Whereas the eyes of the world are on Nigeria this week as it goes into national elections to choose new political leaders, I would invite us to focus on its railways as we discuss the state of our industry at this august occasion.
Nigeria matters in the world and Africa in particular because it is the eighth most populous country in the world and indeed the most populous in Africa. One out of every four Africans is a Nigerian.
Nigeria is indeed blessed with an abundance of natural and human resources but has so far been unsuccessful in harnessing these to take its rightful place in the comity of nations.
Much has been made of Nigeria’s huge oil and gas reserves, its substantial deposits of coal, iron ore, limestone and other strategic minerals, its fertile land mass and climate, but its greatest natural endowment are its people. Estimated at 150m innovative and enterprising people full of colour and ebulience, Nigeria has all it needs to become an economic success story but it has continued to struggle with weak institutions and poorly maintained physical infrastructure.
There is no gainsaying that a thriving Nigerian economy has great imperatives for the African economy as a catalyst for regional development and stability. Conversely, a Nigeria in dire straits is a pivot for instability in West Africa and the continent as a whole given its sheer size. This is why Nigeria matters.
In Nigeria’s 50 years of independence, it has witnessed several forcible overthrows of government. The absence of political stability was to become and perhaps remains the most indelible causation of its enduring economic problems. Within 6 years of independence, a civil war broke out and lasted for four years in which it is estimated that 1m Nigerians lost their lives. This followed a mutiny by soldiers who seized power after killing a number of civilian political leaders. Another coup d’etat was to follow in quick succession and more worrisome was that the interventions were now taking an ethnic dimension. The tribal fault lines have polarised political participation and continues to dog cohesion and the development of robust institutions to this day.
The last twelve years have seen Nigeria’s longest sustained period of civil governance but the political institutions remain fragile and prone to crisis of confidence. Notwithstanding, this period has perhaps provided the best opportunity for broader political participation and the entrenchment of accountable governance. It is for this reason that the world is watching with keen interest as Nigeria goes to the polls.
The Nigerian railways is one of the legacies bequeathed by the British colonials to the then newly independent federal republic of Nigeria in 1960. It was a transportation system designed primarily to deliver raw materials and commodities from the hinterland to the ports in the south for shipment to markets in Europe and the Americas.
The Nigerian system comprises two longitudinal lines running from the two main ports in the South to the northern parts of the country. The western line runs from Lagos in the south west to Nguru and Kaura Namoda in the north west, while the eastern line runs from Port Harcourt in the south east to Maiduguri in the north east, with a connection between the two lines linking Kafanchan on the eastern line and Kaduna on the western line just beyond Nigeria’s current capital, Abuja. Other than this, it currently has very little east-west connectivity. Most of the network was constructed during 1898 to 1927 while the Kafanchan – Maiduguri segment to the north east was constructed between 1954 and 1964.
With an existing network of just over 3,500km, Nigeria has a low rail density of about 3.9 km of railway per thousand square km compared to say South Africa with 17.1. Nigeria’s rail/population ratio is about 27.6km of railway per million persons and compares unfavourably with other developing countries where the ratio is anything from 80 to nearly 500. Currently, there are no railway services of note so better measures of the population’s access to rail such as train density are not available but there is a massive investment in rehabilitation, re-equipping and organisational reforms underway involving the expenditure of about $2bn, which should lead to the resuscitation of services on the network. Whether such services would be sustainable becomes the challenge of strategic management in terms of the longer term operation of services.
The system is predominantly single track cape gauge with steep gradients and tight bends which did not lend it to high speeds when compared to say roads or air transport which have since emerged as alternative forms of mass transit. Over the years, the gradients and bends have been eased and a new standard gauge system built to link the Warri Port in the Niger Delta with the iron ore works and steel plant in the middle belt of Nigeria over a distance of 270km. The problems of Nigeria’s under-development has meant that since this project was embarked upon over 30 years ago, it is yet to be completed.
The Nigerian railways went into steep decline in the late 1970s at a time when Nigeria joined the club of oil exporters and went into a spending spree to “industrialise”. Plants were being developed across the country from cement plants to steel plants to fertilizer plants. A massive road building programme ensued as was a new national airline emerging with brand new aircraft bought for cash funded by Nigeria’s new petro dollar. The main stay of the economy which was its cash crops exports of cocoa, cotton, groundnuts etc were to be forgotten momentarily and with them the railways as Nigeria became a net importer of food and remains so to this day. The collapse in oil prices in the early 1980s threw a spanner in the works, the government of the day collapsed and Nigeria has since been unable to find the traction required to provide for an enduring fiscal regime.
The Nigerian Railway Corporation (NRC) is the government agency vested with the sole authority for the development, ownership, operation and regulation of the railways. In spite of significant capital investment and occasional technical assistance over many years, the Nigerian railways effectively collapsed. The NRC had historically been running financial deficits since 1964. As at 1978, revenues covered less than 40% of operating expenditure and by 2004, its revenues covered only about 12% of costs. Traffic, once well over 1 million tonnes, had dropped to around 80,000 tonnes. Rental income derived from its fairly extensive but dilapidated real estate assets exceeded revenue from operations. For all of its existence, the NRC had been run as a government department dependent on political patronage rather than as a business.
That Nigeria needs a modern and efficient railway system to serve the demands and opportunities of its growing economy is not in dispute. For a country of its size and scope, the railways form an integral part of the logistic chain acting as a complement and competitor to the other modes. It would therefore help to improve transport efficiencies in the movement of bulk over appreciable distances. Railways are more energy efficient and statistically safer than the other modes of transport especially in an age of increasing awareness of environmental issues. Urban metros play a significant role in easing road congestion in large urban centres like Lagos. Railways also act as a spur for economic activity as there is evidence to suggest that the development of urban centres such as Kaduna, Lagos, Kano, Kafanchan, Jos, Ilorin, Enugu, Port Harcourt, Ibadan etc was influenced by rail. As a competitor to the other modes, it provides an impetus for efficiencies and value for money.
A recurring decimal in addressing Nigeria’s infrastructure deficit has been the repeatedly futile efforts by various governments to resuscitate the railways. Various initiatives by practically every government since the military regimes of the 1970s in revitalising the Nigerian Railway Corporation has ended in failure. A common thread is that the various governments have tried to achieve the same ends using different strategies perhaps to differentiate themselves from the previous regime.
RITES of India were invited in or about 1978 to intervene in the NRC to carry out locomotive and rolling stock repairs, redesign traffic schedules and marketing programmes, improve customer relations and to provide training and build capacity. This seemed to arrest the slide in the fortunes of the company for a brief period but the Indians left abruptly about 1983 leaving the corporation to drift.
There now followed a Romanian counter trade intervention in or about 1986 to supply container wagons, guard vans, workshop machineries and equipment. The “Nairda project” which ensued involved the installation of a micro-wave backbone to sustain station-to-station, train-to-train and train to-station, control-to-control-to station and train communications.
CANAC of Canada has variously intervened conducting studies and technical assistance which were never seen to their logical conclusions.
A new reform impetus began with the current democratic dispensation in 1999 but this also appears initially to have been dogged by strategic incoherence. CPCS of Canada was brought in by the Presidency (BPE- Bureau for Public Enterprises) to conduct a diagnostic study to enable the privatisation of the NRC. At about the same time, the NRC invited CANAC to conduct a techno-managerial study for the revitalisation and management of the Nigerian railways. Meanwhile, the Ministry of Transportation was playing host to the US Department of Transport (DOT) who were conducting a study on the same railways to provide a workable, realistic and affordable revitalized rail system. During this period, a group of consultants lead by TEAM of Italy were busy putting together a 25 year strategic vision for the railways for the Ministry of Transportation.
Various agencies of the same government were busy doing things, sometimes contradictory, other times duplicatory, to the same railways and clearly there was no co-ordination among the agencies. This strategic incoherence has continued to dog the railways to the present day. It begged the question as to whom indeed ran the railways. Was it the President who appointed the Minister and the board of the NRC, the Minister who was responsible for supervising the NRC or the NRC itself? The legislature who had responsibility for executive oversight meanwhile maintained a stoic silence over the seeming incoherence.
The NRC initiative with CANAC stopped abruptly with the sudden death of a highly influential NRC chairman in a plane crash. The US DOT technical assistance project was interrupted mid way but was eventually completed. This recommended emergency rehabilitation of the infrastructure and locomotives, acquisition of workshop equipment, some organisational reforms and operations based on the American CONRAIL model. CPCS also concluded their studies and issued their report to the government. Theirs was to recommend the immediate privatisation of the railways and the preparation of a prospectus for its sale. The 25 year vision also recommended emergency rehabilitation, expansion and modernisation of the infrastructure, restructuring of the NRC and the concessioning of operations.
A masterplan for integrated transport infrastructure (MITI) report in 2002 estimated freight traffic volumes by road,rail and the waterways in year 2010 in the order of 10m tonnes of freight. This did not include the very substantial volumes of petroleum products which are estimated will reach 20m tonnes by 2020 which are transported by road and pipelines. That there is therefore a substantial business opportunity for sustainable rail freight is not in question as a threshold traffic density of 2 million tonnes per km per year makes a good business case.
The 25 year strategic vision for the Nigerian railways provides for the transformation of the Nigerian railway system from a non-performing and debt-ridden parastatal corporation to a dynamic player in the transportation sector through strategic investments, new policy initiatives, and by encouraging investment by the private sector. It also provided for a progressive reduction of the burden of the railway sector on the national budget by developing policies and regulations that encourage investment in the rail sector by the private sector, through the promotion of public-private sector partnerships. To facilitate this, all costs, benefits and risks associated with investments would be clearly identified and assessed for investment to proceed. It did not stop at these laudable objectives, it also proposed to introduce transport policies that promote the use of the rail sector. The corollary being that, this will reduce congestion and vehicle emissions,and improve road safety for travellers.
Furthermore, it provided for the strengthening of railway capacity through local sourcing of maintenance and construction materials, and by developing the national capacity in rail technology, including the capacity to design and specify standards for the domestic production of railway components.
Overall the government had reached the inevitable conclusion that to create a sustainable railway, it needed to engage the private sector and that it needed a paradigm shift from the status quo of maintaining the NRC as is, in the public sector. Its preferred option to sell off the railways however did not progress beyond the publication of a prospectus as it became readily apparent that private capital was not interested in a moribund NRC for the purposes of operating a railway service. The government has now revised its strategy to concessioning operations and maintenance of the infrastructure with the government investing in infrastructure rehabilitation and focus on the development of the infrastructure for new lines and regulation. The industry is to be deregulated with the private sector and other entities being enabled to develop and operate rail services.
The objectives of the reforms derived from the various studies and in particular the 25 year vision and the CPCS diagnostic study were to:
. increase the efficiency of operations;
. limit the flow of funds from the government to the NRC;
. boost economic activity and accelerate development;
. provide a basis for an infrastructure backbone for future economic development; and
. earn a return on invested capital for the government.
Having done with the visioning, Nigeria is now at the critical juncture where previous initiatives have run into difficulties and ultimately failure – Delivering the vision. The two essential components being strategic management and project (and programme) management. The strategic management component will be influenced by a number of pressures.
We have seen in the past that the initiatives of one government have not been carried forward with the same commitment by a succeeding government. In the process the overall delivery profile and strategic direction of the initiatives have tended to change. Time has been lost, confidence by the private sector and development partners have been undermined and invariably costs escalated.
A fundamental change in government culture is therefore imperative. It goes without saying that agreements entered in the name of the sovereign are obligations of the sovereign irrespective of the incumbency except where fraud is established. Even where wrongdoing is reason for review, it does not vitiate the obligations created and the imperative to continue the project until such wrongdoing is established. When wrongdoing is established, it is imperative that appropriate sanctions are imposed as required by statute to deter future recurrence.
A partnership with private industry requires a reorientation of government attitudes. The subsisting master-servant relationship between employer and contractor will be replaced by a social intercourse of risk sharing. Government needs to better understand the drivers of commercial business operations and streamline its own business processes to adapt to the new environment of partnering.
A further strategic imperative is the legal and regulatory framework. The existing railway act limits broad participation in the industry and restricts development, ownership, operation and regulation of railways to the NRC. The law needs to be amended to enable broader participation and to separate regulation from market participants. The initiative to enact the amended law needs added impetus so that the potential market participants have sufficient time to appreciate the legal and regulatory environment in which they would be operating.
Competition policy and its regulation would also require bolstering to encourage a contestable environment and to discourage predatory pricing and abuse of dominant positions. This becomes the more imperative as the railway concessions are likely to be private monopolies.
There are lessons to be learned from other African concessions and railway reforms around the world. One of which is that the process of negotiating concessions can be arduous and that agreements may need renegotiation to get right. The concessionaires generally have better knowledge than the government and as commercial entities, they would tend to focus their energies on the more profitable routes. The infrastructure is usually in a worse state than anticipated and concessionaires are generally reluctant to invest in other than essential infrastructure for their more profitable operations. Furthermore, road transporters will react creatively and will not willingly concede market share. Thus the forecasts for the profitability of concessions need to be realistic and with it the fixed and/or variable fees anticipated by government.
As far as the delivery strategy goes, it is proposed to create and concession three rail product segments out of the existing NRC infrastructure – a rail freight business, an intercity passenger service and intra city passenger services (otherwise known as mass transit) . Of the three, only the rail freight business is financially viable while the other two will require varying degrees of subsidies to survive. All three are to be operated under PPP concessions with the rail freight operator being responsible for maintaining the bulk of the infrastructure with the mass transit and inter city operators negotiating access rights with it. It is proposed however that those parts of the infrastructure where the mass transit operator is the dominant track user, it should be responsible for the infrastructure with the freight and inter city operators negotiating access rights with it.
Light rail and metro projects are reportedly underway in Lagos, Abuja, Port Harcourt, Calabar and Enugu and are contemplated in other major cities with modern infrastructure being developed specifically for these purposes. The NRC legacy infrastructure cannot compete with these services nor is it complimentary to them. It is therefore questionable as to the wisdom of trying to develop an unprofitable intra city mass transit service on the aged NRC infrastructure.
It also stands to reason that an effective delivery strategy should be incremental and focus on delivering the rail freight business first to ensure that in the event of the government being unable to meet its future funding commitments, a sustainable freight business would have more likely emerged. That given the demands on public finances from other public goods in health services, education, security, supporting agriculture and investment in other physical infrastructure such as roads, water resources, sanitation etc, the vagaries of oil prices and the scale and tenor of the required investments, it is imperative that implementation is focused on delivering the more sustainable product as a priority. Rather than attempting to deliver all three products from the existing NRC infrastructure at the same time, it would make strategic logic to concentrate on the financially viable first to enable the government exit early from continuing to subsidise the industry should public finances come under sustained pressures as they invariably do from time to time.
The immediate benefits of a sustainable rail freight business are substantial. It gets some trucks off the roads for long distance freight thereby reducing the likely incidents of road traffic accidents and emissions, reduces wear and tear on road infrastructure, added competition gives consumers wider choice and forces prices down increasing productivity and so on. The government is then in a position to take a breather from its railway investments, receive some return on its railway investments and take stock while waiting for the next upswing in oil prices to enable it return.
The rail freight operator is also better placed to provide the intercity service on its route provided it can be incentivised and guarantees provided that the government will meet its subsidy obligations timeously. This removes the potential frictions arising from two operators using the same infrastructure with one having control.
In order to deliver the desired reform effectively and efficiently, a task force approach is required. Effective reform cannot be delivered by the NRC or the Ministry of Transportation as they are interested parties and the purpose of the reform is that they will lose their current grip on the railways. The BPE which is the appropriate agency for reforming government agencies has proved unable to deliver on the big ticket items such as power, telecoms and railways because of their sheer scale. Indeed it is argued that the BPE model should have been replicated as stand alone agencies for these individual industries.
The railway task force similar to that on power will be led by a high level executive preferably from private industry reporting directly to the president and would have as its mandate, the wholesale reform of the industry. It will draw membership from the relevant government agencies, private sector and user groups. It will champion the amendment and enactment of legislation to open up the industry to broader participation, encourage enforcement of laws with regards to other transport modes to level the playing field, restructure and reorganize the NRC to transform it into an asset manager, dispose of the non core assets of the NRC, procure operations and maintenance concessionaires, create the impetus for the domestic production of rail materials and the development of the capacity for rail technology.
Implementing a reform programme would require a goal directed approach to project management. It should focus on results, work through structured breakdowns, give priority to development work, with clear and simple reporting and single point of management responsibility.
Finally, for reform to produce tangible benefits, the implementation must be sustained and consistent. Reform is a long drawn out process. It must transcend partisan politics and have buy in by a broad cross section of stakeholders. The objectives must be clear and the strategy must be consistent with the objectives. Resuscitating the railways without restructuring the industry and the NRC is a recipe for repeating the failings of the past. Importantly, communication of progress to stakeholders sets minds at rest. As we say in project management, “if they know nothing about what you are doing, they think you are doing nothing”, and it goes without saying that, “the captain always goes down with the ship”.
Thank you and may God bless us all.