This paper reviews the place of the railways in Nigeria's national development. It considers options for the rehabilitation, modernization and expansion of the network and the challenges largely based on the experience of the transformation of British Rail. It also considers public private partnerships (PPP) as an appropriate procurement model for funding public infrastructure and the role of the discipline of project management in pulling it all together and delivering strategic objectives.

Importantly, it asks questions about public debate and the role of a key stakeholder - the user. In the first chapter, I set out the background to the socio political and economic pressures, and philosophy underpinning some of the changes that took place in the railways in the U.K and Nigeria in particular.

In the second chapter, I highlighted the nature of the problems confronting the Nigerian railways. My view remains that the problems are beyond just the lack of investment but more to do with systemic failure within the internal and external environment of the railway organisation which has perversely accounted for its degenerative existence. What I have termed a failure of strategic and project management.

In this third chapter, I begin to consider some of the pre-requisites for developing solutions by visiting some available business models and methodologies for addressing the problems of funding and delivering change. This includes a review of the reformation of railways in Europe, Latin America and Africa.

The changed role and circumstances of the railways in Nigeria over the last three decades has seen it move from a situation where it was carrying a high share of traffic to one in which its market share has plummeted to a reported 1% of the transport sector. Railway assets have steadily deteriorated and the quality of service has more or less collapsed. The railways are therefore no longer contributing to resolving the transport problems of Nigeria.

The essence of the Nigerian narrow guage system are two lines running inland from the coast on either side of the Niger delta. The western route from Lagos to Kano, opened in stages between 1898 and 1915, and the other, the eastern route from Port Harcourt to Kaduna junction where it meets the western route, opened between 1914 and 1926. Three major extensions were subsequently constructed, to Kaura Namoda in the northwest and Nguru in the northeast, both completed by 1930 and a long branch from the eastern line to Maiduguri.

The Nigerian railway system has a diagonal orientation, with few cross-country links, and connects with only the sea ports of Lagos and Port Harcourt. Since the 1960s, poor maintenance and management, inadequate funding, declining traffic and the effect of various civil disturbances, particularly the civil war, have contributed to a deterioration of the rail system.

In 1978, RITES of India were brought in to manage and rehabilitate the system, which continued until 1982. During the succeeding seven years, there was again a steady deterioration until 1988, when the Nigerian Railway Corporation (NRC) was declared bankrupt. Following the compulsory redundancy of about 25 percent of the workforce, the remainder then went on strike for six months, effectively shutting the system down.

Brig Samuel Ogbemudia (rtd) was appointed Sole Administrator in 1989 and succeeded in reviving the railways but, on his departure, matters again deteriorated, reaching what was thought as its nadir in 1993, when only 157,000 tonnes and just over half a million passengers were carried.

In 1992, a standard-gauge line was constructed to link the steel works at Ajaokuta to the iron ore works in nearby Itakpe. The line is being extended to connect to the steel plant in Aladja, near Warri and the port, now known as the central route. This project (as well as the Ajaokuta plant) is years behind schedule and grossly overspent. Following severe damage to finished sections of the uncompleted new line caused by heavy rains, repairs are reportedly being undertaken but a timetable for the completion of the line is as yet unclear.

Another round of rehabilitation of the legacy narrow gauge lines, part funded by a grant from the Chinese government was to follow in 1997.

This was to rehabilitate the infrastructure over a five-year period as a prelude to privatization. It was then expanded into the controversial "modernization" contract for the Lagos-Kano, western route for $8.3bn which has stalled and is under review by the Yar'Adua government.

By 2005, after several re-organisations, passenger services had declined to four departures weekly from Lagos, of which two went to Kano, one to Jos and one to Maiduguri while from Port Harcourt, four trains every week ran to Kano (i.e. two per fortnight), one per week to Jos and one to Maiduguri.

As at 2006, freight volumes had crashed further to 50,000 tonnes while passenger volumes "improved" to one million passengers but was nowhere near the numbers it carried in its heydays. While the NRC had employed about 45,000 people between 1954 and 1975, the head count was now down to under 7,000

In late 2006, the Obasanjo government decided to transform the entire existing narrow gauge (1,067mm) network to standard gauge in the twilight of its tenure. The NRC claimed that the rail system was suffering from a lack of political will by the nation's politicians, not conceding that it had any part of the blame..

In July 2008, the Accountant-General of the Federation, Alhaji Ibrahim Hassan, told a Senate Committee that since 1999, his office had released a total of N967 billion to the Ministry of Transportation, of which N124 billion went to the railways.

In a document "Transport Sector and Milestones Planned for 2008" , the Ministry of Transportation outlined the Ministry's vision for the Railway as to rehabilitate the existing lines via private sector participation in the funding and operations of the railway lines, encourage intermodalism by extending the railway lines to Tin Can Island and Onne Ports and also by establishing Inland Container Depots (ICD's) at strategic stations along the line, ensure that the railways became a veritable tool for relieving the heavy duty cargo tonnage on the roads, reform the railways by unbundling the current institutional set up to ensure that the Regulator was distinct from the service provider, articulate a long term vision for the railways to be embodied in a Master plan also known as the 25 year strategic vision, ensure the passage of the Railway Bill and the establishment of a regulatory framework for private sector participation in railway operations.

The role of the railways in much of Africa also has changed greatly in the last three decades and is likely to change just as much in the next few. In comparison with recent times, most of the railway systems carried a substantial share of their country's traffic thirty years ago, because competing road transport lacked good infrastructure and may have faced restrictive covenants. Some railway customers of the time were well established large businesses who were locked into rail either through physical connections or if they were parastatals, through policies which compelled them to use a co-parastatal.

In the intervening period, the economies of African states in general, and transport in particular, have become more liberalized. Stronger competition from road transportation has ensued as road infrastructure improved comparatively, leading to significant loss of market by rail.

The railways in sub-Saharan Africa, as in much of the rest of the world, has taken a long time to respond to their changed circumstances. Few of the other railway authorities, other than Spoornet of South Africa perhaps, invested significant sums of their own, or their government's funds, in rehabilitating and renewing infrastructure. Such investment as there was, other than for purely mineral movements, usually came from bilateral and multilateral donors. As this typically arrived after the damage had been done, and in some cases not at all, the African continent is littered with railways that can best be described as "prostrate" or walking wounded."

A helpful initial step perhaps would be to clarify what the terminologies, 'public services', 'public sector', and 'public organization or institution' which we use rather generically actually mean. How they relate to the railways in particular and how public services are delivered elsewhere, in say the UK.

A public service is any service provided for large numbers of the population, in which there is a potential significant market failure (broadly interpreted to include equity as well as efficiency) justifying government involvement whether in production, finance, or regulation.

These may typically be in areas such as law enforcement, refuse collection, and primary education. Health services and transport may be included too, but patterns of provision would differ.

Transport in particular has a crucial role in helping to resolve the nexus of issues associated with energy, land use, urbanization, and climate change.

Affordability concerns not only the poor and destitute, but also freight economy aimed at improving competitiveness and stronger economic growth which cuts across all transport modes and services. It is predicted that by 2020 road accidents will become the third largest contributor to the global burden of mortality and injury. Greater emphasis on safety can therefore be strongly justified in these terms.

The public sector comprises the economic activities controlled by the government, many of which are public services. A particular concern has been that public sector enterprises, not subject to the discipline of the competitive market place, may lack incentives to control costs or provide quality services and respond to the needs of consumers.

Hence, the role of the public sector has become the subject of a wider debate in terms of the activities which ought to be carried out by public sector organizations and what role the private sector should play in public service delivery?

One of the the greatest conundrums of neo-classical economics is how to make the public sector work efficiently. Supply side economics in the 1970/80s was driven by this imperative. Margaret Thatcher was its high priestess in the U.K, partnering with Ronald Reagan in the USA during this period. Thatcher drove through radical reforms in areas such as labour law and created the platform for the Private Finance Initiative(PFI), the sole purpose of which was to enable efficiencies in the public sector procurement of goods and services, such as in health and education.

The study of public organization examines the appropriate structures for delivery of public services in an attempt to provide perspectives on what motivates public sector employees and how activities can be designed to maximize their effort and commitment. When are high-powered employee incentives required and when is it more important to focus on the ethos? How should funding be allocated to organizations when the government is the primary purchaser?

Should competitive pressures be created on the organizations? If so, should this be done literally through private market pressures or through benchmarking exercises with funding attached? Should the government purchase services or physical assets? When is it useful to have for-profit and not-for-profit models? The answers are unlikely to be the same for all public services and may even differ for different modes of transport.

Public services may not necessarily be funded and delivered by the public sector, although the public sector will be involved in some way most likely in regulation. The rationale for public-sector involvement would depend on the nature of the service which may also influence the type of involvement required. In some important services, the rationale comes mainly from the supply side. Thus in transport and utilities, where there are networks and natural monopoly elements, the primary public role is to overcome market failure, notably prevention of abuse of market position.

This may take the form of direct control of production and investment, although many countries have privatized these services in recent years.

However even if assets are privately owned, and the service is funded by directly charging consumers for what they choose to consume, there may be a need for some price and quality regulation.

For some other services, the rationale for intervention may lie on the demand side. For instance, where it is not possible to charge consumers directly, as in the case of non-excludable public goods, such as law enforcement, defence, and public administration, the government funds the service, paying for it on behalf of all consumers. It also produces these services, at least in law enforcement and defence, the government's role is central.

Most governments fund education, although there are some public good aspects, the primary concern is that many individuals cannot, or will not, pay for education themselves. Since the government has an interest in the type and quality of education that is produced, there may be reasons for it also to participate in production by owning and managing schools and employing teachers. Alternative arrangements are possible, say for example, higher education which may be "purchased" from private institutions with minimal regulation.

Similarly, while health care is substantially privately provided in many countries (but with regulation of providers to address pervasive information problems) the government may be involved on the demand side, purchasing health care directly on behalf of some or all of the population, or ensuring access through a social insurance scheme. In health and education we can identify potentially serious market failures, but efficiency is not the only rationale for intervention, there are also merit-good and equity arguments.

The standard interpretation of basic results in welfare economics that equity objectives should be achieved by income redistribution and consumption decisions left to individuals, rather than intervening in particular markets may not be applicable. In the case of merit goods, individuals may not make privately optimal decisions, perhaps due to a lack of knowledge of the potential benefits or myopia. This is the primary justification for compulsory education.

A problem with any framework to deliver public services is that those delivering the service may have far better information than the public institution. This disparity allows them to pursue goals that may not necessarily coincide with society's objectives. The old fashioned 'model' of simply creating a public sector agency that would be expected selflessly to pursue the required objective is no longer accepted as tenable. It is therefore essential to understand how to design activities to elicit correct information from 'agents' responsible for delivery, and to put in place structures so that the incentives availed the agents coincide with society's objectives. This of course may be easier said than done.

The Nigerian railways therefore meet the definition of a public service and the NRC under the 1955 Act as amended in 1990, is a public organization (or institution).

The boundary between the public and private sectors may seem obvious but can be blurred at times. For example in the UK, the National Health Service (NHS) is usually regarded as an entirely public provider of health care, however throughout its history, primary health care has been provided by General Practitioners (GPs), who are self employed sub-contractors to the NHS, owning the assets, often including the premises, of their practices.

To illustrate the complexity of issues of ownership and control in public-service production, consider a government, G, that wants a service to be provided for a group of consumers. Let's say for argument sake that the service is produced using two inputs, an "infrastructure" and operatives.

P is a private company. In theory, any of the following arrangements is possible.

A. G owns the infrastructure, employs the operatives, and produces the service.

B. P owns the infrastructure, but leases it to G. G employs the operatives and produces the service.

C. G owns the infrastucture, but leases it to P. P employs the operatives, produces the service, and sells it to G.

D. G owns the infrastucture, but leases it to P. P employs the operatives, produces the service, and sells directly to the consumer.

E. P owns the infrastructure, employs the operatives, produces the service, and sells it to G.

F. P owns the infrastructure, employs the operatives, produces the service, and sells directly to the consumer.

Arrangement A is clearly public sector delivery. Similarly, F is private sector delivery although the government may still play a significant role in regulation, and P could be a non-profit firm.

E is private production with the government having no role except as purchaser of services supplied by the private sector which it then delivers to consumers. B, C and D may be harder to define. In B, the government employs the resources, physical and human. The government has the right to control these resources, and to decide how they should be deployed to produce the service, subject to the contractual nature of the lease on the infrastructure. Although it does not own the physical asset, it could have residual control rights for the period over which the infrastructure is leased. In this sense we can think of the service as being publicly produced. However, when contracts are incomplete, ownership typically exerts a powerful influence on the outcome.

Similar arguments apply to C and D. The service is privately produced but again this will depend on the nature of the "infrastructure" lease contract.

Note that, although the 'public versus private' debate is usually couched in terms of ownership, it is not the ownership of the physical asset itself that determines whether production is deemed public or private, it is who has the right to control it that matters. For this reason, the contractual structure is important. In fact, if complete contracts were easy to write then the arrangements above would operate very similarly were the producer of the service (G or P) to lease the infrastructure from a third party.

Furthermore, there is no substantive distinction between human and physical capital in this respect. The owners of human capital are the operatives themselves, and the producer leases their human capital for a period.

All the above arrangements can be observed in modern public service production in the U.K. For schools and hospitals, A is the traditional, and still the most common, arrangement, and F is the next most common form.

B corresponds to a PFI (Private Finance Initiative) contract which is a form of Public Private Partnership (PPP), where a private firm agrees to build a school or hospital infrastructure and leases it to the public sector.

An arrangement similar to C has recently been adopted for a small number of failing schools where a private company enters into a contract to manage the school, but the buildings remain the property of the local education authority.

D is a concession contract and is generically known as PPP which could take various forms such as DBFT(design, build, finance and transfer), DBFM (design, build, finance and maintain), DBFO(design, build, finance and operate), DBFOT(design, build, finance, operate and transfer) and could be observed in the railways with train operating companies (TOCs) contracting to operate train services and on the highways with tolling arrangements.

E is observed in higher education, and where the public sector contracts with private hospitals to provide surgical operations. In primary health care, arrangements C and E are both observed where some GPs own their own premises, others work in health centres owned by the National Health Service.

The prison service uses all of the arrangements A, C, and E, while the majority of prisons operate according to model A, some are now privately owned and managed, others are still publicly owned, but management is contracted to a private-sector company.

There is however a wider debate raging about the role of government in the production of public services and as demonstrated above, increasingly governments are willing to roll back and allow a far more central role for private capital in the provision of public services. Notwithstanding, there have been philosophical arguments about what some consider as, the abdication of government responsibility in protecting the weak or disadvantaged and conversely its empowerment of the unfettered exploitative tendencies of private capital.

In Nigeria, this has centred more on the perceived problems of opaqueness in transactions and allegations of nepotism and corrupt practices in the provision of public services. Where services have so deteriorated such as in the railways, it becomes difficult to defend its continued longer term sustainability as a public sector provision.

In theory all the arrangements A to F may be possible on the Nigerian railways but a number are unlikely to be feasible given the prevailing circumstances of lack of institutional capacity. A is the status quo which has failed, though less to do with the model than issues of institutional and environmental integrity. Now, where efficiency and innovation are central concerns and respond well to competitive pressures, quality and price can be relatively precisely regulated when necessary, and consumers are able to meet directly most of the cost of delivery, then regulated private-sector delivery is appropriate.

It is debatable whether all the enterprises that were privatized and those slated for privatization in Nigeria fulfilled these criteria, but the privatization programme has been motivated, at least in part, by the belief that private ownership would increase efficiency, although political dogma and macro accounting convenience have also been significant imperatives.

Any way it is viewed, the public sector remains the bulwark in the provision of public services and systemic integrity is a key ingredient in assuring private capital provides the necessary impetus for efficiency gains and value for money at the heart of the objectives of the seamless delivery of public services. Thus, when the SPV known as Investors International London Limited (IILL) bid $1.32bn for 51% of the then publicly owned telecoms company, NITEL, it quickly became apparent that it had not adequately allowed for the risk attendant to operating in a Nigerian environment where the public sector interface could be deemed a potential downside and exponential cost centre. It is therefore no surprise that IILL was unable to raise the required financing from the market to meet its commitment having emerged as the preferred bidder.

The subsequent valuations of NITEL probably reflected the risk more realistically and unfortunately in a less hospitable climate. The interface between private capital and the public sector spans a wide spectrum from regulation, law enforcement and the judiciary, through statutory undertaking, law making and legislative oversight and until there is confidence that the public institutions work efficiently and serve the public good credibly, then efforts to encourage private capital infusions into the public services may meet with limited success.

The term privatization is generally used when ownership of assets is moved to the private sector and the funding for the activity comes predominantly directly from consumers. However, the government may also adopt a halfway house of Public Private Partnership (PPP), contracting with the private sector for the provision either of services to consumers, or of important inputs to the production of these services (models B - E).

The PPP model is output based over a defined period, thus enabling the public organization to focus on setting policy and the outputs it wants to achieve rather than the means of delivery. It involves a transparent and competitive process to drive efficiencies and innovation to produce the most economically advantageous solution. It also involves the categorization and allocation of risk to the party best able to manage, control and absorb it. Other key features include, the whole life approach, value for money, benchmarking and unitary payment.

In a typical PPP transaction, the public institution contracts with a special purpose vehicle (SPV) which in turn procures the building of a relevant asset and its subsequent servicing from specialist sub-contractors. It is not unusual for the specialist sub-contractors to have an equity stake in the SPV.

Within this general model, the delivery mechanisms differ according to the form and length of contract and the extent that specific physical assets are tied to the enterprise (or project). The term "Private Finance Initiative" (PFI) normally refers to cases where there is significant asset ownership by the private sector and, as a result, contract durations are very lengthy. The terms "contracting out" or "franchising" are usually reserved for cases where there is less (if any) specific asset investment and, as a result, contract terms are shorter (e.g. 3 or 5 years). Now the form that a PPP takes determines the duration of the agreement, as well as the parties that receive the rewards and benefits. This will affect the overall risk adjusted net present value (NPV) that will be returned to each party.

With nearly 700 closed deals, the U.K PPP model now has a proven track record which has become a reference point for its adoption across the world.

The PPP model however is not without its difficulties. The model for instance is inflexible and works best where it is possible to precisely define the outputs at the outset and is not well placed for projects where technology or customer demands is constantly evolving, such as projects involving significant investment in IT.

PPP is also susceptible to higher than usual procurement costs especially as a result of the practice of competitive dialogue which increases procurement durations thereby further raising the cost of an unsuccessful bid and the cost to the procuring authority (i.e. the public organization).

In the U.K, the treatment of PPP expenditure has also met with criticism as a means for the government to hide debt off balance sheet in preference to prudential borrowing. With the adoption of International Financial Reporting Standards (IFRS), these items are now to be moved to the balance sheet, thus assuaging the critics. The government has also accepted that the PPP model is ineffective in some circumstances and is increasingly considering alternative approaches.

An alternative to PPP is what is known as "Strategic Partnerships", where the parties (public-public or public-private) aim to achieve strategic goals rather than a defined set of outputs. The BSF (Better Schools for the Future) and LIFT (Local Improvement Finance Trust) programmes are the best known British Strategic Partnerships.

In these instances, it is believed that Strategic Partnerships are more efficient in procurement, produce scale economies, enable the public institution to focus on strategic long term objectives, enable flexibility and thus in-built continuous improvement, shared costs and rewards, better market appeal and supply chain management.

The Strategic Partnership model draws heavily on the lessons learned from PPP and shares many of its characteristics. It is therefore being increasingly recommended for large scale projects which are likely to grow in size in discrete phases, such as urban metros, especially in the light of the failure of Metronet, the London Underground PPP.

In a typical strategic partnership transaction, the public sector will procure a private sector partner in much the same way as the PPP model.

However, as the long term strategy is to be developed between the partners, bidders cannot be selected on the basis of defined outputs, instead the approach is more outcome based.

Essentially, the public institution will invite proposals for a strategic partner on the basis of ability to provide partnering services and to provide a small sample of schemes which will be based on fairly well defined outputs enabling objective evaluation. The sample schemes becoming the future phases to introduce synergies and efficiencies into the process. The public institution then forms a joint venture (JV) with the successful bidder to plan and manage the long term investment strategy. The JV then becomes an umbrella organization which delivers the individual projects either through PFIs or other conventional procurement routes such as design and build (D&B).

The key requirement is that the phases are stand-alone which may necessitate the creation of separate SPVs where PFIs are used. A period of exclusivity is built in with the private sector partner committing to a programme of continuous improvement through successive stages of work. The JV is also obliged to contract-out to deliver subsequent stages where it is unable to demonstrate value for money through its existing supply chain.

During the 1980s, the Thatcher government began to encourage the use of contracting-out. From 1986, hospitals were required to 'market test' non-clinical services. They were also encouraged to buy surgical operations if these could be performed more cheaply by a private hospital, although this constitutes a low proportion of expenditure. Compulsory competitive tendering (CCT), requiring local government to invite private firms to tender for provision of services in competition with in-house providers, was introduced in 1988, but abolished by the Tony Blair's government in 2000, on the grounds that quality was being sacrificed in pursuit of cost-cutting.

The U.K. privatization programme transferred over £60 billion of assets from the public to the private sector between 1979 and 1997. In the case of public services, the main utilities telecommunications, gas, electricity, water, bus, and rail were transferred to the private sector and, with the exception of buses, specific regulatory agencies were set up to deal with the newly privatized entities.

Two important lessons are derivable from the British privatization programme. First is that the impact on the privatized sectors, which were not all beneficial, has been far greater than most observers expected and, second, the regulatory mechanisms have proved far more susceptible to the problem of information rent than anticipated. Both issues are closely related as the lack of information that made the former unexpected also implies that information problems are likely to be significant.

Some international surveys of studies of privatization have concluded, that privatization "works", in the sense that divested firms always become more efficient, more profitable, and financially healthier, and increase their capital investment spending. However an extensive study in the UK, compared the post-privatization and nationalization periods for 11 industries, and concluded that they failed to identify any systematic improvement in performance. Although the profit rate had risen in eight of the industries, only six showed higher labour productivity growth, and total factor productivity growth fell in all but two cases. Other studies however concluded, that liberalization is critical in obtaining the full benefits of privatization that, "privatization is necessary but not sufficient".

A problem in such studies is that the welfare effects on consumers are rarely examined. Benefits of efficiency frequently go to shareholders or can even appear in extremely high quality standards that may not reflect consumer preferences. It is therefore difficult to conclude that private ownership unambiguously improves the welfare of consumers.

Privatization of public services cannot be assessed independently of the accompanying regulatory regimes, and regulation has not proved easy in the U.K nor in Nigeria. Part of the problem is 'political' rather than economic. The stock markets along with everyone else perhaps, failed to recognize the full extent of the potential profitability of the companies.

Even setting aside the specific gains to small shareholders, share prices at privatization typically did not reflect the potential for efficiency gains and information rent. If they had been so, regulators might have had more flexibility. Instead, high returns for shareholders made the regulators anxious to claw back where possible, thus raising barriers to entry and compromising key aspects of the business model. Regulation in general, has not proved as light-handed or short-lived as expected at the start of the U.K. privatization programme.

An obvious question is how far the privatization model can be pushed in the delivery of public services. The privatization of the U.K railways is instructive in this regard, having resulted in the first failure of a privatized utility. The structural separation of rail and station provision from train operation, in conjunction with the separation of regulatory oversight between the Office of Rail Regulation (itself containing disparate regulators), the Strategic Rail Authority, and safety regulators is generally thought to have caused some difficulties though the regulation issues have now been rationalized.

Furthermore, the contracts between Railtrack and the train operators were extremely complex, forcing the regulator to set a target of achieving "stronger, sounder, and simpler" contracts as a primary focus of the reform programme that ensued.

Railtrack's inability to withstand a massive cost shock exposed the shortcomings of both the company and the regime of regulation. The Hatfield derailment was identified as caused by cracking of the rails and, following investigation, 6,000 similar sites were found in the national network. The cost of correction and disruption to the network was quite substantial. Speed restrictions had to be placed on the identified defective sections of the network. Whereas delays had been running at less than 2 minutes per 100 train kilometres up to the derailment, they jumped almost five-fold in the aftermath and are not expected to return to pre-crash levels until 2010. Despite all the regulatory reforms that preceded the Hatfield crash, another fundamental review followed. This was then superseded by Railtrack going into liquidation when the government refused to enter into what it saw as an open-ended commitment to allow the company to meet its obligations.

Following a review of options, a new not-for-profit company, Network Rail, was created to perform Railtrack's obligations. The experience of Railtrack raises doubts over the role of the fully privatized model where the government itself plays a large role in the funding of the enterprise.

To some extent the blurred incentives and responsibilities, both on the regulatory and the company's side, were the result of the original privatization model and have been much improved, but the problem is deeper since, in the final analysis, it was the government that decided the future of the business and the returns to shareholders, not the independent regulator.

Perhaps the most significant innovation in railway organization in recent times has been influenced by Directive 91-440 and follow on orders of the European Commission opening national networks to operations by all qualified carriers. While Directive 91-440 explicitly requires only that infrastructure accounts be separated from operations accounts, it implicitly requires that social passenger services, intercity passenger services, and freight services be accounted separately to show that state subsidies are limited to social passenger services. The order has launched a clear trend in the European Union toward institutional separation of infrastructure from operations by creating a perception of infrastructure as a state responsibility and operations (except for social services) as commercial.

An eventual result of institutional separation will be franchising (concessioning) or even privatization of most freight services and possibly intercity passenger services. British Rail has shown that total privatization is a possibility, and Germany's Deutsche Bahn AG and the Italian Ferrovie dello Stato announced plans to privatize freight services as an initial step. Romania also announced plans to privatize CFR Marfa, its freight services business, though it indicated no plans to privatize the infrastructure. CFR Marfa had indeed attempted to buy MAV Hungary, the cargo division of the Hungarian transportation operator but backed down in the face of stiff competition from companies in Germany, USA, Netherlands and France. A bid which was subsequently won by Rail Cargo Austria. However, recent turbulence in global financial markets may influence the timing of these developments. Deutsche Bahn in particular has faced intense opposition from the unions and other stakeholders to its plans.

The PPP concession model however cannot be reduced to a simple recipe. In defining a concession, government has to specify many of the same dimensions such as the term, concessionaires' rights and obligations, the bidding process, investment responsibility, the tariff regime, and rules for renegotiation etc.

Railway concessions in Africa of recent times have included Camrail (Cameroun), Transgabonais(Gabon), Sitarail(Ivory Coast/Burkina Faso), RSZ(Zambia), Beira(Mozambique), CEAR(Malawi), WACEM (Togo), Transrail(Senegal/Mali) etc. The main characteristic is that they have mostly been vertical integrated concessions and associated with substantial investments principally in infrastructure. These investments however have been financed for the most part by bilateral and multilateral lenders. Concessioning has thus been, in most cases, a necessary condition for investment in the sense that much of the finance would not have been made available if governments had not adopted a concessioning policy. Much of the investment has been to catch up with maintenance and renewal backlogs, without which there would often be no functioning railway. They can therefore be characterized as "one-off" investments to get the systems back on their feet.

In general, African railway productivity post-concessioning has improved overall with the active searching for new traffic by concessionaires and the improvement in internal business practices helping to improve railway cost structure and, perhaps more importantly, lifting the level of service, thus helping to attract traffic to the mode which can carry it most efficiently.

Productive efficiency has also improved. Labour productivity has increased steadily in all the concessions which have operated in the near term, say for over five years and similar figures are likely to come from the more recent concessions. Asset productivity has also generally improved.

Allocative efficiency is difficult to measure directly but the evidence is generally positive. There is however no doubt that concessionaires do two things which tend to improve the allocative efficiency associated with passenger transport: Firstly, they are more likely to draw the government's attention to passenger services that are losing them money and thus raise the issue of more economic alternatives. Secondly, if they must operate uneconomic services, they generally try to do so in the most efficient way possible, with particular emphasis on revenue collection. In general, most of the African concessionaires have lived up to the passenger service requirements contained in their concession agreements, even where it has been operationally difficult for them to do so, or where promised Public Service Obligation (PSO) payments have not been received as agreed.

Notwithstanding, many of these services are a hangover from previous years and the passengers served would often be far better, and almost always more economically, served with a basic road based system.

Concessionaires faced with significant losses on such services are likely to be far more pro active in pushing for the alternatives to be considered than a state run rail system as both see the service from different prisms.

Few of the African concessions are now immune from road competition, except where roads have still to be constructed or there is heavy mineral traffic. Nevertheless, there have been no noticeable instances of where concessioning has led to services being reduced so that resources could be redeployed to favoured users.

The key question to ask though is: Can these concessions be really self sustaining in the sense of being sufficiently solvent to ensure renewal of assets in the long run, or will the railways be back, either during the existing concessions, or at the end, requiring another dose of investment to prepare them for the next concessionaire? It remains unclear whether, having been granted the investment funds as loans at concessionary rates by the bilateral and multilateral agencies, any of the African railway systems will be able to finance major future renewals of infrastructure, either through concessionaire injections or from their internally generated returns.

The evidence to date is that few, if any, of the concessions are generating significant profits for their operators and certainly not enough to fund longer term renewals. Although most concessions pay substantial concession fees into general government revenue, it is unlikely that any could really afford to if they had been properly accruing funds for future renewals.

It therefore remains an open question as to whether a purely privately financed rail concession model is achievable in much of Africa in the foreseeable future.

Furthermore, an important factor in many competitive markets is that, increasingly, being a rail operator is not enough. Instead the railways need to provide a complete transport service, covering the full journey from origin to destination. Conventional railways are poorly equipped to do this, both physically and bureaucratically. They do not have the capacity to be sufficiently operationally and commercially flexible to respond to issues along the whole length of the logistic chain.

Concessionaires have the commercial freedom to deal with such issues and it is revealing that worldwide, railways are increasingly being operated as just a part of a transport business.

Experience from Latin America has shown that, although all concessions are different, there are several common panacea. For instance, the term of the concession must be consistent with the government's objectives for the balance between public and private investment. In general, private capital will not finance assets whose service life is significantly longer than the term of the concession. A further risk factor for the prospective Nigerian concessionaire is the life of the government vis a vis the life of the concession as experience has shown that when the government changes, the fiscal perspectives shift substantially.

Furthermore, public enterprises tend to lose interest in their operations and maintenance as soon as plans for concessioning are announced. The concessioning process must therefore be finished as quickly as possible, once begun. Thus the plans to privatize the railways by the Obasanjo government announced as far back as 2002 led to inertia in the NRC as not only was there no further investment, it was a foregone conclusion that the NRC would disappear as constituted, except that it did not.

Railway concessioning has lowered employment levels in the countries where concessions have been awarded, so a qualitative programme for dealing with redundant labour is vital. A situation where redundancy and pensions payments remain outstanding indefinitely is wholly undesirable and can create further uncertainties.

Risks should be borne by the party best able to manage them. It has been argued that retaining the environmental risks of cleaning up already polluted facilities may be acceptable for the government, but taking the commercial risk of projecting demand and the cost of operation may be questionable. However, this pre-supposes that private capital would be so interested in expending substantial resources in undertaking such exercises especially in environments where there is a paucity of data such as in Nigeria where asset registers and holistic condition surveys are either non existent or out of date.

Concessions inherently require continuing government involvement in regulating safety, anti-competitive behaviour, and compliance with the pricing and service requirements of the concession. This does not necessarily mean creating an elaborate new regulatory mechanism where they already exist, but the government cannot walk away from its transport concessions once they are established.

The government must fulfil its obligations under the terms of the concession agreement. A few, though controversial, concessionaires in Nigeria have claimed that the Obasanjo government did not live up to its obligations under their concessions and caused their apparent under-performance.

Defining how the "winner" will be selected needs to be handled carefully. Ideally, precision in procurement would suggest that all factors should be defined accurately and price alone should be the determining factor. However the reality is that even compliant bidders never price their services/outputs in the same way thus some subjectivity in evaluation is always necessary. Notwithstanding, allowing the concessionaire optimal initiative requires broad performance specifications from government, followed by flexible offers from the private concessionaire.

The issue of price needs the utmost consideration. There may be a choice between, say maximum payment to government (or minimum payment by government) and minimum tariff. There may also be a choice between unrestricted bidding and pre-qualification followed by bids only from those so pre-qualified.

There are only informed choices, and calculated risks as there are no universal templates for resolving these issues. Various countries have approached their problems slightly differently, providing different insights into what can be achieved through concessions.

A few common trends are however discernible. For instance, restructuring and substantial government investment in the design of the concession model does pay off. If allowed to, concessionaires could do exactly what is expected i.e. increase traffic, improve service, and enhance labour and asset efficiency.

Concessions work because political interference is ended and commercial management techniques are brought to bear. However, what is clear is that reforming a complex industry is a long-term process. Putting in place mutually supportive legislative, institutional and management structures to deliver substantial change takes a great deal of time and effort.

Gradualism in this process and consistency in application can be a merit if it reflects a well thought out series of steps towards an agreed outcome. Unfortunately gradualism has sometimes simply reflected a lack of clarity in ultimate objectives or a post-hoc rationalization of indecision and delay.

The concessioning form itself, giving the government ultimate title to infrastructure and equipment, can be an inhibition to external private financing for riskier franchises unless the government provides mitigating guarantees.

Concessioning has demonstrated that it can revive railway operations large and small assuming that there is market demand for the network's services as presently configured. Where major rehabilitation and/or reconfiguration are required, however, a strategic partnership model involving a greater public role may be more effective within the appropriate framework.

The experiences from Latin America, Central Europe and Africa show that both positive concessions (where the concessionaire pays the government an agreed sum for the concession rights) and negative concessions (where the government pays the concessionaire for operating and maintaining the property) are possible. So loss-making but socially necessary services can also be concessioned.

Further, structural change is only a means to an end. It is not of itself sufficient to improve performance. The government can create the structural platform for improved industry performance but only managements can deliver it. While there have been notable exceptions, most railway administrators and engineers who rose through the ranks to become top managers within command economy or public sector structures did not turn into market-focused business managers overnight just because the law changed.

Moreover, many of the most senior positions in railways remain the subject of political patronage and are not necessarily filled on commercial merit. Much greater emphasis needs to be given to investing in the actual process of business change management, attraction of new skills and experience from inside and outside the industry, creation of a commercial culture, development of incentivised pay structures and so on.

Similarly, mere structural separation of railway infrastructure from rail operations, fundamental as this may be, cannot of itself improve business performance. It may infact, in the short-term at least, impede it by becoming too narrow a focus of reform and delaying the business culture and process changes, in both infrastructure and operations, which will actually improve asset and labour utilization. If separation is favoured, it needs to be followed closely by rigorous business plans in both infrastructure and train operating companies to improve performance.

A key lesson from the Europe and Central Asia (ECA) region is that one structural model is unlikely to be best fit for all parts of it. In particular, for small railway networks with low density operations, a pre-occupation with structuring into very small infrastructure and operating units would be a misplaced priority when survival depends on a combination of aggressive cost cutting and agile marketing.

A fair assessment of the Latin American railway concession performance would conclude positively overall, but will not support a doctrinaire conclusion that private sector management of railways is the exclusive solution or that the public sector does not have a major role to play in railway sector investment.

Rail reform could never be a 'fire and forget' process. While the government may wish to retain ownership of large parts of the industry, if it is to be an effective owner, it would need to establish its own mechanisms to ensure proper industry governance and supervision, agree challenging business plans, monitor achievement and take action to hold management accountable for performance including retaining step-in rights.

A key lesson learned from railway reforms across the world is that it is very difficult to reverse course once a concession contract has been finalized and management turned over to a private sector operator.

Despite their positive accomplishments, more than fifty percent of the Latin American concessions have been in technical violation of their contracts, but there has not been a serious move toward voiding contracts and either renationalizing or transferring the concession to another private party. Painful re-negotiations and admonitions may, in some cases, have nudged concessionaires to marginal changes in investment levels, service improvements or rate decreases that they may not otherwise have made.

The uncertainties generated by continuing disputes over concession contracts however are not conducive to the concessionaire obtaining financing for system improvements or for expanding its own commitments. The concessionaires have the greater leverage after the transaction is completed and appear guided in their investment commitments and scope of service offerings principally by the near-term profitability of the enterprise (or lack thereof), whatever assurances were given during the bidding process. The initial structuring of the transaction process to select competent bidders with adequate financial resources is therefore critical.

Those countries which have embraced third party access for freight train operators while retaining state-owned rail freight companies may have created a serious policy disconnect. It is difficult for a publicly owned freight company to be fully competitive against private train operators in markets which are notable for the need for optimum corporate agility.

Trying to do so will probably lead to increasing losses to the state company, as the newcomers could cherry-pick the best routes, declining company value, and problems in trying to divest at a later stage. A more practical course, still open to most countries would be to privatize existing freight operations while they still have value, ahead of giving track access rights. They could then introduce those rights after a defined period which will allow the newly privatized company to get its house in order ready for the competition.

For most railways, reform will not necessarily mean stand alone profitability. Four of the highreformers in the ECA region (Bulgaria, Hungary, Poland and Romania) have modest average traffic intensity and a high component of passenger service. They all require substantial levels of budgetary support for the foreseeable future both for investment and the support of passenger services. In most European circumstances, railway passenger transport is not independently commercially viable in the sense that it is able to cover the full costs of infrastructure.

Provision of a comprehensive national passenger rail service is a matter of public policy choice. Public finance constraints however dictate that much of the emerging economies simply do not have the income levels to support the level and coverage of passenger rail service which is currently being offered.

Finally, markets themselves will not stand still. Competition from other modes will increase in all transport markets worldwide. New transport needs will emerge with economic transition and development. Railway reforms are therefore chasing a moving target. The objective of rail reform should not be to achieve a given end state but to create an industry which is itself capable of future adaptation to markets without constant policy intervention.

This chapter has highlighted the available models for the delivery of public services. It has also reviewed railway reform from around the world.

Next, I will review the influence of competition and competition law in ensuring value for money and enabling efficiency in service provision. In the process I would also look at the pros and cons of vertical integration and seperation, and horizontal integration and separation. I will also examine the role of Project Management as a vehicle for the delivery of strategic objectives.

Finally I will examine the existing British Railways model and outline my prescription for a sustainable Nigerian railway system.

About the Author

Rowland Ataguba is a management consulting professional with over 20 years hands-on delivery experience and record of achievement as a programme manager and entrepreneur, managing complex multi disciplinary projects across international boundaries particularly in the UK and Nigeria.

He is a Director of Bethlehem Rail Infrastructure Limited, London and is also a member of the Infrastructure Policy Commission of the NESG .

He is a 1988 MBA and holds a MSc in Project Management from Henley Management College, Oxon, and his background is in Architecture, Quantity Surveying, Construction and Building Management.

His business interests include management consulting in construction and infrastructure, agriculture, procurement and commodity trading.

He describes his passions as railways, jazz music, swimming, tennis and some cricket.

He is married with 3 children.