BY ROWLAND ATAGUBA | Tuesday May 5, 2015
The recent presidential election in Nigeria was in a sense a watershed for the railways. For the first time in its chequered history, the railways became a controversial and disputed measure of government achievement. With the incumbent claiming superlative performance in its apparent resuscitation of a supposedly long moribund railway. The opposite side countering that it was all a hoax. It was difficult for many observers to discern the wheat from the chaff.
I was guest on a popular television phone-in show in London recently to discuss the Nigerian railways and the phone lines were jammed with callers suggesting that the railways is a subject of great public interest. The impressions of the callers who got through could not however have been more confused. Perhaps the election propaganda played a part in the misconceptions.
For instance, many believed that the Nigerian railways had been moribund for 30 odd years and the Jonathan government was the first to show any seriousness in resuscitating it. This is not true as practically every government has made significant investments in the railways. While true that the railways has consistently underperformed and still does, even gone bankrupt in its history, to say that the current government performed spectacularly on the railways was simply overstating an untruth.
Another impression was that most of the equipment acquired in recent times by the Nigerian Railway Corporation (NRC) were antiquated which is also untrue. It perhaps needs underlining that the 25 locomotives from GE and much else acquired during the Yar’Adua era which are the backbone of the current railway operations, are indeed world class. Whether the capacity to optimize these high value assets or adequately maintain them exists is another matter entirely. The “refurbished” coaches and apparent capacity deficiencies have been the source of most of the adverse impressions by railway customers.
Another was that the government is building “high speed” rail lines connecting 10 southern states to the Presidents village, Otuoke, which is only true to the extent that it is not high speed nor is construction anywhere near commencing as funding is not secured yet. High speed rail is a technical term for railways operating at speeds in excess of 200km/h and are usually electric but the coastal railway will be a normal standard gauge railway line running on diesel. With the high costs of building railway infrastructure in the swamps as high as $10m (i.e. nearly N2bn) per kilometre, routing has to be based on connecting locations of key commercial interest rather than fancy ego massage. There needs to be a business case that supports a spur line to Otuoke unless a deep sea port is being sited there. It is also open to question as to the need for the line from Benin to Warri when that axis is already served by the central line route through Auchi to Warri.
Other wrong impressions may have been fuelled by what may seem like the hurried commissioning of rehabilitated railway lines perhaps for the benefit of the president’s election campaigns and the spectacle of rolling stock being transported by road to distant commissioning sites. Others include claims of completion of new standard gauge lines which inadvertently have to date still not been put into service perhaps because they have not been completed indeed or are not operations ready. The government seemed to busy itself with showcasing projects when the people were interested in outcomes and impacts. The list of “achievements” was extensive with much double counting and misrepresentation. It appeared confused where it listed Ajaokuta-Warri railway line as “completed and tested” under Kogi State, but as “ongoing” under Delta State. The government had certainly been busy, but it had been busy awarding lots of contracts while negating the urgency of restructuring the railway environment.
the manner that will offer full value for money, meet cost of operations, improve market share and quality of service, ensure safety of operations and maximum efficiency, meet social responsibilities in a manner that meet the requirements of rail users, trade, commerce, industry and general public”. In a nutshell, the enabling Act provides for the conduct of a viable and sustainable railway business by the corporation.
The NRC has never been able to live up to its enabling Act. It’s fortunes went into steep decline early from the beginning in the 60s when Nigerians took over the running of the railways. It stopped recovering operating costs from as far back as 1964. By 1978, revenue covered only 40% of the operating costs and was down to 14% by 2004. Indeed rental income from its extensive property holdings was now exceeding revenue from its railway operations. In essence the NRC has been financially unsustainable as a railway business since 1964 and it remains so to date. Its current performance is of revenue coverage of perhaps 20% of operating costs in an industry where an operating ratio of 70-80% is deemed desireable. It is caught in the classical conflict of needing to grow to seize market opportunities but lacking in capacity to fund and manage growth while burdened with a cumbersome government administrative and regulatory system. This is in addition to its conflicts of interest in operations and regulation, thus hindering and leading to stagnation in performance.
This subjects it to financial pressures for alternative sources of income which then falls on government to provide ever increasing subsidies. The business is unable to respond to the needs of its customers as its executives are more consumed with pursuing subsidies through government departments than in grafting in the market place where the railway customer resides. So it loses more market share and viability. This has been the story from the beginning and an ever ensuing bust to bust story.
For the Nigerian railway to achieve financial sustainability, it must have sufficient longer-term financial resources to cover operational costs, to invest, and to meet debt service and other financing requirements. The government is hard pressed to meet such need sustainably whereas it has other crucial roles to play in the industry in regulation and enabling the environment. Whereas there is no single set of general rules that would guarantee overall financial sustainability as it depends on multiple factors, some internal, others external to the railways. Achieving sustainability in a private sector driven railway fundamentally depends on the viability of the business. The only viable business for the private sector on the present Nigerian railways is freight. For the public sector, it is whether forecast government finances can be sufficiently elastic and robust to afford a perpetual burden and the inefficiencies that this breeds. This is compounded by the other competing demands on government resources in social infrastructure as in health, law enforcement and administration, education, security etc.
Now, with total commitments to the railways by the FG since October 2006 nudging N4 trillion and when taken together with those by state governments and private entities, this sum approaches a colossal N5 trillion. A worthy and necessary exercise is in assessing the sustainability of Nigerian railway investments. Most of this investment is secured on long term government debt by the way. Importantly is the need to fully understand the causes behind the historical under performance of the Nigerian railways and thankfully they are not far fetched. It is fundamentally that the NRC operates in a competitive market and is unable to compete with the privately run and dynamic road sector for business because it is run by government. The industry is also locked down by a law that permits only the NRC, to build, own, operate and regulate railways in Nigeria. These are then compounded by a lack of consistency and official dithering in policy implementation.
TO BE CONTINUED