Naira 24bn ($US 151.7m) investment to upgrade track and signalling on the 1067mm-gauge line as well as the purchase of 25 GE locomotives and renovation of 500 wagons and passenger coaches, services recommenced on the 98km line from Lagos to Abeokula in December. This was followed on the entire 1126km route to Kano in early 2013, 10 years after it closed.
Around 57,000 passengers used the weekly service in its first five months of operation. And while the trains are infrequent and plagued by mechanical faults and slow speeds - it takes around 30 hours to complete the journey - the government insists its opening will herald a new dawn for Nigerian Railways Corporation (NRC) as it begins to deliver on plans to reverse decades of decline and mismanagement.
The government has committed around $US 10bn to new projects and rehabilitation in the past six years. Construction contracts for seven cross-country projects have already been awarded while feasibility studies for eight more are set to be completed in the third quarter of this year. In total the government plans to allocate a further Naira 1.61 trillion towards 15 railway projects in its 2011-15 Transformation Agenda, with 13 projects receiving Naira 44.45bn in this year's budget announcement.
Following the completion of the Lagos - Kano project by China Civil Engineering Construction (CCECC), which was responsible for the 486km section between Lagos and Jebba, and Costain West Africa which rehabilitated the 640km Jebba - Kano section, the emphasis has shifted to the 1657km eastern portion of the 1067mm-gauge network from Port Harcourt to Maiduguri.
Rehabilitation of track, bridges and culverts is now well underway on the project which is divided into three lots after contracts for each were awarded in April 2011. Eser West Africa secured the Naira 19bn contract for Lot 1 which encompasses the 463km line from Port Harcourt; China Gezhouba Group Corporation Global Projects Nigeria is responsible for Lot 2, the 554km line from Makurdi to Kuru which includes branches to Jos and Kafanchan, after it won a Naira 24.45bn contract; and Lingo Nigeria is carrying out work on the 640km Kairu - Maiduguri line which makes up Lot 3 under a Naira 23bn contract.
Theft of clips, delays in delivering steel sleepers and other components from abroad, and a siege by a group claiming that it is the rightful owner of a quarry at Ishiagu in Ebonyi State, which is supplying ballast for Lot 1, has hampered progress on the project. However, the government remains optimistic that it will be completed by the end of the year. During visits to the construction sites by transport minister Mr Idris A Umar and leading NRC officials in April, Umar said that he would liaise with the governor of Ebonyi to end the siege and increase police presence around the construction sites to deter thieves. He also said that NRC is in the process of ordering wagons and dmus to operate on the line.
Other projects for which construction contracts have been awarded include the new 340km Itakpe - Ajaokuta - Warri standard-gauge line which will transport iron-ore from the Itakpe mine to the Ajaokuta and Delta Steel plants, and coal from Warri to Ajaokuta. The line will have capacity for four trains of 32 wagons in its first phase and eventually increase to eight trains of 64 wagons. The government is hopeful that chosen contractor Julius Berger, which is carrying out the work under a $US 211m contract awarded in 2009, will complete the work this year, although the steel plants are not currently in production.
In addition to its work on the Lagos - Kano project, CCECC also secured a $US 1.59bn contract for the 360km, standard-gauge Lagos - Ibadan line in 2012. The double-track line is being financed through a $US 1bn soft loan from China Exim Bank with up to $US 500m provided by the Nigerian government. A similar loan agreement is in place with China Exim bank for the 186km Abuja - Kaduna single-track standard-gauge line. China Exim will provide $US 500m towards the $US 875m project, with CCECC again contracted to carry out this work under a deal signed in 2009. Construction began in Nigeria's capital on April 3.
The government clearly considers rail rehabilitation as crucial to the country's economic development hence the very public appearance of President Goodluck Jonathan on the inaugural Lagos - Abeokula service, which some local media reports have cited as one of the true success stories of his administration.
Indeed, the federal government's August 2010 draft National Transport Policy cited rail as "the most cost-effective, affordable, energy-saving and environmental form of transportation." It envisaged significant benefits stemming from the movement of large numbers of inter-city passengers and high volumes of containerised or bulk freight such as oil, coal, steel or agricultural produce, and structured its subsequent 25-year Railway Strategic Vision into three phases: system transition, system modernisation, and system stabilisation.
To realise these benefits, rail development must overcome a range of structural, practical and legal challenges.
The scale and complexity of the task includes the need to redesign a network that still reflects its colonial origin and purpose to transport goods from the hinterland to ports for shipping to Europe. Nigeria's rail advocates argue for a system capable of becoming a flexible and competitive component of the country's internal transport network. However, there is ample scope for debate, not least to determine the priority of investment between long-distance express and urban mass transit systems, freight and passenger services.
From a legal perspective, the most pressing issue must be a major overhaul of rail legislation to permit transition from the Nigeria Rail Corporation Act 1955 to a properly regulated system permitting private sector participation, likely to be based on up to three regional concessions.
Public-private partnership (PPP) structures have been adopted in many parts of Africa to deliver new or rehabilitated infrastructure. Supported by bodies such as the World Bank and the OECD, PPPs involve long-term contractual arrangements under which private sector investment and expertise is enlisted to finance, build and operate a project.
A PPP requires a careful allocation of risk, and must offer financial rewards that are perceived as sufficient both in terms of quantity and security to attract private sector involvement. The task is far from straightforward as the high-profile Croydon Tramlink and London Underground PPP failures have shown.
For Nigeria, a likely structure is one in which railway infrastructure remains under the control of the federal government, while concessionaires provide rolling stock and operate services. Track access charges during a 25-30 year concession would provide funds for the expansion, rehabilitation and maintenance of infrastructure. However, well-advised concessionaires would undoubtedly seek assurances that track access terms include provisions to suspend access charges, or guarantee compensation for direct and consequential losses, in the event of infrastructure failure or disruption. This model would not provide risk-free funding, and would require close attention to the likely income streams.
Any business case for large-scale investment in rail must give significant weight to the extent and security of income from freight. While demographic and economic modelling might produce impressive projections for passenger traffic and revenue, the largely casual nature of inter-city passenger travel means that revenue streams remain both contingent and precarious.
Shorter-distance commuter traffic might be more predictable, and somewhat less vulnerable to economic pressures, political or mechanical disruption. However, for predictable, legally enforceable and therefore fundable income streams, potential rail investors are far more likely to look to freight. This matters because it directly affects both the regulatory and contractual shape of a revived rail sector, and the physical aspects of the infrastructure.
Freight has the capacity to provide the crucial contractual underpinning for large-scale rail development. Operators' access to the network is generally based on contracts that impose a traffic commitment throughout the term of the agreement. This translates, in investment terms, to a legally enforceable income stream. Freight access agreements also commonly impose stringent safety requirements and operating rules. From a regulatory perspective, there is ample scope for standardisation through the adoption of model agreements and criteria-based general authorisation regimes.
Freight also brings specific regulatory challenges. As well as containerised freight, the federal government's 2010 policy document highlighted bulk freight such as oil, coal, steel or agricultural produce. Transport of hazardous substances, particularly using infrastructure that is to any extent shared with passenger traffic or likely to affect settlements, requires close regulation together with well-developed and robust incident response and disaster recovery planning. These issues must figure prominently in any risk assessment or business case evaluation for rail investment. They feed directly into the contractual allocation of risk, insurance and reinsurance requirements and, in all likelihood, into the requirement for a state role as insurer of last resort.
The infrastructure requirements for freight and passenger also diverge. Freight must be integrated with both sea transport and internal road and rail distribution networks. On the ground, that points towards the development of large-scale intermodal freight terminals, preferably with access to a developed rail distribution network but also to road haulage. While export of raw material and commodities might be largely or even entirely served by rail, imports and distribution inevitably require road links as goods approach the "last mile."
In contrast the primary need for passenger traffic is direct access to city centres, whether for commuting or inter-city transport. Quite apart from the inherent logistical differences, safety requirements dictate as much separation as is practical between freight and passenger services and facilities. This, in turn, strongly suggests that investment in rail for freight and passenger services would likely rest on substantially different bases, and to proceed at significantly different rates.
Given the well-documented congestion problems in cities such as Lagos, investment in passenger services might rationally focus on urban mass transit rather than trophy schemes for new inter-state or inter-city lines. Indeed in addition to the long-distance schemes already mentioned, a significant emphasis is being placed on improving commuter links following the successful launch of the 23km Maiduguri-Duwari Mass Transit Train Service (MTTS) in 2011. This has been followed by improved services in Lagos which are now carrying 15,000 passengers per day, and new services in Jos, Jano and Kabuna, while plans remain in place for a diesel light rail service in Abuja.
Expertise and regulation
A key issue facing PPP projects in Nigeria is a lack of an extensive and readily available base of local expertise which is able to consider a project's legal structures and context with a detailed and nuanced understanding of the issues it is likely to encounter.
PPP structures in developing countries are often brought in from outside, with project teams dominated by international advisory practices. However, this process often overlooks the need to develop local understanding of and involvement in the project which, after all, is intended to make a real and durable contribution to economic development in the host country. As a result there must be a strong case for focused and effective professional training and education to build on the locally available pool of legal expertise.
In Nigeria, a key role has been given to the Infrastructure Concession Regulatory Commission (ICRC). Inaugurated in 2008, the ICRC's measures have included a project in partnership with the World Bank Institute of Public Private Partnerships to improve the disclosure of PPP contract provisions.
As well as providing transparency and promoting value-for-money, its objective, set out in April, is to "educate Nigerians on the salient features of the contract, agreed standards of service and the actual performance levels achieved." The statement underlines that disclosure of performance indicators with their targeted levels can help put pressure on providers to perform well.
As users become more knowledgeable about the contracts through regular disclosure of information, service provision through PPP procurement will gain greater acceptance in the country. However, the need to articulate this objective is a clear indication of the difficulties that lie ahead of the Nigerian government as it strives to achieve its goals for its railway network.
While the emphasis at present is on rehabilitating infrastructure, insufficient attention has been paid to establishing conditions attractive to prospective concessionaires. A lack of rolling stock is the most obvious hindrance to the effective operation of services with no standard-gauge assets available or even ordered despite the commitment to build 866km of new infrastructure at a cost of Naira 708.2bn.
This equipment cannot be procured overnight, with orders taking on average two years to complete. Likewise identifying a suitable private operator can take a similar amount of time, particularly given the prospective difficulties and costs of operating in Nigeria. The fact that the steel plants on the Itakpe - Ajaokuta - Warri line are currently not in operation indicates that existing conditions are not exactly conducive to attracting a private operator looking to make a profit.
Greater emphasis should now be placed on passing the draft Railway Bill which is intended to provide the legal framework necessary to attract private capital, and the operators, that will enable a revamped and revitalised network to fulfil its potential. While its commitment to invest in infrastructure is commendable, without a strategy that will deliver the effective railway services the revitalised network is designed for, Nigeria's government will simply be unable to shed the aura of mismanagement that plagued NRC's previous operations until they eventually ground to a halt.