By Rowland Ocholi Ataguba
The much anticipated ICRC PPP Summit has been and gone. It was well attended and refreshing to see how much interest and appetite there is for Nigerian infrastructure investment.
The ICRC led by Dr Jobson Ewalefoh is to be congratulated for putting up such a well organised event. Given all else that’s going on, it couldn’t have been easy and much kudos to he and his team is deserved.
We had a good session on rail and roads PPPs, and as is typical, roads took up most of the time.
The subject of railway PPPs is such a huge topic that deserves to have stood alone, and the post session reactions of many attendees to my presentation has been overwhelming and positive. This indicates a thirst for knowledge and participation.
The summary of which is
1. Railways require about $40bn of investment in infrastructure and operations to compete effectively and to complement the versatile and privately run, though chaotic, roads.
2. Recent AFC research reveals that there is about $1.1 trillion of institutional assets in Nigeria made up of pension, insurance and sovereign funds, commercial bank assets, and foreign currency reserves which are currently held in short term, low risk instruments. So the money is available but how do we make the railway investible?
3. The restructuring of the railway environment will create the products that would attract private investment. The process of restructuring has begun albeit belatedly with the constitution amendment which transferred railway to the concurrent legislative list. It also sets a template for the unbundling of the Nigerian Railway Corporation (NRC) into an independent rail regulator which remains exclusively a Federal Govrnment (FG) preserve, an Infraco (Infrastructure company/Asset manager) and an Opco (Operating company) which belong in legislative concurrency.
4. A bill for the repeal and re-enactment of the railway act is currently before parliament and needs to be passed as an urgent imperative, as the existing NRC Act of 1955 is in conflict with the amended constitution. The bill is the outcome of our work in the inter-ministerial NRC Unbundling committee domiciled in the Federal Ministry of Transportation(FMT). It has the inputs of various stakeholders from the FMT, NRC, National Assembly (NASS) and the private sector represented by myself and others.
5. The notion of an African vertically integrated railway concession model is old hat and a misnomer. African countries and their railway networks have different characteristics and challenges. Many of the early concessions such as Transrail and Transgabonais have not been successful and perhaps only Bollore’s African Logistics Group has stood out with Sitarail and Camrail (with Benirail not being particularly successful). It’s recent acquisition by MSC for $6.2bn being indicative of what value can be unlocked via railway PPPs. Suffice that new kid, the Lobito Atlantic railway with its interface with the TAZARA will be partially separated as is Transnet in South Africa as it moves to open access. So we must move away from the one size fits all concept and learn lessons from railway concessions experiences across the world and integrate what works for our unique environment.
6. We propose,
* A partially separated network for Nigeria with a vertically integrated national rail freight operator and horizontally separated passenger rail operators. These operators (OPCOs) will have private core investors with min. stakes of 51%, though there are doubts about the financial viability of the pax operators, and they may need PSOs.
* The Infraco known as the Nigerian Railway Infrastructure Company is based on MTR’s rail + property model but may not operate trains. It will concession its infrastructure to the OPCOs and focus on creating new assets. It, too, will have a private core investor with a controlling stake of 51% min.
* The creation of 2 ROSCOs (rolling stock companies), as an option that can lease equipment to the OPCOs to help lower barriers to entry and build capacity in rolling stock maintenance.
* The independent rail regulator known as the Nigerian Railway Authority, with wide ranging powers that is beyond regulatory capture is the fulcrum of this new environment. It issues the network and operating licences to the players including state owned railways, is accountable not just to the Minister, but the Legislature as well as interest groups for statutory public interest duties which are set out in legislation. It is modelled on the Nigerian Communication Commission (NCC) and Nigerian Electricity Regulatory Commission (NERC) and is independent of government, so the Minister cannot ordinarily dismiss or remove its members.
* The RailBOOs (rail build, own, operate) companies being mining and manufacturing companies that will obtain licences to build railway to their facilities and may connect to the public railway infrastructure. It is instructive as an example, that Mangal, Bua and Dangote are moving large quantities of coal from Kogi East to their cement plants by road. The impact on the roads is telling and unsustainable. Restructuring railway enables them to invest in the appropriate infrastructure to link their material sources to their production plants and markets. Railways owned by sub nationals also fall under the RailBOO category.
* The Minister is at the helm of this new structure. He is responsible for rail policy and issues statutory guidance to the industry. He may also issue the franchises to concessionaires on the nomination of the Infraco as such comes with the imprimatur of the President and may give comfort to investors and sub nationals.
* The residual non core assets of factories, foundries, printing presses, caterers, surplus property etc will be corporatised and privatised where they will no doubt do better than currently. Some of the property holdings will be retained and vested in the Infraco for the future expansion of the railway and the development of high yielding assets in city centre developments such as hotels, shopping malls, office and residential developments.
7. The restructured railway environment is a game changer for the Nigerian economy and will attract private capital to the railway. It will ease the burden on the FG fueling economic growth and releasing funds for other public goods such as in law and order, defence, education, health etc. It will also help introduce policies and regulations that promote the use of rail and will help strengthen the capacity for local sourcing of maintenance and construction materials, and the development of the national capacity in rail technology especially in the design and specification of standards for the local production of railway components.
8. A thriving railway sector will compete and complement the roads transferring significant volumes of freight from roads to rail especially over long distances, making the roads safer, reduce their maintenance costs and greenhouse gas emissions, and improve factor productivity.
9. Transforming the railways will not be a cake walk. The challenges that have bedevilled the sector will not suddenly disappear. The vested interests that have held it back will not relent, but we must summon the courage to face them down. The fundamental underpin is culture change as we cannot keep doing things the same way and expect a different result. Government must change its culture of perceived impunity and authoritarianism. It must realise that a PPP is a different type of relationship with the private sector as against the master-servant relationship it has nurtured with private contractors and suppliers. Disputes and differences must be settled transparently and on time and we must reduce the turnover of legislators and help them build capacity in specialist areas. We, the public must raise our expectations of those who serve us and demand better accountability. We must also learn lessons from the unbundling of PHCN.
Finally, the plug. A new book is coming out shortly published by the Nigerian Institute of Transport Technology (NITT) titled, “Thoughts on Land Transport Development in Nigeria”.
It is edited by Profs. Joshua Odeleye and Bayero Farah and is a 447 page compendium of essays by experts covering road, rail and urban transport, as well as transport technology and innovations.
Chapter 14 I think, is an essay titled, “Nigeria: Railway PPP Options and some lessons” by yours truly, Rowland Ocholi Ataguba. It is an essay that draws on the experiences of railway concessions from across the world and Africa in particular. I commend it to all stakeholders. Read all about it!