Kasim Sumaina in Abuja } 24 May 2019

The Chinese Government has advised its Nigerian counterpart to as a matter of priority, open a sinking fund and an escrow account to be able to seamlessly repay the loans which it borrowed from the Asian country for the construction of rail projects, particularly the Abuja-Kaduna rail.

Two years after the commencement of operation of the Abuja-Kaduna railway, the federal government has stated that it was yet to commence the repayment of over $500million Chinese loan for the standard gauge rail line.

The Minister of Transportation, Mr. Chibuike Ameachi, disclosed this Thursday during his valedictory press briefing in Abuja.

The minister expressed dismay that the Nigerian Railway Corporation (NRC) managing director was yet to follow his directive to create a sinking fund or escrow account that can be used to pay back the loan, saying it is important that the ministry start repayment even before the federal government starts.

Amaechi stated that the Nigerian Government is seeking another $1.8 billion from the China Exim Bank for the construction of the coastal rail line, noting that federal government had not paid any of the Chinese loans even though full commercial operation had commenced on the Abuja-Kaduna railway corridor.

According to him, “The NRC had announced that their revenue generation had increased by 400 percent in 2018 as against the revenue it was generating in 2017.

“The NRC Managing Director, Fidet Okhiria, had disclosed that in 2017, the corporation was earning N16million monthly, however, in 2018, the figure rose up to N80million monthly as against the N100million target.

“The NRC MD had initially put their cost operation on a monthly basis at N56million but later announced that their cost operation had increased to N100million, attributing it to the high cost of diesel.”

Amaechi stressed that the need to start repaying back the loan was because of the reservation of the Chinese on the inability of some African countries to repay their loan, adding that the Chinese had insisted “we open two accounts-the escrow account and the sinking fund account.”

Speaking further, the minister said: “They know I am going and that I may not come back but I want the permanent secretary to hold him to that instruction. The instruction was that all the money they realised from the Abuja-Kaduna railway line should be kept in an account and the cost operation should be removed while the remaining one should be used to pay back the loan.”

He further observed that the Chinese wanted them to put repayment fund in the sinking fund account annually while the money of the management of the operation should be put in the escrow account.

Amaechi, however, noted that the actual cost of the coastal rail line project was $2.3billion, saying the federal government was expected to pay $500million counterpart fund.

The minister, while speaking on the botched national carrier, ‘The Nigeria Air’, revealed that members of the Federal Executive Council (FEC) was divided on the modality for its establishment.

He explained that members of the federal cabinet had different beliefs and positions regarding the establishment of a national carrier for Nigeria, but noted that the project had not been abandoned.

According to him, “On the national carrier, the cabinet is divided on the issue of modality. There are those who believe that the federal government should invest and then we can sell the equity later.

“There are also those who believe that, from day one, let us get the investors involved and give them the franchise of Nigeria Airways or Air Nigeria or whatever it’s called.

“That is where we are and that is what held it down. But as for whether it is still in our plan, it is and has not been abandoned.”


HMT has directed the NRC to set up a sinking fund from which the Chinese railway loans can be repaid.

Interesting development and a great idea, except, and without prejudice to the loan agreements,

1. It sounds like an afterthought, a  knee jerk reaction to an impetus plus a bit of buck passing.

2. The loans were not contracted nor expended by the NRC.

3. The NRC does not  generate sufficient revenue to support such a sinking fund.

4. It is not known if a credible business plan nor feasibility studies  underpinning the railway loans exists.

5. Why now? The $500m Abuja-Kaduna loan was taken nearly 10 years ago. A $500m loan was also taken for Abuja light rail at the same time. $1.2bn was taken two years ago for the Lagos-Ibadan line and more loans are being sought. Was there no repayment plan in all of these years ? Have we not paid anything back in 10 years? Where is the DMO in all of these?

6. HMT’s instruction may also not be lawful as there is no provision in the NRC budgets of 2018 or 2019 for a sinking fund or the associated expenses.

Now, HMT had previously told the world that the Abuja-Kaduna pax service was being subsidized by almost N500m per annum. Whereas this ThisDay report  suggests that NRC revenues on this Abuja-Kaduna line per the MD-NRC are now about N80m/month while the cost of operations is about N100m/month. Suggesting that the subsidy is now about N240m per annum. Their figures would however need validation as they may not have amortized recurrent expenditure nor provided for spares, maintenance costs and depreciation of rolling stock. My guess is that the true subsidy on Abuja-Kaduna may be around N2bn per annum ceteris paribus. So where will the monies for the sinking fund come from?

The loan agreements were signed by the FMF and FMT, not the NRC. Indeed the contract to build the line was awarded and supervised by the FMT with the NRC reduced to spectating.

In the end, what may happen is that the NRC’s annual appropriation may just as well be increased to reflect the additional provision for the sinking fund otherwise the NRC as it stands, on its own can’t pay won’t pay. That’s probably why the MD is at a loss to obey HMT’s order to set up the fund. It may also require a supplementary budget as well.

It is also a matter of fact that the NRC doesn’t have a good track record of paying back loans. For instance, the loans it took from the FG to buy 25 no. GE  locomotives at $3m a piece in 2009 has not been paid back. Most of those locomotives are now sitting in workshops either cannibalized or seeking essential repairs due to misuse or poor maintenance. Some older locos have been sold as scrap to balance the books.

A curious dimension, in the Thisday report is the request by the Chinese for an escrow account for the operations costs alongside a sinking fund for the revenues. It would appear that  the Chinese creditor is now  trying to muscle in and have better visibility of, and probably to exercise control over NRC cashflows. An escrow account suggests that the NRC would not be able to spend any money on operations without the approval of the Chinese. It portends a slippery slope to a takeover of the asset.

If the Kenyan experience is any guide, the Chinese may also be setting the stage to refuse granting us further railway loans. Their unilateral alteration of the scope and alignment of Ibadan-Kano is already a sore point that is likely to delay the delivery of the project. A project which is already 9 years late as it is.

Now, it is usual best practice that when you approach a lender for a line of credit that you would present a repayment plan. It is curious that we are only talking about one nearly 10 years after incurring the debt and having since taken more from the same source for Lagos-Ibadan. Or is it that we presented a repayment plan so many years ago but never lived up to it?

We are also seeking more loans to build  Ibadan-Kano, Lagos-Calabar and supposedly Port Harcourt- Maiduguri. A total of about $45bn has been reported as required in new railway loans for these projects. The 2019 budget also provides counterpart funding for Itakpe-Abuja and Kano-Maradi, suggesting further loans will be sought to build these new lines. So we may easily be seeking $60bn odd in new railway loans.  These are colossal sums as $60bn is about N18 trillion and that is just to build  railway fixed infrastructure and excludes equipment and cost of operations. The first question must therefore be, is there a credible repayment plan for these loans? Short answer is, I think not. Best practices demand a robust business plan with risk management as a sine qua non.

On Coastal Rail per the Thisday report, the cost is about $12bn, not $2.8bn. Perhaps HMT was referring to the Calabar to Port Harcourt leg of it. The contract was signed in 2014 and nothing has happened since then other than HMT’s press conferences. This would suggest that five years on, we are just looking for money to build   20% of it? Are we really serious about railway or just playing politics with it? So when will we source the funds for the balance 80% and then build it? Similarly, the Lagos-Kano contract  was signed in 2006 for 4 years and is yet to achieve 20% completion nearly 13 years on. Can we really say that we are serious about railway?

At this rate, when do we expect to achieve the objectives of the 25 year strategic  vision for the Nigerian railway system  which commenced in 2002? In 2019, i.e. 17 years on, we have not achieved up to 10% of the ambitions of the 25 year vision but have already spent or committed most of the  $40bn budget with only 8 years left. So can we really claim to be serious about railway?

So what needs doing?

a) Change the law. Restructure the NRC. It should not operate and regulate at the same time. It brooks conflicts and inefficiencies. We need a new railway law and an independent regulator to open up the industry for private investment and competition. We’ve been trying to do so for nearly 20 years. It has not happened. Why not? Vested interests, principally from the NRC and truckers.

b) Bring in credible private investments. Restructuring the railway environment opens it up to private equity. Not only do they bring new money,  they bring dynamism and best management practices. We’ve been trying to do so for nearly 20 years. It has not happened. Why not? Vested interests, principally the NRC. 

c) Stop mediocrity and pandering to the lowest denominator. Whereas many Nigerians may not understand railway engineering and operations, they are not stupid. They will know when they have been taken for a ride. They hear about the trillions being expended and will in time figure out the failed promises. Hopefully not too late in the day.

d) At the macro level, the NRC needs to start to act like the business that it is. It is in competition with the dynamic  and privately run roads sector for freight and passengers. It needs to  innovate, cut costs and boost revenues. It needs to be weaned off the FG’s feeding bottle. The criteria for upward mobility of management needs to be more performance driven. It must be reformed or it will wither and die again. In short, it needs to be brought  into the 21st century.

Finally, as the scale of money required to fund railway projects go through the roof, we need a credible business plan for a start. There are a number of funding options available that we are not exploring  because the NRC is analogue and  wants to maintain the status quo of total control and the corollary of  ineptitude and sub-optimal performance that goes with it. The history of the NRC is sufficient warning to all of us. We must be particularly wary of the moves by the Chinese to intervene in the NRC operations and if we carry on as we are and do not CHANGE, it is not the NRC alone that will face bankruptcy this time

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