By Faith Yahaya, Abuja | October 10, 2019
The federal government has signed a $3.9 billion agreement with a Chinese firm for the construction of railway from Itakpe to Abuja and construction of seaport in Warri
The agreement, which is Public Private Partnership (PPP), will have Nigeria cover 15 percent of the entire cost of the project while China Railway Construction Corporation (CRCC) will cover 10 percent.
The remaining 75 percent, according to the federal government, will be borrowed by the Special Purpose Vehicle (SPV).
To repay the 75 percent loan, the Federal government revealed that the rail would be managed by the CRCC for 30 years after which it would be handed over to the federal government.
The Minister of Transportation, Rotini Amaechi explained that the government decided to opt for PPP agreement so as to reduce the debt from loans borrowed.
He disclosed these in Abuja on Thursday during the signing of PPP railway agreement for Abuja- Lokoja rail project and construction of Warri seaport between the federal government and a delegation from CRCC led by its Vice President, Wang Wenzhong
Amaechi said: “The signing ceremony that we have today is the first PPP railway agreement for Abuja- Itakpe or Abuja-Baru-Itakpe and Lokoja and it is between Nigeria and CRCC. The agreement is to be 15% Nigeria equity and 10percent CRCC equity and then we will borrow 75 percent as SPV from the Chinese bank.
“We will give them sovereign guarantee and they will give us performance bond that protects our sovereign guarantee. When they finish construction, they will manage for 30 years. When they recover their money, the ownership of the asset will revert back to the government of Nigeria. The 15 percent covered by us will be paid gradually.
“The entire railway for now in Nigeria is constructed 100 by CRCC. I think that the good working relationship we have had with CRCC is the reason we have not been able to engage other companies.”
On transfer of technology and knowledge, the Minister said there was need for the Chinese firm to engage Nigerian engineers and contractors.
He said: “We need you to work with us to develop the knowledge of Nigerians and that is why we emphasized on the universities we are asking you to build. We are expecting that not only will you build, you will provide us with lecturers until we can train our own lecturers.
“Literally, all the railway activities in Nigeria are handled by Chinese firm. The Abuja-Kaduna that is completed was done by CCECC, and the Lagos Ibadan that is nearing completion is also handled by the Chinese.”
Giving update on the Lagos-Ibadan rail, Amaechi said: “I hope they (CCECC) will be able to complete the project before the deadline. We need you to complete it quickly and we have told you that by February, legally by law, the contract signed would have expired. I hope you will complete before that time so that we can commence commercial activities.”
Wenzhong expressed hope that construction of Ibadan dry port would commence before the end of the year.
He explained that the construction of the dry port would reduce the current gridlock witnessed in Apapa area of Lagos state.
He said: “This year, our chairman visited Nigeria and met the president of Nigeria and discussed the Ibadan dry port. As requested, we submitted the Full Business Case (FBC). With your assistance, we hope that the concession operation agreement would be signed in a short time so we can start this project by the end of this year and reduce the gridlock in Apapa.
CRCC also indicated interest to participate in the operation of Lagos-Ibadan rail line when completed. “We also wish to participate in operation of Lagos Ibadan railway project.”
Way to go!!!….. but,
Question is, what have we really agreed to? Who owns the SPV and why an SPV in the first place? Who are the directors and shareholders of this SPV?
If Kenya’s experience is anything to go by, we shouldn’t roll out the drums just yet as the ownership of their SPV is obscure and shrouded in secrecy believed to belong to proxies and fronts for public officials.
Also the PPP contract was found to be lopsided against the Kenyan govt having allegedly been largely drafted by the Chinese.
CRCC is a construction company. It does not operate railways on any scale. So it will likely sub-contract operations which is the most critical part of this contract. I suppose the performance bond it will issue covers the construction of the infrastructure i.e 4 years only out of the 30 year term. What guarantees are they (CRCC/SPV) providing for the operations? Presumably we are guaranteeing that they will recoup their investment/loan and would have guaranteed some min. revenue thresholds. If Kenya is any guide, then every time the Chinese run an empty or sub optimal train, the Kenyans pay a sum in penalties in millions of shillings. So the person who prepared the financial viability studies becomes critical in these arrangements. So to cap things, you may just find that the financial viability studies may have been done by the Chinese contractor as in Kenya implying a conflict of interest.
What portion of the track is being concessioned for 30 years? Itakpe – Abuja or Warri – Abuja? If they are building the port in Warri, then it makes sense for them for it to be the line from Warri to Abuja.
Of the $3.9bn, how much is the cost of the port vs the railway? Itakpe via Lokoja and Baro to Abuja is about 300km. How does it compare in $/km to Lagos-Ibadan and Abuja-Kaduna? How does it compare with GERC in Ghana or other builds in Tanzania and Ethiopia?
Are they paying a concession fee or is it all rolled up in the $3.9bn? That would make it incredibly cheap. Notwithstanding, how much is the fixed concession fee and how much is variable?
30 years is also an infinitely long time to recover a piddling amount like $3.9bn from port operations and a railway line. The Warri-Itakpe central line is the most financially viable railway line in Nigeria according to the world bank. With the Chinese allegedly covetting Ajaokuta steel too, a prime Nigerian asset may have just been snapped up for a song.
The most important question to ask right now is, who are the owners of that SPV? They have just hit an almighty jackpot. Heads or tails, they win.