Written by Abubakar Ibrahim | Sunday, 22 February 2009
Mr Rowland Ataguba is a UK railway technocrat and member of the Infrastructure Policy Commission of the Nigeria Economic Summit Group. The Nigerian with management consultancy experience on the privatised UK railway infrastructure and train operations, and of the London Underground metro under the public/private partnership (PPP) scheme has described BPE’s plans for the Nigerian Railways concessioning as flawed. In this interview, he raised concerns about the vertical integration model with respect to the proposed term of the concession among others. Excerpts:
What exactly is going on with our railways?
One of my deepest concerns relate to the lack of detail in the plans and the absence of public discourse. We are all agreed that we need effective railways but the discussions about what to do appear to be taking place behind closed doors, if at all. I raised these concerns at the Railway Stakeholders Forum last September. We had snippets of the plans at the last Nigerian Economic Summit Number 14 in October 2008 where the BPE Transaction Adviser outlined some headline plans but there wasn‟t enough time to fully engage him as the programme was too tight.
So what are the plans?
The plans now appear to consist of a vertically integrated five-year concession for each of the narrow gauge routes, one from Lagos to Kano and the other from Port Harcourt to Maiduguri. These would in essence be private monopolies with the government funding the rehabilitation of the infrastructure as opposed to the previous flawed plans of attracting private capital to invest in the infrastructure. The other modification to previous plans is that the concessionaires would be granted access to each others network. However, there is an old railway adage that goes, “He who controls the signals, controls the railways” and this arrangement is unlikely to create effective competition especially when an operator finds that routine maintenance is inadvertently scheduled to take place during its slot thus delaying its trains. Such actions it may be argued, would attract retaliation and therefore, sustain an equilibrium of mutual co-operation. Except cooperation between monopoly operators can easily lead to collusion thereby frittering away any benefits of competition to consumers. Such behaviour could also prevent new entrants such as miners or manufacturers who would like to run their own operations from enabling rapid expansion of the network. This places a huge burden on regulators except we do not have the experience of robust modern railway regulation either. While the BPE says that there was a healthy response to invitations for expressions of interest for the concessions in 2005, we also know that the invitations did not disclose the level of investment required.
Are there any other concerns?
Yes, there are. Another weakness in the proposals is the tenor of the concessions as there is no incentive to optimise on the rolling stock. Yes, competition for the market requires concessions of short tenor especially if the infrastructure investment by the concessionaire is minimal but experience has shown that private capital will not finance assets whose service life is considerably longer than the concession period. Rolling stock typically has a life of 15-30 years. What happens at the end of the 5-year concession if a concessionaire does not win a renewal of its franchise? Where is the Nigerian market for second hand rolling stock? What if the succeeding concessionaire has its own rolling stock arrangements and does not wish to purchase the second hand stock? This risk will be factored into bids and will ultimately lead to the government funding the shortfall either through lower bids or higher subsidies. This was the rationale for the creation of the rolling stock companies (or ROSCOs) under the British privatisation model, so you have dedicated suppliers whose sole business is leasing [and maintaining] rolling stock to operators thereby reducing barriers to entry in the operations market.
What are the alternatives?
Well, the trend in the railway industry globally is towards vertical and horizontal separation to bring about on-track competition as a panacea for efficiency and value for money. This makes it easier to regulate the competition with other modes of transportation in terms of subsidies as well. But don‟t get me wrong, vertical integration has its advantages in economies of scope and relative ease of implementation but experience has shown that its limitations are also substantial. If we are to go for vertical integration, it must be only as an initial step to get some activity going. But the long term goal should be separation. If we are to aspire to world class status, then we must appreciate that the African vertically integrated railways concession model is unsustainable in the long term as they are not commercially viable. We need to be looking at the UK, Sweden, Switzerland, Estonia, Brazil, Austria, Germany, Portugal, Netherlands, France, Denmark, Australia where rail reform has delivered tangible benefits and learn from their experiences. They require large injection of public money and it takes time to get right. There is no getting away from these facts.
What about the modernization debate? The World Bank says we are not in a position to modernize our railways because it is not economically viable to do so.
The standard versus narrow gauge saga continues. One fallacy that is being sold to us is that narrow gauge has the potential capacity to carry 100million tons of freight per year because we are told that the South African network currently carries 150million tons. However, what is not being underlined is that the South African network is 21,000km long whereas our narrow gauge network is only 3,500km single track. I would like to see a simulation of how 100m tons can be carried on our existing narrow gauge single track network with its inherent constraints. The decision to modernize and expand the infrastructure is an absolute necessity to build a modern economy. The plans just need to be revised to reflect the current financial realities. I would suggest rehabilitate, expand and modernize in that order, say over a 25-year period. That would be a sound legacy to bequeath to future generations.
The World Bank analysis unusually relies on a purely commercial approach and ignores the utilitarian and latent economic benefits to the wider community. Perhaps they haven‟t bought into the 2020 vision but to be fair, their report was written before the inception of this government and since the previous government went ahead to award the modernization contract, we can infer that the government of the day discountenanced their views.
Which leaves the modernization contract where?
If you refer to the $8.3bn contract for modernization of the Lagos-Kano route awarded at the tail end of the last government, then we know the present government says, it is struggling to fund it and is looking at alternative approaches. Can you imagine if they had also met the other contract that was about to be awarded for $10bn to the Koreans for the Port Harcourt-Maiduguri line? I have read in places about suspicions about the value of the contract. I do not have detailed knowledge to comment. The difficulty the government has is that there are contractual obligations to the Chinese contractor. While it is the prerogative of an employer to discontinue a contract, it comes at a price, financial and reputational, and the stakes at these contract values are high indeed. So a short answer to your question would be, government and the Chinese company are talking, we hear, but what seems to be the priority now is the rehabilitation of the existing network and completion of Warri-Itakpe, and so it should be.
We seem to have had so many reports written on the railways in the past by experts such as yourself but we do not seem to know better, what is the reason for this?
Yes as you rightly posit, historically, reports have been written which have simply gathered dust until they are no longer current but you cannot blame the authors if government chooses to sit on its hands. For instance, the last report was written nearly three years ago by the World Bank in March 2006, contentious in parts as it may be, which was based on a 2004 survey by Zeta-Tech which was paid for by the US government. The condition of the infrastructure would have since changed. The greatest handicap for drawing up plans for our railways is the paucity of up to date information. If we had a railway service that was effectively functional, we would have maintenance records, we would have asset registers. If we had transport research scholarships, there would be a steady steam of data and views. Information is simply lacking especially of the quantitative analytical kind.
For instance, there is currently no up-to-date detailed information on overall transport flows, shipper choice surveys, cost structure of road vs rail, detailed analysis of the economic benefits of transforming the railways etc. We have a 25-year strategic vision document which was prepared in 2002 at some cost which has since derailed even before it left the station. For anything to happen on our railways, we need a detailed condition survey and asset register. We need independent feasibility studies which must be followed immediately by action to implement agreed plans. We need to go back to the strategic vision document as a baseline, update it and derive action plans that can give us a railway service that this country richly deserves and sets us on the path to sustainable development. Most importantly, the plans need to be owned by the people so another government does not come along and start to change them willy-nilly. This means robust public discussion as we had during the IMF loan debacle during IBB‟s regime except you can‟t have debate without information. To rush into concessions without detailed and current information simply means stoking up problems for the future.
But who will implement the plans?
The plans must be implemented by competent professional project managers. Giving an engineer or anyone for that matter, the title of project manager does not make him or her a competent project manager. Project management is a highly sophisticated discipline requiring an understanding of strategic management and the imperatives of managing multi-disciplinary technical teams and a wide array of stakeholders to deliver strategic objectives. He also needs appropriate training and must have the authority commensurate with his responsibility to deliver.
Unfortunately, too many people are called project managers these days whose understanding of project management is limited to critical path networks and gantt charts or an ability to use planning software such as Primavera and do power-point presentations. Project management involves much more. The available literature suggests we do not appreciate the value of project management in the Nigerian construction industry. What we appear to practice is project coordination which is too lightweight for complex and economically risky endeavours.
What is the difference?
How much time have we got? Project management is a professional discipline whereas coordination is not. Project management separates the management function from the design and implementation functions and provides for cost effectiveness and independence. Project coordination does not and is only a constituent part of project management. The other constituents involve the selection, integration, correlation and the management of various disciplines and expertise right from inception to completion to satisfy the strategic objectives. The further layer to project management is programme management, where you have discrete projects running concurrently which have a common business purpose and need to be managed together to optimize performance and synergy. That is the short answer. Is this a new concept? No, not at all. Project management began in the US defence industry during the development of the Polaris missile and has evolved into the modern form that we practice over about 50 or so years. As you can see, we are still light years behind the rest of the world.